Principles of Strategic Management: Corporate Level Strategies - Portfolio Matrices, BCG Matrix Stars, Cash Cows, Dogs, Question Marks GE McKinsey 9Box

What This Is

Portfolio matrices are strategic tools used to evaluate and manage a company's portfolio of products or businesses. They help organizations prioritize investments, allocate resources, and make informed decisions about which products or businesses to grow, maintain, or divest. For example, Apple uses the BCG matrix to evaluate its product portfolio, categorizing its iPhone as a "star" (high growth and high market share) and its Apple Watch as a "cash cow" (low growth and high market share).

Key Frameworks & Tools

• BCG Matrix: A 2x2 matrix that categorizes products or businesses into four quadrants: Stars (high growth and high market share), Cash Cows (low growth and high market share), Question Marks (high growth and low market share), and Dogs (low growth and low market share).
• GE McKinsey 9-Box Matrix: A 3x3 matrix that categorizes products or businesses into nine quadrants based on market growth rate and business strength: High Growth/High Strength, High Growth/Low Strength, Low Growth/High Strength, Low Growth/Low Strength, and five additional quadrants for products with specific characteristics.
• Ansoff Matrix: A 2x2 matrix that categorizes business growth strategies into four quadrants: Market Penetration (increasing market share in existing markets), Market Development (entering new markets with existing products), Product Development (introducing new products in existing markets), and Diversification (entering new markets with new products).
• SWOT Analysis: A framework for identifying a company's Strengths, Weaknesses, Opportunities, and Threats to inform strategic decisions.
• Porter's Five Forces: A framework for analyzing the competitive forces that shape an industry, including the threat of new entrants, buyer power, supplier power, threat of substitutes, and rivalry.
• VRIO Framework: A framework for evaluating a company's resources and capabilities, considering their Value, Rarity, Imitability, and Organization (ability to capture value).
• Balanced Scorecard: A framework for evaluating a company's performance from four perspectives: Financial, Customer, Internal Processes, and Learning and Growth.

Step-by-Step Application

1. Conduct a BCG Matrix Analysis:
   • Identify the company's products or businesses and their market growth rates and market shares.
   • Plot each product or business on the BCG matrix.
   • Evaluate each product or business based on its quadrant and make recommendations for investment, divestment, or maintenance.
2. Use the GE McKinsey 9-Box Matrix:
   • Identify the company's products or businesses and their market growth rates and business strengths.
   • Plot each product or business on the 9-box matrix.
   • Evaluate each product or business based on its quadrant and make recommendations for investment, divestment, or maintenance.
3. Apply the Ansoff Matrix:
   • Identify the company's business growth strategies and categorize them into one of the four quadrants.
   • Evaluate each strategy based on its potential for growth and profitability.
   • Make recommendations for investment, divestment, or maintenance.
4. Conduct a SWOT Analysis:
   • Identify the company's Strengths, Weaknesses, Opportunities, and Threats.
   • Evaluate each factor based on its potential impact on the company's performance.
   • Make recommendations for investment, divestment, or maintenance.
5. Analyze Porter's Five Forces:
   • Identify the competitive forces that shape the company's industry.
   • Evaluate each force based on its potential impact on the company's performance.
   • Make recommendations for investment, divestment, or maintenance.

Common Mistakes

• Mistake: Confusing industry attractiveness with competitive position.
  • Correction: Industry attractiveness refers to the overall attractiveness of the industry, while competitive position refers to the company's relative position within the industry.
• Mistake: Using the wrong level of strategy.
  • Correction: Companies should use the appropriate level of strategy (e.g., corporate, business unit, functional) based on the scope and complexity of the decision.
• Mistake: Failing to consider the company's resources and capabilities.
  • Correction: Companies should evaluate their resources and capabilities using frameworks like VRIO to inform strategic decisions.

Case Interview / Exam Tips

• Tip: Be prepared to analyze complex scenarios and make recommendations based on the BCG matrix, GE McKinsey 9-Box matrix, Ansoff matrix, and other frameworks.
• Tip: Use the Balanced Scorecard to evaluate a company's performance from multiple perspectives.
• Tip: Be able to distinguish between related and unrelated diversification strategies.

Quick Practice Scenario

A company has low market share in a high-growth industry – where does it sit on the BCG matrix?

Answer: Question Mark (high growth and low market share).

Explanation: The company has high growth potential but low market share, making it a Question Mark on the BCG matrix.

Last-Minute Cram Sheet

• "Stuck in the middle" means trying to do both cost leadership and differentiation without achieving either – not a valid hybrid strategy unless operational excellence is present.
• The BCG matrix categorizes products or businesses into Stars, Cash Cows, Question Marks, and Dogs.
• The GE McKinsey 9-Box matrix categorizes products or businesses into nine quadrants based on market growth rate and business strength.
• Ansoff's matrix categorizes business growth strategies into Market Penetration, Market Development, Product Development, and Diversification.
• Porter's Five Forces analyze the competitive forces that shape an industry.
• VRIO evaluates a company's resources and capabilities based on their Value, Rarity, Imitability, and Organization.
• The Balanced Scorecard evaluates a company's performance from four perspectives: Financial, Customer, Internal Processes, and Learning and Growth.
• Related diversification involves entering new markets with related products or services.
• Unrelated diversification involves entering new markets with unrelated products or services.
• Market growth rate is a key factor in the BCG matrix and GE McKinsey 9-Box matrix.
• Business strength is a key factor in the GE McKinsey 9-Box matrix.