MALAWI UNIVERSITY OF BUSINESS AND APPLIED

SCIENCES (MUBAS)

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTANCY

PROGRAMME: BACHELOR OF ACCOUTNANCY

COURSE NAME: STRATEGIC MANAGEMENT

SUBMITTED TO: E. MTHUNZI.

SUBMITTED BY: GROUP 3

1. VILLANT NG’OMA (BAC/20/SS/057)

2. KAREN MSUKWA (BAC/20/SS/048)
3. SHIRAZ MAUNDALA (BAC/19/SS/037)
4. MUBEEN KAUNDA (BAC/20/SS/028)
5. ALINAFE MAPONDO (BAC/20/SS039)
6. CHARLES MALETA (BAC/20/SS/035)

DUE DATE: 26 March 2024

 PORTFOLIO MATRICES
1.1 INTRODUCTION
Managers play a crucial role in overseeing the different parts of their portfolio and making strategic
decisions on how to manage and optimize each business unit within it. In order to effectively
manage their portfolio, managers often utilize different models that take into consideration various
criteria such as the balance of the portfolio, the attractiveness of the business units and the fit
between the business units.

1.2 GROWTH/SHARE (or BCG) MATRIX

One of the most well-known models used by managers is the growth/share (or BCG) matrix which
was developed by the Boston Consulting Group in the early 1970s. it is a strategic tool used by
businesses to analyze their product portfolio and make decisions about resource allocation. This
model categorizes businesses into four categories: stars, question marks, cash cows and dog
(Johnson et al, 2008).

1. Stars
Stars are business units with high market rate and high growth rate. They have the potential
to develop to become future cash cows, generating high profits for the business. They
require high investments as they have a high growth rate, therefore, companies should
invest heavily on start in order to capitalize on their growth potential.

2. Cash Cows
Cash cows are business units with high market share and low growth rate. These are the
products or services that generate steady profits for the business. Companies should
continue to invest in cash cows to maintain the market share and profitability.

3. Question Marks
Question marks are business units with low market share but high growth rate. Questions
require a significant investment to reach their full potential. They are likely to become stars
or dogs, therefore companies should carefully evaluate them and decide whether to invest
in them or divest them.
 4. Dogs
Dogs are business units with low market share and low growth rate. They do not generate
significant profits for the business, in fact use up the companies’ time and resources.
Companies should consider divesting in dogs to focus more on profitable products or
services.

An example of a company that can be analyzed using the BCG matrix is Apple Inc. Apple’s
portfolio includes various products and services, each positioned differently in terms of market
share and market growth rate. Here's how some of Apple's key products and services could be
categorized within the BCG matrix:
1. Stars: Apple's iPhone lineup can be considered a star product. The smartphone market
continues to grow rapidly, and iPhones consistently maintain a significant market share,
particularly in premium smartphone segments.
2. Cash Cows: Apple's Mac computers and services such as the App Store and Apple Music can
be categorized as cash cows. While these segments may not experience significant growth
compared to newer products, they still generate substantial revenue due to their established
market dominance.
3. Question Marks: Apple's wearable devices, such as the Apple Watch and Air Pods, could be
classified as question marks. These products operate in rapidly growing markets (e.g., wearable
technology), but Apple's market share may be lower compared to competitors.
4. Dogs: Products that no longer contribute significantly to Apple's revenue or growth, such as
certain accessories or older product models, could be considered dogs. These products typically
have low market share in mature or declining markets.
By using the BCG matrix to analyze Apple's product portfolio, the company can make strategic
decisions about resource allocation, investment priorities, and market expansion strategies. For
instance, Apple may decide to invest heavily in promoting its question mark products to increase
market share or to divest from certain dog products to focus resources on more promising
opportunities (EdrawMax, 2022).

1.2.1 Key benefit of BCG matric

One of the key benefits of the BCG matrix is that it helps companies prioritize their resources and
investments based on the potential of each unit in their portfolio. By identifying which product or
unit falls into each category, companies can make informed decisions about where to focus their
efforts for maximum growth and profitability. For example, a company may choose to invest more
in its stars to capitalize on their high growth potential, while also maintaining its cash cows to
continue generating steady profits. At the same time the company may decide to divest its Dogs or
reposition its question marks to improve their market share and profitability (Hayes, 2023).

1.2.2 The growth/share matrix as it relates to the balancing of portfolios

As previously stated, the Boston consulting group (BCG) matrix places emphasis on the market
share and the growth rate of business units in a parent company’s portfolio. With that in mind, the
BCG matrix categorizes business units as being of either low growth rate or of high growth rate.

The BCG matrix operates by following the understanding that high growth rate business units
attract high investment costs that need to be covered if the business unit is expected to grow.

