The growth share matrix as a planning tool: Caveats and practical problems

Robinson, C. G. A icle The g ow h sha e ma ix as a planning ool: Ca ea s and p ac ical p oblems Sou h A ican Jou nal o Business Managemen P o ided in Coope a ion wi h: Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica Sugges ed Ci a ion: Robinson, C. G. (1986) : The g ow h sha e ma ix as a planning ool: Ca ea s and p ac ical p oblems, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 17, Iss. 1, pp. 32-37, h ps://doi.o g/10.4102/sajbm. 17i1.1031 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/217918 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ The g ow h sha e ma ix as a planning ool: ca ea s and p ac ical p oblems C.G. Robinson G adua e School o Business Adminis a ion, Uni e si y o he Wi wa e s and, Johannesbu g Limi a ions exis on he nai e applica ion o he g ow h sha e and g ow h gain ma ices as esou ce alloca ion echniques. This, he las in a se ies o h ee a icles, poin s ou some conside a ions essen ial o success ul applica ion o he Bos on Consul ing G oup's app oach o se ing s a egy. Thi een ca ea s anging om he b eakdown o he implici co ela ions be ween cash lows and ma ke sha e and ma ke g ow h a e h ough mo i a ional and poli ical p oblems mus condi ion a compe en analysis. P ac ical p oblems in implemen ing po olio planning a e highligh ed. S. A . J. Bus. Mgm . 1986, 17: 31 -37 Daa bes aan seke e bepe kinge op die na'iewe oepassing an die g oei-aandeel- en g oei- oename-ma ikse as hulpb on- oedelings egnieke. In hie die a ikel, die laas e in 'n eeks an d ie a ikels, wo d seke e aspek e wa wesenlik is i die sukses olle oepassing an die Bos on G oep se benade ing o s a egie o mule ing aangewys. De ien oo behoude wa me e sig igheid gehan ee moe wo d i die bekwame ui oe ing an 'n analise, wo d besp eek. Hulle s ek ana die opspli sing an implisie e ko elasies ussen kon an loei en ma kaandeel en ma kg oeisy e o by mo i e ings- en poli ieke p obleme. Die p ak iese p obleme by die oepassing an po e euljebeplanning wo d besp eek. S.-A . Tydsk . Bed y sl. 1986, 17: 31 -37 C.G. Robinson G adua e School o Business Adminis a ion, Uni e si y o he Wi wa e s and, Johannesbu g, P.O. Box 31170, B aam on ein, 2017 Republic o Sou h A ica Some applica ions conside a ions Limi a ions exis on he nai e applica ion o he g ow h sha e ma ix. The ma ix depends on he ela ionship be ween cash low and he wo a iables, ela i e ma ke sha e and ma ke g ow h a e. The e a e 13 mi iga ing ac o s ha mus be bo ne in mind be o e he cash low cha ac e is ics o he s a egic menage ie can be applied sla ishly. Ma ke sha e may no be co ela ed wi h cash low The ela ionship be ween ma ke sha e and cash low may be e y weak owing o a numbe o ac o s (Abell & Ham- mond, 1979); • Expe ience e ec s may be e y small. Fo some eason o o he an expe ience cu e may no exis in a gi en business (C a , 1980 and Robinson, 1982). The expe ience cu e is no a law o na u e and hence, be o e i can be used as a undamen al unde lying assump ion in planning i may be wise o check o he exis ence o an expe ience cu e o a gi en business. • Value added may be low. Fo low le els o alue added he impac o an expe ience· e ec on compe i i e cos di e en- ials may be negligible. • A compe i o may ha e access o a low cos sou ce o inpu ma e ials un ela ed o his ela i e sha e posi ion. The compe i i e edge may no be co ela ed wi h ela i e ma ke sha e, bu wi h a di e en se o c i e ia such as access o anchises, echnology and so on. • Low ma ke sha e p oduce s may be on s eepe cu es han he high ma ke sha e compe i o s owing o supe io p o- duc ion echnology. This is he case in he e och ome indus y whe e small manu ac u e s wi h he la es gene a- ion o echnology can ha e a compe i i e cos edge and hence be e p o i s and cash lows han la ge olde com- pe i o s. • Di e ences in expe ience may ha e li le impac on cos s because inno a ions in p oduc ion echnology a e easily and swi ly adop ed by all compe i o s. This occu s when he majo supplie s o o iginal equipmen p o ide he echnol- ogy and ad ances in an indus y. • Capaci y u iliz.a ion a es may di e , hus a ec ing cos s and cash low. The PIMS p og amme (Schoe le , Buzzell & Heany, 1974 and Robe s, 1981) and expe ience bo h indica e ha low le els o capaci y u iliza ion a e unp o i - able and hence no a ac i e as cash gene a o s. • S a egic ac o s o he han ela i e ma ke sha e may a ec p o i ma gins. Cash low may be s ongly dependen on pa en s, p oduc quali y o o he o ms o compe i i e di e ences. 