Business Portfolio Analysis: BCG And GE-McKinsey Matrix

Although the organisation has production facilities in Brisbane, San Francisco, and Los Angeles it remains centrally controlled by a senior executive team from company headquarters located in Sydney. The managerial structure is ‘top down’ meaning that all decisions such as project appraisal and selection are made by the senior executive team and then filter down to the lower levels in the organisational hierarchy.

Fantasy Film operates the following four strategic business units:

1. Fantaspace

This business produces digital animation feature films generating $4.8 billion in revenue. The Fantaspace production “Slippery Bob” won the Academy Award last year for best animated feature film.

2. Advantage

This business creates digitally animated advertising for television and the Internet and generates $1.9 billion in revenue for Fantasy Films. Important clients include Amazon, Tesla Motors, and Apple.

3. Anisoft

This business builds digital animation software generating $200 million in revenue. DreamWorks has just signed on as a client subscriber.

4. DigiFX

This business produces special effects for live action feature films and generates $150 million in revenue. The business has just been contracted to perform the digital special effects work on the upcoming film ‘Aquaman’.

At the present time, the business portfolio analysis is an important element of dynamic strategy and disruptive innovation. In this concern, this report determines different portfolio measurement tool such as BCG matrix, GE-McKinsey matrix and Synergy matrices which are easy to understand and incorporate in the business analysis. Furthermore, the report also demonstrates the advance level understanding of dynamic capabilities and adjustments. In this concern, the Fantasy Film Organization and its different strategic business units are considering to make clear understanding of business portfolio analysis tools and dynamic capabilities in the changing business environment.

Business portfolio analysis is an important process of looking at an organization’s products and services to categorize them on the basis of their performance and competitiveness in the market. It is a helpful process for the organizations to recognize that where they should invest, restructure and cut expenses to improve the overall business performance (Bodie, 2013). In this regard, BCG matrix, GE-McKinsey matrix and Synergy matrix are important techniques through which Fantasy Film studio’s strategic business units can be analyzed. The Fantasy Film organization operates mainly four strategic business units namely Fantaspace (Animated films), Advantage (Digital advertising), Anisoft (Animation software) and DigiFX (Special effects). The business findings and market findings of these business units are as below:

Business findings:

Market findings:

On the basis of above findings, the business portfolio analysis of Fantasy Film is as below:

BCG matrix is incorporated as a strategic planning tool, which may be used by the organizations to assist long-term business planning. Through BCG matrix the organization’s brand portfolio may be evaluated on a quadrant along with the market growth and market share. This BCG matrix is also known as “Growth-share matrix”. It may be used to evaluate the business brand portfolio and recommend further investment strategies (Palia et al., 2014). This matrix includes four quadrants, which are described in the below diagram:

Figure 1 BCG matrix

Dogs:

In the BCG matrix, this quadrant presents that the business is having low market share in low market growth. In this situation, the organization neither generates cash from the market nor needs huge amount of cash to invest. Due to high cost, ineffective marketing and poor quality the businesses have low market share (David, 2011).

In Fantasy Film’s business unit, GigiFX is represented as ‘Dog’ because this business has low competitive strength in “special effects” which is also presenting low market growth.

BCG Matrix

Cash cows:

Cash cows present a specific business unit, which has large market share in slow growing market. The Cash cows business units may generate high cash from the market and require little investment. These business units are the organization’s key source of generating cash and also known as core business units of the organization (Xia and Zhang, 2011).

In Fantasy Film organization, ‘Advantage’ business unit may be denoted as “Cash cow” because the market share of this unit is high in the low growing market. This business unit is capable to generate high cash from the market but has need of low investment.

Stars:

In BCG matrix, Stars represent that the business unit have large market share in a rapid growing market. These business units may be used to generate cash in the fast growing market, but stars units need vast investments in maintaining their lead because these business units highly competitive in the related industry (David, 2011).

In strategic business units of Fantasy Film, Fantaspace business unit is denoted as Star because this business strategy of the organization has high market share with $4.8 billion total of $7 billion in animated films.

Question marks:

The Question mark quadrant represent that the business unit has low market share and situated in highly growing industry. These business units require vast amount of cash to maintain sustainability and gain good market share (Xia and Zhang, 2011). The question marks are normally present innovative goods and services with having good commercial potentials.