In order to cover these costs, managers using the BCG matrix will pick out high performing low
growth rate business units that generate surplus revenue and use this revenue to fund the required
investments in the high growth rate business units. This creates a balance or equilibrium within
the portfolio whereby the low growth rate business units directly provide support to the high
growth rate business units (Johnson et al, 2008).
1.3 The Directional Policy Matrix (GE McKinsey)
The Directional policy was developed in 1970 by the conglomerate General Electric company,
hence also known as the GE McKinsey Matrix. This is another portfolio matrix tool used in
corporate strategy to analyze strategic business units based on two dimensions: Industry
attractiveness and competitive strength. Since large corporations often consist of multiple business
units the management in this case often asks themselves how they should best manage each of
these businesses. The GE McKinsey tool, therefore, provides a systematic framework that can
guide management to prioritize which business to invest, protect or harvest or divest.

The framework is based on 3 degrees, low, medium and high, plotted on a grid with two axes. The
horizontal axis represents the market attractiveness, which indicates the potential growth and
profitability of the business unit in the market where it operates. The vertical axis represents the
competitive strength, reflecting the competitive advantage and capabilities of a business unit. The
illustration below figure 1. shows the GE McKinsey Nine box matrix (de Bruin, 2021).

A nine-box matrix is plotted based on the degrees of industry attractiveness and competitive
strength to come up with 9 different scenarios and corresponding strategic actions. The three main
strategic actions useful for making strategic decisions are invest / grow strategy, selectivity /
earnings strategy and the harvest / divest strategy. These strategic actions provide a way for
considering appropriate corporate level strategies based on the positioning of each unit on the
matrix.

1.3.1The Invest/ Grow Strategy

A business unit reaches this strategic action if it is operating in a medium to highly market
attractiveness and a medium to highly competitive strength within that industry. This can be due
to factors such as high growth rate and a potential increase in the profitability for the market
attractiveness, and a strong competitive advantage and capabilities of the business unit against
other business units in the market segment in which it operates. In such a scenario, the business
unit has a high potential for growth, therefore, the strategic action is to invest in the assets and
capital of the company to grow. In this scenario the business units have a strong competitive
advantage in attractive markets, and thus, investment and growth should be prioritized (Bruin,
2021)

1.3.2 Selectivity / Earnings strategy

This is a tricky scenario for business units. This position is reached when a business unit either has
a highly attractive market and a low to moderate competitive strength, or when a unit has a highly
competitive strength and a low to moderately attractive market. A business unit in this scenario
must adopt a selective approach in resource allocation so that more resources are allocated to the
desirable quadrant for maximum earning generation (de Bruin, 2021) Additionally, the business
unit might also assess and mitigate the risks that come with operating at such a level of moderate
market attractiveness and competitive strength.

Harvest / Divest Strategy

This scenario is achieved when a business unit is operating in a less attractive market and in a
weak competitive strength market. In this scenario it is best for a business unit to divest or harvest
its resources to free up resources that can be utilized elsewhere. When divesting, a business unit
might sell off its assets and use the proceeds to invest and grow other business units. On the other
hand, harvesting requires a business unit to only get resources it needs for sustaining the business,
while reaping the benefits that the investment that were not fully earned. This, however, leads to
divesting the business unit in the long run, after it has received as much earnings as possible.
Illustration of how NBM uses the GE McKinsey Matrix
National Bank of Malawi can be used as an example. National Bank of Malawi (NBM) identifies
segments of the market with high growth potential and where it possesses a strong competitive
advantage. These are areas where the bank should allocate significant resources to capitalize on
growth opportunities. NBM observes a growing digital banking services demand in the urban areas
The market for digital banking is expanding rapidly (high market attractiveness) due to increasing
internet penetration and smartphone adoption. The bank has invested heavily in developing user-
friendly mobile banking apps and online banking platforms, gaining a competitive edge (highly
competitive strength) over its competitors. As a result, the bank decides to Invest more, Invest/
Grow strategy, to further enhance its digital banking offerings, expand its reach to underserved
areas, and strengthen its position as a market leader in digital banking services.

NBM operates a network of branches across the country, serving both urban and rural customers.
While the overall market growth for traditional banking services is moderate, the bank enjoys a
substantial market share and brand recognition (highly competitive strength). In this scenario, the
bank's strategy is to protect, selectivity/ earnings strategy, its existing market share by maintaining
high-quality customer service, optimizing operational efficiency, and leveraging its branch
network to serve customers effectively. The bank continuously monitors market trends and
customer preferences to adapt its services accordingly, ensuring sustained profitability in the
traditional banking segment.

Lastly, NBM operates a small network of ATMs in remote rural areas with limited banking
infrastructure. However, the usage of these ATMs remains low, and the market potential for
expanding banking services in these areas is limited (low market attractiveness). Additionally, the
bank faces competition from other financial institutions and informal banking channels in these
regions (low competitive strength). Therefore, the bank decides to divest from its underperforming
ATM network in rural areas and reallocates resources to focus on expanding its digital banking
services in more profitable urban markets, where it has a stronger competitive advantage and
growth potential.