32 I ela i e ma ke sha e and cash low a _e no _co ela ed his has he e ec o coOapsing one o he c imenslOn.s ~ he g ow h sha e mamx and e ec i ely ~ es only ~ ~. ma ke g o . h a e, as a !:mis o aking s ~egic decisiOOS- Tll i ma'" end o imply ha unde he a cums~ances a po ~ app oach~ on a de ailed p oduc li e cycle analysis may be mo e use ul han one based on he g ow h sha e ma ix. Rela ionShiP be ween ma ke g ow h a e and cash low may be weak. The g o . h sha e ma ix is p edicaled on he a SUIDpOOll.S ~ high a es o g O h consume cash o und ixed and wo ~ capilal equi emen s, and ha ma u i y o he li e cycle ?~ abou he genesis o p o i s. This may be inco ec owmg o a nwnbe o ac o s (Abell & Hammond, I 979); • Capi al nensi y may be low. I ixed and wo king ~pi al in cnsi Y is low o example in an inden agency, 11 may be ~'ble o ~ease he size o he business subs an ially •ilhou equi ing a meaning ul inc ease in ei he ix~ o wo king capi al. I may be possible o g ow he bus~ by he me e addi ion o a ypew i e and a elex machine wi hou d aining ~- • High en y ba ie s may exis . Ma gins may be sus ainable and la ge enough o p oduce JX)Si i e cash lows and o inance g ow h a he same ime. Technology, pa en , and o he o ms o p o ec ion could e ec en y ba ie s (Pone , 198()). • lndusl y m·e capaci y and p ice compe i ion may dep ess p ices in ma u i y. P ice compe i ion may dep ess ma gins in maiu i y because o indus y o e capaci y o dumping. aen hough inancing needs may decline, ca,;h low can de e io a e. • Legal es ic ions may limi p o i abili y. Le els o p o i - abili y may be ei he legisla ed o alloca ed a he whim o go e nmen agencies i h he esuh ha cash lows do no imp o e on ma u i y. • Seasonal and cyclical pa e ns may p oduce shon- un im- balances in p o nabili y and cash low. Seasonal e ec s can be el on cash low. Mo e cogen ly, as economies mo e in o ecession, businesses ede ine hei ma ke s, and some- imes la ge i ms mo e downma ke wi h a domino e ec on hose companjes below hem. The p oblem o ma ke de ini ion I he ma ke is inco ec ly iden i ied i makes he measu e- men o ma ke sha e and ma ke g ow h a e un eliable and lends o e oneous s a egies. Ma ke de ini ion e o s can depend on a numbe o inco ec assessmen s including he inco ec assessmen o ma ke bounda ies based on aul y geog aphic, demog aphic, psychog aphic, beha iou al, compe i o , and o he a iables. • In Figu e l he impac o an e o in geog aphic segmen a- ion is shown (Channon & Jalland, 1979). When measu ed in e ms o he UK ma ke , company A has a clea posi ion o ela i e dominance agains i s nea es compe i o s. When measu ed in he con ex o he o al EEC ma ke he com- pany's business is ans o med om an appa en cash gene a o o bei:lg a dog. Channon & Jalland (1979) poin ed ou ha despi e he ac ha he Eu opean ma ke leade did no compe e in he UK ma ke a all, he implied h ea o po en ial en y was signi ican enough o educe he cash low o company A's business as he p ices i cha ged we e a ec ed by he posi ion in wes e n Eu ope as a whole. S.-A . Tydsk . Bcd y sl. 1986, 17(1) UK Ma,l<el &; 1 " ~ 10% ;8 I (QQ) :, : ,,. ', ~ : I - I I l j 10,, 1.5x 0.h Aela ..e Ma ke 0om,nance Ficw J The impo ance o geog aphic m~ ke de ini ion in pon o io analysis (Channon & Jalland, 1979:110) The le el o ma ke segmen a ion a ec s he posi ioning Ma ke s can be segmen ed a di e en le..