The ‘Anisoft’ business unit of Fantasy Film is denoted as question mark because the market share of this unit is $200 million in total $1.8 billion of animation software, which is low in the highly growing industry.

GE-McKinsey matrix is a strategy instrument, which provides a logical approach to the multi business organizations to prioritize their investments among different business units. It is a nine-box framework that assesses business portfolio and provides additional strategic implications for each business unit of the organization. In other words, GE-McKinsey matrix provides a comprehensive investigation of each business to take investment decisions. This matrix analysis is a product portfolio analysis for an organization (Proctor, 2014). Organizations use this matrix, when they have a multifaceted product portfolio and difficulties in taking investment decisions. In this regard, it is identify that Fantasy Film involves different strategic business units with different services in digital animation sector but the resources are limited in this company. Therefore, this matrix analysis may be used by the managers to look and ensure that which unit is growing and productive for the organization. On the basis of this analysis the managers will have to support their productive business units by investing them and reducing investment in other units that are not working well as predicted.

GE-McKinsey Matrix

GE-McKinsey matrix is based on two main variables “Market attractiveness and Business unit strength”, which are plotted on X and Y axis of the matrix structure. In this matrix structure, each business unit is given a value for its business strength as well as market attractiveness and plotted in the right place. After placing the business unit or product the managers can decide appropriate strategy for the business unit. GE-McKinsey matrix involves three main strategies, which are growth, selective and harvest (Rudnicki and Vagner, 2014). In concern to Fantasy Film’s business units, these strategies are discussed as below:

Figure 2 GE-McKinsey matrix

Growth: If, the competitive strengths of a business unit are high or strong in the highly attractive industry, than the business unit will be beneficial and productive for the organization. The growth strategy presents that the investors may invest higher proportion of resources in this business unit for better results (Han et al., 2015). It is because, if a business unit has high competitive strength in the highly attractive market than it will high probability of getting success.

On the basis of Fantasy Film’s analysis and GE-McKinsey matrix, it is analyzed that Fantaspace business unit is denoted for growth strategy because this business has high competitive strengths in the highly growing ‘animated film’ sector. In this way, the managers can take investment decision in this business unit.

Selective: This business strategy is used by the managers, when the business unit strength or industry attractiveness is normal or average. In these situations, the managers take decision to hold the business as it is and will not do further invest in this business unit. The selective business strategy will be used because it may be that there is high competition in the market or market is dropping in value, which may be unfavorable for the organization (Kopf and Beam, 2015). In this situation, it may be that the investment is not giving good returns and the operating cost is increasing. Therefore, the managers will hold the business unit and wait for changes in business environment.

From the above business and market findings, it is analyzed that ‘Advantage’ and ‘Anisoft’  business units are appropriate for selective strategy because these business units have average competitive strength as well as medium or average attractiveness of the digital marketing.

Harvest: This strategy may be used by the managers, when their business unit has low competitive strength as well as low industry attractiveness. In the lower competitive strengths and poor industry attractiveness, the managers may either liquidate or sell that business unit or may hold to get outstanding value (Sorger, 2013). In GE-McKinsey matrix, this strategy is used to harvest the weak business units and make decision to reinvest in the growing business units.

The business unit DigiFX is denoted for harvest strategy because this business has low competitive strength in the low attractive industry. Hence, it is analyzed that GE-McKinsey matrix is an important tool of managing different business units of an organization effectively and helpful in taking appropriate investment decision.

The “synergy matrix” is an important business portfolio strategy for the organizations. This matrix describes a sympathetic environment of belief, where each individual works towards its personal goals, but these goals may be quite assorted because the elements of synergy matrix are supportive for each other at the in the organization. Through this matrix the organizations focus on most gainful business units and drive out synergies to share resources (Jiang et al., 2014). This matrix strategy eliminates dogs form the business operations because it may botch the economy of cash cows.

The “synergistic portfolio analysis” provides benefits through virtue of being in portfolio against out of it or incoming benefits. As well as, it also inspects the net impact of business on the rest of the portfolio or outgoing benefits (Mucelie et al., 2014). The synergy matrix is defined in the below graph:

Figure 3 Synergy matrix

Fits and misfits: If the business unit has high incoming and outgoing benefits than it will be denoted as “fit” in the synergistic portfolio and well for the organization. On the other hand, if the business unit has low incoming and outgoing benefits than it will be “misfit” in the portfolio analysis and not well for the organization (Jiang et al., 2014). In Fantasy Film, Fantaspace business unit is denoted by “fits” because its incoming and outgoing benefits are high. Furthermore, DigiFX is assigned by “misfits” because this business unit has low incoming and outgoing benefits.

