Week 6: Growth-share Matrix

Question 1

Growth-share Matrix

Answer 1

Corporate strategy tool and it applies to firms with diversified product portfolio.

Displays product portfolio in a scatter graph based on firms products relative to market shares and growth rates.

Helps to prioritise their businesses to effectively manage capital and talent allocation, make divestment decisions.

Financial view only!

Question 2

Growth-share Matrix axes

Answer 2

X-axis: RELATIVE MARKET SHARE
market share of the firm relative to its largest competitor.
* Firm 25%, competitor 25% = 1:1
* Firm 25%, competitor 50% = 1:2
* Firm 25%, competitor 12,5% = 2:1
Y-axis: MARKET GROWTH RATE
the annual growth rate in terms of total turnover in a market category
Rules–>
> 10% = invest
0% - 10 % = hold
< 0% = divest

Question 3

Growth-share Matrix components

Answer 3

1. Stars
   Market share: H
   Growth: H
   Since high growth attracts competitors, require funding too stay competitive. Tend to be front runners due to a strong unique selling point.
2. Cash Cows
   Market share: H
   Growth: L
   Should be milked for cash, as investments are wested in other growth opportunities.
3. Question Marks
   Market share: L
   Growth: H
   To become leaders high investments need to be made, but it is risky so that it does not become a pet. Goal is to turn it into a star.
4. Pets
   Market share: L
   Growth: L
   Best they can do is brake-even.
   Should be divested

Question 4

Success sequence

Answer 4

Relocating talent and cash.
Reallocate income and cash from cash cows to the question marks with hope to turn it into stars. If the industry becomes stable the cycle is successful.
EX. Tencent

Question 5

Disaster sequence

Answer 5

When firms use cash from cash cows to fund pets. Firms even can take away cash from stars to fund question marks, losing market share they become pets.