-els om he e y b oad o he e y p ecise. Al hough he ocus is on s a egic posi ioning, he le el o segmen a ion s ill e ec s he posi ion o a business on he g id. • In Figu e 2 a company's posi ioning on he g id is sho":11 $ a majo dis ibu o o eco ds, music casse es, and ca idga (Channon & Jalland, I 979). The ma ke is shown as a high g ow h ma ke . In ac , he ma ke should eally be ~ men ed in o h ee ypes o eco ds -popula , classical and budge -and in o casse es and can idges. 1_1 is e ~ e y di e en posi ions o he indi"idual busmes.,; um s in e ms o ma ke sha e and g o"'1h a e. Decisions made on he basis o he i s posi ioning could be in se i®' e o in he ligh o mo e ca e ul segmen a ion. Ch~ & Jalland poin ed ou ha ca e mus be aken in dis inguish- ing be ween s a egic ma ke segmen a ion and p oduc di e en ia ion. O he wise, unde endable segmen s may be inco ec ly iden i ied. To al Aecoo:led Music Mall<e m I 1 a: I I ,0%1 .... ~-4--.+---.....; Cl ~ .; ::, ~ 10x 1x O.lx Rel.ali e Ma ke Dominance 10ll 1x 0.11 Re!a ..e Ma ke Dominance F'll 2 The imponance o ma ke segmen iden i ica1ion in po olio analysis (Channon & Jalland, 1979:111) In la ion clouds he pic u e High a es o in la ion ha e a se ious e ec on he measu e- men o ma ke g ow h a e and on he cash low and p o i cha ac e is ics o any business. • Fi s ly ma ke g ow h a e should be s a ed in uni e~ o emo e he impac o in la ion. This is no always pos.sible in p ac ice and because indus ies in la e a di e en a es he choice o he co ec sec o al de la o can be a p oblem- • Secondly, unde condi ions o in la ion, p ice and cos changes a ec businesses in di e en ways and can lead o he eposi ioning o businesses on he g id. Figu e 3 shows he di e en chemical business uni s o a company und~ de la ed and unde la ed ma ke condi ions (Channon Jalland, 1979). A gene al impac o in la ion is o make low eal g ow h businesses in o appa en high g ow h s. A . J. Bus. Mgm . 1986, 17(1) businesses. Few businessmen, when conside ing his o ic company pe o mance, a e likely o de la e he da a. I is a sobe ing exe cise. Unde condi ions o high in la ion, g ow h a es in money e ms g ow apidly. Wo king capi al equi emen s associa ed wi h unding a gi en le el o business in uni e ms can escala e apidly and u n cash gene a o s in o cash use s. The e ec is no uni o m and in he example gi en in Figu e 3, a signi ican change in he s uc u e can ake place wi h he ela i e posi ioning o a numbe o he businesses changing ma kedly. Low In la ion Ra e High In la ion Ra e G 10x 1x 0.1x Rela i e Mo Ke Dominance Rela i e Ma ke Dominance Figu e 3 The di e en ial e ec o in la ion on he s a egic po olio (Channon & Jalland, 1979:112) • Thi dly, dep ecia ion allowances may be qui e inadequa e o cope wi h he cos s o eplacing capi al asse s (Channon & Jalland, 1979). In capi al in ensi e businesses high a es o in la ion can se iously ans o m he ac ual cash low cha ac e is ics o a heo e ically balanced po olio and esul in a dange ous liquidi y posi ion. • Fou hly, unde in la iona y condi ions mos businesses become cash aps. This may be ue e en i hey show an accoun ing p o i (Channon, 1981). A ypical manu ac u ing company in a low g ow h en i onmen mus ea n a ound 7% on sales o he en i e company becomes a cash ap. High g ow h sec o s and capi al in ensi e businesses equi e e en highe ma gins. A lowe g ow h a es he inc ease in asse s equi ed o main ain business will exceed he epo ed p o i . The company uns he dange o being locked in o a eal cash ap which is wo hless as i may ne e pay ou di idends and could need con inual cash injec ions. • Finally he g ow h gain ma ix has i s cen e o g a i y o a balanced po olio subs an ially changed by in la ion as shown in Figu e 4. Unde high a es o in la ion in e es a es end o mo e up o e lec he economic imbalance. Ma ke g ow h and business g ow h a es may well emain unchanged o e en decline. This ends o ein o ce he well- known e ec o gea ing going nega i e and cash lows can ac ually e e se unless ma gins