Convenience

Managing Diversification
However an organization implements diversification—
whether through internal development, vertical integration, or mergers and acquisitions—
it must monitor and manage its strategy.
Portfolio management techniques
are methods
that diversified organizations use to determine in which businesses to engage and how to
manage these businesses to maximize corporate performance. Two important portfolio
management techniques are the BCG matrix and the GE Business Screen.
BCG Matrix
The
BCG (Boston Consulting Group) matrix
provides a framework for
evaluating the relative performance of businesses in which a diversified organization oper-
ates. It also prescribes the preferred distribution of cash and other resources among these
businesses.
29
The BCG matrix uses two factors to evaluate an organization’s set of busi-
nesses: the growth rate of a particular market and the organization’s share of that market.
portfolio
management
techniques
Methods that
diversified
organizations use to
determine in which
businesses to
engage and how to
manage these
businesses to
maximize corporate
performance
BCG (Boston
Consulting Group)
matrix
A framework for
evaluating
businesses relative
to the growth rate of
their market and the
organization’s share
of the market
Chapter 3:
Planning and Strategic Management
7 9
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The matrix suggests that fast-growing markets in which an organization has the highest
market share are more attractive business opportunities than slow-growing markets in
which an organization has small market share. Dividing market growth and market share
into two categories (low and high) creates the simple matrix shown in Figure 3.4.