Tag: growth share matrix

In turbulent markets, firms need portfolio agility–the ability to quickly and effectively remove resources from businesses that have stagnated or no longer fit a company’s strategy and reallocate them to promising opportunities. Before shifting resources among them, executives often  categorize units within a portfolio using frameworks such as the growth share matrix. Despite its widespread use, this framework gives a static snapshot of a portfolio at a point in time and overemphasizes the benefits of scale.

An alternative approach to mapping a portfolio begins by dis-aggregating an organization into components that correspond to opportunities, recognizing that these units vary by life-cycle stage-i.e., start-up, scaling the business, maturity, and decline. Opportunities begin 

Contrary to the conventional wisdom in management, companies need not pass through a life-cycle. Rather, individual opportunities pass through a life-cycle beginning with the start-up stage, followed by scaling the business, maturity, and decline. It is more accurate to view firms not as a monolithic entity, but as a portfolio of opportunities at various points in their individual life-cycles.  How can executives visualize the businesses in their portfolio to manage them more effectively?

The standard method for evaluating a firm’s portfolio is to array them using a two-by-two matrix, such as the Boston Consulting Group’s popular growth-share matrix. The vertical axis of this matrix measures the growth rate of the market, and indirectly cash usage, since faster growing markets typically require more investment to keep pace. The horizontal axis measures market share, and indirectly cash generation, under the assumption that businesses with a higher share of the market tend to throw off more profits. Combining these axes generates the familiar quadrants of the matrix, including the cash cows (low growth, high share), stars (high share, high growth), dogs (low on both dimensions), and question marks denoting businesses with low share of a growing market.

The matrix provides executives with a snapshot to consider resource allocation among units, identifying cash cows, for example, that could fund investments in rising stars, while looking to disinvest from dogs and puzzle over question marks. Although portfolio planning using the BCG and related matrices took hold in many companies, laboratory experiments and empirical studies find no evidence that these tools improved performance, and suggest on the contrary they lead to sub-par

Leading in turbulent times

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Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.