can be inc eased o compen- sa e o he highe deb bu den. In addi ion he maximum sus ainable g ow h a e o he po olio, as calcula ed om: D g=E ( -1) p+ p will change i i ises as e han ,, hus gi ing ise o a po olio imbalance as po ayed in Figu e 4. Fo eign exchange a ia ions cause p oblems Mul ina ionals and indus ies in which i is s a egically nai e o se s a egy on a limi ed geog aphic basis mus con end wi h he e ec s o o eign exchange a ia ions. Fo eign ex- 0 0 0 Maximum sus ainable g ow h a e shi s Unbalanced Balanced lo I / / I I / 0~ I I I / 01 0// I / / . I Business G ow h Ra e / / / / / / / 0 Qi O! 33 Figu e 4 The impac o in la ion on po olio balance and he maxi- mum sus ainable g ow h a e change a ia ions can o ally ans o m he ela i e expe ience cu e e ec (Channon & Jalland, 1979: 113 and Robinson, 1982:49). When cos s a e measu ed in a weake cu ency he slope o he expe ience cu e may e e se and a eal cos inc ease could ake place. This implies ha ma ke sha e and ela i e cos s may cease o be co ela ed. The e is a mi iga ing e ec in ha economies subjec o high a es o in la ion a e hose wi h a poo exchange a e pe o mance and he e ec s o in la ion and o eign exchange a e a ia ions can cancel one ano he ou . F ee loa ing does no always occu and go e nmen in e - en ion in o eign exchange ma ke s mus a ec cos s, p o i s and cash low. • The cash low and he e u n on in es men cha ac e is ics o a business can be a ec ed by he cu ency in which asse s and p o i s a e measu ed. So, o example, Channon poin s ou ha US and o he US-quo ed mul ina ionals ha e ound SEC-imposed changes in accoun ing ea men s o o e seas asse s and ea nings ha e signi ican ly a ec ed hei balance shee s when measu ed in dolla s (Channon & Jalland, 1979: 113). Mul ina ionals ope a ing p oduc ion asse s in s ong cu ency en i onmen s and supplying weak cu ency a eas, whe e ma gins a e educed owing o he exchange a e di e en ial, epo dec eased e u ns, inc eases in ela i e capi al in ensi y, and dec eased cash lows. • An added s a egic e ec is el by some la ge Eu opean mul ina ionals which ha e he policy o no allowing o e - seas subsidia ies o become independen SBU's un il a equi ed e u n is ea ned on p oduc ion asse s esiden in he pa en coun y. Only a e a gi en e u n on asse s is achie ed is s a egic independence g an ed. An emb yonic SBU could ind a decade elapse be o e being g an ed in- dependence as exchange a es mo e downwa d a he same a e, o as e , han p o i s mo e upwa d. • Mul ina ional ansac ions can change he ela i e economics o a business. Cen aliza ion o mul ina ional easu y unc ions has occu ed in o de o op imize g oup cash low and pos - ax p o i abili y and o minimize o eign exchange exposu e. A numbe o mul ina ionals a e ac i ely managing 34 hei o eign cxdJange po5i ions as p o i cen es gene a ing up o 50'7e o co po a e p o i abili y (Channon & Jalland, 1979:114). The s a egic planning c i e ia may he e o e no be p e- ax ca.41 low bu he amoun , loca ion, and cu ency o pos · ax income. O he planning c i e ia may exis . The g 0 1h sha e and g ow h gain ma ~ a e ~ edica ed upon he SUS aining o g ow h o a pon olio om m emally gene a ed cash lows. O hel:J>WUU11g c i e ia may be mo e ,-alid. C i e ia such as: • capi alizing on ax bene i s, • he use o pape o und g ow h ia high p emiums on ma ke ,'aloe o book alue o common s ock, and • he use o pape o und acquisi ions, Unde hese ci cums ances he planning mode becomes ax a oidance, equi y gene a ion o acquisi ion a he han he balancing o sus ainable cash lows and he alloca ion o cash esou ces among opponuni ies. O ganiza ion s uc u e a ely e lec s he s a egic business uni s. Signi ican p oblems occu in p ac ice, pa icu)a ly in im- plemen ing a po olio s a egy: • Fi s ly, he s a egic business uni s o a co po a ion a ely con o m o he o mal o ganiza ion s uc u e (Channon & Jalland, 1979 and Haspeslagh, 1982). The o ganiza ion's s uc u e is o en a elic o his o y o a ehicle designed a