Page 26 - Portfolio Analysis

PRODUCT PORTFOLIO STRATEGIES

As sales of individual products increase or decrease and as markets
expand and contract then the nature of the company's product portfolio will
change. It is imperative therefore that the whole portfolio is regularly
reviewed and that an active policy of new product development and
divestment of aged products is pursued.

Discussions about the PLC are usually conducted in terms of product
sales or profits. However, none of these measures of performance shows
the resources made available for further development. A better measure is
cash flow: this is a key determinant of the company’s ability to develop its
product portfolio. The BCG realised this and devised a means of
classifying products within the portfolio according to cash usage or cash
generation.

Each of the four basic categories which arise in the BCG matrix as a result
of this classification system - STAR, Question Mark/PROBLEM CHILD,
CASH COW, and DOG - gives an indication of the market position and
prospects of a product in each segment. It also reveals a set of strategy
alternatives that, generally, are applicable to the portfolio entries in that
segment.

The art of product portfolio management is to develop a mix of products
that in cash terms will be more or less self-funding. Thus, over time one
might expect products to move through the segments of the matrix (see
figure 12).