Chapter 5 (Portfolio/BCG Matrix, Porter's Five Forces Model, Porter's Competitive Strategies)

Portfolio

The mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation.

Portfolio Strategy

Having a balanced mix of business divisions (strategic business units/SBUs), which have unique business missions, product line, competitors, and markets.

BCG Matrix (Axes)

X-Axis: Market Share (High → Low), Y-Axis: Business Growth Rate (Low → High)

BCG Matrix (Quadrants)

Top Left: Stars (High market share and business growth rate), Top Right: Bright Prospects (Low market share and high business growth rate), Bottom Left: Cash Cow (High market share and low business growth rate), Bottom Right: Dogs (Low market share and low business rate)

Stars

A business that is rapidly growing and expanding.

Bright Prospects

A new venture. Risky: Few become stars and the rest are divested.

Cash Cows

Used to finance bright prospects and stars.

Dogs

Business not to be invested in. Only kept if there is some profit, otherwise they are divested.

Diversification Strategy

Strategy of moving into new lines of business.

Related Diversification

Moving into a new business that is related to the corporation’s existing business activities.

Porter’s Five Competitive Forces

Potential New Entrants (Low or High Barriers), Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of Substitute Products, and Rivalry Among Competitors

Five Competitive Forces (Internet)

Potential New Entrants (Internet reduces barriers to entry), Bargaining Power of Buyers (Internet makes being informed easier), Bargaining Power of Suppliers (Internet gives companies more control over suppliers, suppliers get better access to customers), Threat of Substitute Products (Internet creates new substitution threats), Rivalry Among Competitors (Internet has made distinguishing companies from each other more difficult).

Porter’s Competitive Strategies (Generic Strategies)

Differentiation (Q1), Cost Leadership (Q2), Cost Leadership Focus (Q3), Focused Differentiation (Q4)

Differentiation

Broad and distinctive. The strategy is to distinguish firm’s products or services from others in the industry, through use of creative advertising, distinctive product features, exceptional service, or new technology to create a product perceived as unique.

Cost Leadership

Broad with low costs. The strategy is to seek efficient facilities, pursue cost reductions, and use tight cost controls to produce products more efficiently than its competitors.

Cost Leadership Focus

Narrow with low costs. The strategy is to seek efficient facilities and cost reductions, while offering to a more narrow target market.

Focused Differentiation

Narrow and distinctive. The strategy is to offer to a narrow target market with the perception of product uniqueness at a premium price.