Relevance of the Matrix

The directional policy matrix is more complex compared to the BCG matrix, but it gives a better
alternative for strategic decisions. It offers a couple of advantages to strategic management
including the use of multiple factors that are combined to determine the two dimensions of the
matrix and the acknowledgement of the possibility of a difficult middle ground shown by the
selectivity / earnings strategy (Johnson et al, 2008).

1.4 THE PARENTING MATRIX

The parenting matrix is an important criterion for including businesses in the portfolio. This matrix
was developed by Michael Goold and Andrew Campbell. The parenting matrix evaluates the
relationship between a parent company and its individual business units or subsidiaries and how
fit they are with each other in terms of potential synergies or to the extent to which the parent
company will be good at looking after them. The parenting matrix uses two dimensions to assess
this fit between the parent company and its business units; feel and benefit (Johnson et al, 2008).

1. Feel
Feel refers to the emotional or subjective perception of the parent company towards its business
units. It measures the fit between each business unit’s critical success factors and the
capabilities of the corporate parent. It assesses the strategic importance or attachment the
parent company feels towards each business unit.

2. Benefit
Benefit refers to the tangible or financial advantages that the parent company derives from its
business units. This measures the fit between the parenting opportunities, or needs, of business
units and the capabilities of the parent. It assesses the contribution of each business unit to the
parent company's financial performance, profitability, and growth.
The two dimensions, Feel and Benefit, have the power that makes it easy to see that a corporate
parent should avoid running businesses that it has no feel for and derives no benefit. The
illustration below shows four kinds of businesses along these two dimensions of feel and benefit:

a) Heartland businesses units

This is where both the feel and benefit dimensions are high. A heartland strategy balances
emotional connection with practical outcomes. It focuses on both fostering a positive
workplace culture and achieving strategic objectives, such as market expansion,
innovation, and financial growth.
b) Ballast business units
This is where the parent understands well but can do little for. A ballast strategy might
prioritize employee satisfaction, company culture, and social responsibility over immediate
financial gains. While this approach fosters a positive work environment and employee
loyalty, it may not always yield immediate or tangible benefits in terms of profitability or
market share.
c) Value trap business unit
This is where the feel dimension is low but the benefit dimensions are high. It prioritizes
practical outcomes, such as short-term profits or market dominance, often at the expense
 of employee morale or long-term sustainability. While this approach may yield immediate
gains, it can result in high turnover, ethical concerns, and reputational damage over time.

d) Alien business units

This is where both dimensions are low. It may involve neglecting both employee well-
being and strategic objectives. It could result in a disengaged workforce, poor performance,
and ultimately, limited business success. This approach fails to address the emotional or
practical needs of employees and the organization, leading to stagnation or decline.

In a nutshell, by considering both "feel" and "benefit," the Parenting Matrix helps executives make
informed decisions about resource allocation, investment priorities, and strategic direction for each
business unit. It enables them to identify which units require nurturing, holding, harvesting, or
divesting, based on their perceived strategic importance and financial performance within the
broader portfolio of the parent company (Grant, 2016).

1.5 CONCLUSION
Managers must carefully consider the balance of their portfolio, the attractiveness of their business
units, and the fit between them in order to effectively manage their portfolio. By utilizing models
such as the growth/share matrix/the directional policy matrix and the parenting matrix, managers
can make strategic decisions that will drive growth and profitability. These models provide a
structured approach to portfolio management, helping managers make informed decisions that will
ultimately lead to success.
References
Bruin, L. D. (2021, March 21). Business-to-you. Retrieved from www.business-to-you.com:
https://www.business-to-you.com/ge-mckinsey-matrix/#:~:text=The%20GE-
McKinsey%20Matrix%20%28a.k.a.%20GE%20Matrix%2C%20General%20Electric,and
%20the%20competitive%20strength%20of%20a%20business%20unit.

de Bruin, L. (2021, April 14). B2U- Business-to-you. Retrieved from business-to-you.com:

https://www.business-to-you.com/ge-mckinsey-matrix/amp/

EdrawMax. (2022). edrawmax. Retrieved from edrawmax.com:

https://www.edrawmax.com/article/apple-bcg-matrix-analysis.html

Grant, R. M. (2016). Contemporary Strategy Analysis. New Jersey: John Wiley & Sons.

Hayes, A. (2023, December 21). Investopedia. Retrieved from investopedia.com:

https://www.investopedia.com/terms/b/bcg.asp

Johnson, G., Scholes, K., & Whittington, R. (2008). Exploribg Corporate Strategy (8 ed.). London:
Pearson Education Limited.