ound ope a ing con ol, o o he , conside a ions. I is he e o e posgble o md sub-elemen s o s a egic b~ uni loca ed in a numbe o unc ional p oduc o geo- g aphic di isions o a inn, pani ula ly i he i m is a mul ina ional. Two endencies exis : - One is o assess he co po a e pon olio in e ms o he onnal o ganiza ion s uc u e a he han o ge in ol ed in he p oblems o accoun ing sepa a ely o c oss- di isional businesses. The second is no o ealize he ac ha pa s o a onnal di ision may no in ac belong o he same s a egic business uni and o con inue o ea hem as belonging oge he . Odd abe a ions can and do anspi e (Channon & Jal- land, 1979:114). Se iously dys unc ional beha iou occu ed in a majo Eu opean chemical p oduce when one hal o a high g ow h business was loca ed in a p oduc di ision iden i ied by op managemen as a cash-gene a ing ope a- ion whils he o he hal was loca ed in a egional geo- g aphic di ision singled ou o hea y in es men . In he i s case he business uni managemen we e eluc an o make any in es men which did no show an ex emely high a e o e u n, apid payback and low cash usage whe eas in he second, manage s we e p epa ed o accep low a es o e u n p o ided an in es men con ibu ed o imp o ing he business g ow h and sha e posi ion (Channon & Jalland, 1979). Consequenlly he manage s esponsible o ope a ing pans o he same business wi hin he di e en di isions we e a emp ing o pu sue ahnos o ally di e en s a egies. To gua d agains such si ua ions i is necessa y o e- s uc u e he o ganiza ion on an ongoing basis dependen on he iden i ica ion o s a egic business uni s. Majo eo ganiza ions a e usually pain ul and ha e o be in- oduced agains he wishes o es ed in e es s wi hin he exis ing s uc u e. Signi ican eo ganim ion does no occu in an e olu iona y manne bu akes place pe iodically when i becomes clea ha s a egy and Sl uc u e ha e diYC gell signi ican ly. The pon olio planning models a e used au guide o s a egic cash low alloca ion and may p o ide li le o no help conce ning o ganiza ion design. Cash con ol sys ems may no exis The use o a esou ce alloca ion g id based on expec ed cash lows p esumes ha he company is able o ealloea e he cash lows om a ious businesses in he pon olio. Su p isingly, howe e , companies a e unable o ealloca e cash lows a ound he ma ix because: • In many o ganiza ions he adi ional p o i cen e CODCeJl exis s. This equen ly means ha J p o i cen e, because i is p o i able and has su plus cash, is able o ein es i s ee cash low equen ly in ma u e businesses. This leads o o e in es men in businesses a he op o he p odua li e cycle and does no lead o cash alloca ion a ound he ma ix. A majo canning company, amongs he bes in he wo ld, was encou aged o ein es in ma u e, and dying, p oduc lines owing o he p o i cen e concep and o neglec eme ging businesses. As esul money was ein es ed in a eas such as peaches in sy up, e "en hough eme ging consume as es equi ed ei he ein es men in o he ood lines o , a leas , p oduc line enhancemen wi h he e o being ocused on peaches in na u al juice o sui eme gen consume as es. • A di e si ied building ma e ials, enginee ing and cons ue· ion company was a clea cash-gene a ing busin :c;s. I · p oduced cash om a deple ing asse and was allowed o · ein es hese unds in o e seas acquisi ions a he han being o ced o edeploy hem o he o ganiza ions' ele ~ ing ac i i ies in cons uc ion and enginee ing (Channon & Jalland, 1979). This was made possible by he ac hal cen al managemen allowed di "isional cash managemen and high in es men disc e ion le els. Success ul edeploymen o cash esou ces equi es a cen al esou ce alloca ion, o banking unc ion, bo h o s a egic in es men s and he alloca ion o cash. This may equi e cen al banking accoun s, global o egional cam pools, and capi al cha ge i ems on managed asse s. T ans e p icing clouds he pic u e A e y eal p oblem exis s wi h ega d o ans e p icing. I is possible o show an accoun ing p o i whe e e i is mos desi able dependen