Givers and takers: If any business has low incoming but high outgoing benefits that it will be denoted as “givers”. On the other hand, if the business has high incoming benefits but low outgoing benefits than it will be assigned as “takers”. These “givers and takers” assemble above the “threshold of acceptance” and have significance of continued investment for the organization (Mucelie et al., 2014).

In the related case study of Fantasy Film, it is identified that “Advantage” business unit has low incoming benefits and high outgoing benefits therefore it is assigned as “giver”. As well as, “Anisoft” is assigned as “taker” because this business unit is presenting high incoming benefit and low outgoing benefit.

On the basis of above portfolio analysis is can be recommended that the management of “Fantasy Film” should make investment decision in “Fantaspace” strategic business unit. Because of this business unit has competitive strength and its relative market is also growing high, which will be supportive for this business unit. Moreover, the entire three portfolio analysis matrixes i.e. BCG matrix, GE-McKinsey matrix and Synergy matrix are presenting favorable environment to invest in this business unit. On the other hand, the management of the organization should stop further investment in the DigiFX business unit because this business unit has not future opportunities due to lack of competitive strength and low market growth. It is also recommended that the management of Fantasy Film should stop further investment in that business units, which have no competitive strength and their related market is low attractive. They should implement innovative features in its Anisof and Advantage business units to increase the competitive strength. In this regard, the management should recruit experienced and IT professional.

In the rapidly changing business environment, it is needed for the organizations to build up competitive strengths through knowledge creation processes. Dynamic capability analysis is referred as organization’s capability to integrate, fabricate and reconfigure the internal and external proficiencies to sustain the business in rapidly changing business environment (Vogel and Guttel, 2013). The dynamic capabilities belong to three clusters of activities and adjustments that are discussed as below:

1. Identify and assess opportunities (sensing):

It is an important activity for the organizations in changing business environment. Through this activity the organizations can identify the business opportunities. This activity is also known as “sensing” activity which is used intellectually in identifying the future opportunities for the business in changing environment. From the case study of Fantasy Film organization, Fantaspace and Anisoft business units have good competitive strengths therefore the management of these business units should make efforts to identify the customer’s needs and wants to create opportunities in the changing business environment. In addition, through this activity the management can also identify the lack in its business units that will assess the opportunities for the lower growing business units (Allred et al., 2011).

2. Mobilization of resources to address the opportunity (seizing):

Mobilization of the resources is related to the all operational activities that are required and involved in securing the new and additional resources to make capable the organization in the changing business environment. Through this activity the managers can make cost effective business plans by utilizing the available resources in proper manner. In the competitive business environment this activity is useful to attain the sustainable and long-term growth (Allred et al., 2011). The Fantasy Film is not may use this activity in that business units, which are performing low and has low market share. By mobilizing the resources the organization’s management can secure its additional resources and address the opportunities low performing business units in the changing business environment.

3. Transform and reconfigure or continued renewal (transforming):

In the changing business environment, the organizations have needed capabilities to develop and configure the organization’s quality structure to obtain the internal and external transformation of the organization. Apart from this, it is analysed that the organization’s capabilities are supported by strategic coalition, local autonomy and decentralization (Allred et al., 2011).

From the above discussion it is recommended that the organizations should use market survey strategy and try to identify the generating issues in their products and services. This strategy will be helpful for the organization to identify the deficiency in the services and helpful assessing the future opportunities in the changing environment. Furthermore, it is also recommended that the management should make efforts to reduce the expenses and try to use the limited resources effectively to increase the financial stability. As well as, the management of the organization should be continue for renewal of the organization’s service structure with innovative features that will lead to betterment of the business units in changing business environment.

Conclusion

From the above discussion it can be concluded that business portfolio analysis is an important process that may be helpful for Fantasy Film organization in managing its different strategic business units. In this regard, the different portfolio analysis matrixes such as BCG, GE-McKinsey and Synergy matrix are helpful in making investment decisions. As well as, it can also be concluded that the “dynamic capability analysis” is also an important tool to build the competitive advantage in the changing business environment.

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