Question

If you were VP of strategic planning for a large multi-busines company, would you use portfolio planning techniques in your work? If so, for what purposes? If not, why not? Would your preference be to use the GE-McKinsey nine-box matrix or the BCG matrix? Explain the rationale behind your choice.

Answer 1

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I consider portfolio planning to be an integral method for managing a multi-company strategy. This will be used to help determine businesses' potential for success across each of their sectors, provide advice about what to do within each sector, and provide ideas about how to distribute resources through sector. Portfolio planning will also allow the plans to comply with the company's business objectives. As a large multi-business organization, it is considered important to have a portfolio that is balances and diversifies through risk, length, time, and technologies. Effective preparation of the product portfolio will also ensure that the resources are sufficiently available and adequate to achieve these objectives.

BCG matrix categorizes in two dimensions as low and high; market share, and business growth. The GE-McKinsey is a matrix of nine frames. This analyses the portfolio of companies, offers more strategic consequences and helps determine the investment needed for each business unit. It is considered an improved version of the BCG matrix. So I'd prefer nine-box matrix GE-McKinsey. The nine box matrix plots the business units on 9 cells indicating if the organization will invest in a venture, harvest / divest or carry out more research on the project and invest in it if any resources still remain. The two axes are a unit's attractiveness to industry and competitive power. It also takes more variables into account as compared to the matrix of BCG. The factors considered in industry attractiveness include the SBU's market size, market growth rate, market competitiveness, competitive intensity / rivalry, overall business return risk, entry barriers, price pattern opportunities to differentiate, demand volatility symmetry, distribution structure, and technology development. The variables considered for competitive success are asset success and expertise, market position, market share development opportunities, brand power, consumer satisfaction, relative cost structure, relative competitiveness, delivery efficiency, manufacturing capability, innovation record, management intensity and exposure to financial and other investment capital.