on he manipula ion o ans e p ices. This aises wo issues: • Fi s ly, i may be p e e able o manipula e p o i s o maxim- ize a e - ax e u ns. T ans e p ices may be manipula ed o p o ide p o i s as, whe e. and when needed o maximize a e - ax e u ns. • Secondly, ans e p icing may be used o alida e a man· age ial posi ion, and o p o ide p o i s whe e none should exis , in o de o sa is y manage ial ego as o he c edibili y o p e ious decision-making. The p oblem o o e head cos s The join o e head cos alloca ion p oblem is a exing one o a numbe o easons. • Fi s ly, in in eg a ed companies wi h p oduc lines which a e o en in ima ely ela ed he alloca ion o o e head cos s is o en a ho ny p oblem. P o i s, and cash low, a e sub- jec o he whim o he accoun an . A unhe complica in8 ac o is he ac ha equen ly accoun ing sys ems do no exis in he o ganiz.a ion o acili a e he alloca ion o cos s and p o i s o a ious s a egic business uni s. This is a di ec S. A . J. Bus. Mgm . 1986, 17(1) esul o h ee ac o s; One: Cos s and p o i s a e o en moni o ed on an abso p- ion a he han a di ec cos ing basis. Two: S a egic business uni s equen ly bea no ela ionship o he o ganiza ion s uc u e and o he accoun ing sys ems adop ed. Th ee: P oblems a ise wi h ega d o he sha ing o o e - head acili ies and, by implica ion, expe ience e ec s. Mo i a ional p oblems occu When a business is iden i ied as a cash gene a o o a dog o be placed in a ha es o di es ca ego y, mo i a ional and o he p oblems may occu . Mos o ganiza ions, pa icula ly in non-socialis economies, ha e a common alue sys em endo sing g ow h as no mal o all businesses. The decision o un down a business leads o p oblems wi h manage s, he wo k- o ce and he consuming public. • When a business is iden i ied as one o be un down o elimina ed om a po olio i is o en di icul o ge accep - ance o his ac om he manage s conce ned. This may pa ly be due o he ac ha some businesses may be in es - men s in manage ial ego bu may also be due o he eali y ha businessmen a e no unin ol ed in hei decisions. Execu i es ha e made anguished commen o he au ho : 'How do you kill you own child en?' The accep ance ha a business is o be un down is alien o accep ed manage- men alues. Con en ional logic equi es ha i a business is o be un down i should be a g adual p ocess and ha he manage- men s yle o be adop ed should be conse a i e pa e nalis ic and cos conscious. Con ac wi h businessmen may imply he opposi e. As one en ep eneu quo ed 'i I wan o un a business down gi e me a wen y i e yea old us a ed dynamo. He'll maximise cash low and close he business down in one yea ins ead o en'. • The ha es posi ion is soon iden i ied by he wo k- o ce who end o become demo i a ed and esis an o manage- men policies (Channon & Jalland, 1979). Indus ial ela- ions p oblems o en accumula e in a bid o main ain job secu i y. In some economies i is becoming inc easingly di icul o shed labou in a casual manne . S ong p essu e may be moun ed o ein es men in he cash-gene a ing business. This can be he exac e e se o cen al manage- men s's in ended s a egy. • The con en ional wisdom associa ed wi h he s a egic ha es ing and disin es men o a business implies ha a business may be quie ly un down and milked o cash. Expe ience implies ha his may no be so. When a business is being disin es ed i gene a es signals ha he consuming public picks up - o example discoun sales on lines soon o be obsole e. Ra he han being quie ly milked o cash he eali y may be ha he business collapses like a p icked sou le as consume s, dis ibu o s and use s exce cise o he op ions in he expec a ion o collapse (Channon & Jalland, 1979). • Mo i a ional p oblems exis pa icula ly in you h ul con- glome a es whe e he whole empi e has been buil on he acquisi ion o smalle companies ounded by a, now middle- aged, en ep eneu . How is i possible o ge he en husiasm and endo semen o an en ep eneu in unning down his o iginal b ainchild o c ea e cash o o he oppo uni