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Explain how businesses and the attractiveness of industries are evaluated using the General Electric approach. When a firm has multiple strategic business units like PepsiCo does, it must decide what the objectives and strategies for each business are and how to allocate resources among them. The Boston Consulting Group (BCG) matrixBoston Consulting Group (BCG) matrixA portfolio planning approach that examines strategic business units based on their relative market shares and growth rates.
The BCG matrix helps managers make resource allocation decisions once different products are classified. Holding market share means the company wants to keep the producta€™s share at the same level. As competitors enter the market, technology advances, and consumer preferences change, the position of a companya€™s products in the BCG matrix is also likely to change. Another portfolio planning approach that helps a business determine whether to invest in opportunities is the General Electric (GE) approachGeneral Electric (GE) approachA portfolio planning approach that examines a businessa€™ strengths and the attractiveness of industries.. Companies evaluate their strengths and the attractiveness of industries as high, medium, and low. Although many people may think a yellow light means a€?speed up,a€? it actually means caution.
What factors are used as the basis for analyzing businesses and brands using the BCG and the GE approaches? BCG Matrix - BCG Matrix Framework - Boston Consulting Group MBA Framework - BCG Business Model.
A group of businesses can be considered a portfolioportfolioA group of business units owned by a single firm., just as a collection of artwork or investments compose a portfolio. The same question or problem arises when a product has a low share of a high-growth market. When a firm pursues this strategy, it only invests what it has to in order to maintain the producta€™s market share. The company has to continually evaluate the situation and adjust its investments and product promotion strategies accordingly. The GE approach examines a businessa€™s strengths and the attractiveness of the industry in which it competes. The firms then determine their investment strategies based on how well the two correlate with one another.

Companies with a medium rating on industry attractiveness and business strengths should be cautious when investing and attempt to hold the market share they have. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them. In order to evaluate each business, companies sometimes utilize whata€™s called a portfolio planning approach.
Managers classify these products as question marks or problem childrenquestion marks or problem childrenBusinesses or offerings with a low share of a high-growth market..
One strategy is to build market share for a business or product, especially a product that might become a star.
When a company decides to harvestharvestWhen a firm lowers investment in a product or business.
The firm must also keep in mind that the BCG matrix is just one planning approach and that other variables can affect the success of products.
As we have indicated, a businessa€™ strengths are factors internal to the company, including strong human resources capabilities (talented personnel), strong technical capabilities, and the fact that the firm holds a large share of the market. As FigureA 2.16, a€?The General Electric (GE) Approacha€? shows, the investment options outlined in the GE approach can be compared to a traffic light. If a company rates itself high on business strengths and the industry is very attractive (also rated high), this is comparable to a green light. A portfolio planning approachportfolio planning approachAn approach to analyzing various businesses relative to one another. Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investment decisions.
To maintain the growth of their star products, a company may have to invest money to improve them and how they are distributed as well as promote them. They must decide whether to invest in them and hope they become stars or gradually eliminate or sell them. Many companies invest in question marks because market share is available for them to capture.
The attractiveness of an industry can include aspects such as whether or not there is a great deal of growth in the industry, whether the profits earned by the firms competing within it are high or low, and whether or not it is difficult to enter the market. For example, if a company feels that it does not have the business strengths to compete in an industry and that the industry is not attractive, this will result in a low rating, which is comparable to a red light.

However, the BCG matrix is subjective and managers should also use their judgment and other planning approaches before making decisions. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage.
The goal is to try to generate short-term profits from the product regardless of the long-term impact on its survival.
For example, the automobile industry is not attractive in times of economic downturn such as the recession in 2009, so many automobile manufacturers dona€™t want to invest more in production.
In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automotive manufacturers. Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach.
Using the BCG matrix, managers can categorize their SBUs (products) into one of four categories, as shown in FigureA 2.15, a€?The Boston Consulting Group (BCG) Matrixa€?.
Eventually, DVDs are likely to be replaced by digital downloads, just like MP3s replaced CDs. With the success sequence, money is taken from cash cows (if available) and invested into question marks in hopes of them becoming stars. Companies with cash cows need to manage them so that they continue to generate revenue to fund star products. As a result, they keep producing products and services they shouldna€™t or invest in dogs in hopes theya€™ll succeed. Thata€™s what Procter & Gamble did in 2008 when it sold its Folgers coffee brand to Smuckers. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio.

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