ies? S a us and poli ics in e ene The cash low ealloca ion p oblem becomes especially acu e 35 in dominan business companies whe e one co e ac i i y has cons i u ed he majo p o i ea ning po en ial (Channon & Jalland, 1979). In hese cases he business uni managemen esen s being asked o pass on he cash o new businesses in which hey do no see he logic. The exis ing business is also in a a mo e powe ul si ua ion o p ess i s case ha ing been he p incipal p o i ea ne . In such companies he cen al managemen eam has also equen ly been p omo ed om he dominan p o i ea ne and is equen ly unsu e abou he po en ial o he new businessess. When in doub cash is edeployed in o he exis ing, o en ma u e, p o i cen e. P ac ical p oblems wi h po olio planning Managemen canno a o d he leisu e o di o cing heo y om p ac ice. A heo y only becomes use ul when i mee s adminis a i e eali y. • Lip se ice is equen ly paid o po olio planning and chie execu i e o ice s equen ly e e , almos knowledgeably, o cash cows, dogs and so on while con inuing o ein es in ma u e ma ke s and o allow p o i cen es o e ain p o i s. The challenge o po olio planning should, once adop ed, become he ule o he p ince and implemen a ion should become he esponsibili y o he chie execu i e o ice . • I akes ime o companies o adop and in eg a e po olio planning in o hei sys ems. Haspeslagh (1982) iden i ied h ee s ages namely: (i) po olio g id analysis (ii) co po a e ag eemen on missions, and (iii) explici nego ia ion o missions wi h SBU manage s. The a e age ime aken o a company o mo e om he i s g id o explici assignmen and nego ia ion o all missions wi h he business uni manage s appea s o ake abou i e yea s (Figu e 5). S age 1 S age 2 S age 3 S age 4 All missions explici ly assigned o nego ia ed wi h SBU's Co po a e ag eemen on all missions Time 4 3 2 New Po olio Planning: Ha ing jus in oduced he app oach, companies a e s ill in he p ocess o cons uc ing he po olio Undecided Po olio Planning: The ini ial g id comple ed, he companies ha e no ye decided a he co po a e le el wha o do wi h he businesses o which s a egic missions o assign o he SBU's Unassigned Po olio Planning: Co po a e le el decisions a e eached on he s a egic mission o each business uni . bu companies hOld no explici nego ia ions ye wi h he uni manage s P ocess Po olio Planning: Po olio planning is a cen al pa o he ongoing managemen p ocess as e idenced by he explici nego ia ion o s a egic missions wi h SBU manage s. Figu e 5 S ages o in oduc ion o p ocess po olio planning (Haspes- lagh, 1982:63) 36 • Po olio planning is a mul ile el ac i i y. When analysing he co po a e po olio and making ade-o s among businesses, co po a e managemen looks a he company in agg ega e. In his b oade con ex he company ends o look a SBU's ha a e equen ly o ganiza ional uni s and o assign o he uni s s a egic missions o e lec he cash low con ibu ion o he whole company. Indi idual businesses hen ge in ol ed in a epe i ion o he same p ocess bu a a a mo e de ailed le el o dis- agg ega ion. The s a egic businesses iden i ied a e mo e likely o esul om an analysis o indi idual business ~ a he han om an a emp o accommoda e he exis ing o ganiz.a ion s uc u e. The SBU missions hus de ined, e- lec he pa icula s a egy he company wishes a business uni manage o ollow in each compe i i e a ena. Figu e 6 illus a es his concep . A co po a e le el analysis has iden i ied a di ision, o subsidia y, o he o al co po a- ion as an eme ging cash cow. A de ailed business le el analysis o he cash cow iden i ies ou di e en s a egic business uni s each equi ing a di e en s a egic mission. A his s age he ques ion mus be asked and indeed e lec - ed back o co po a e headqua e s ha i he decision is aken o un he business as a cash cow hen p oduc line x, a wildca , mus be econside ed in e ms o i s po en ial impac on he cash-gene a ion cha ac e is ics o he sub- sidia y. The subsidia y canno be a cash gene a o and easily und business x. 10x I I I I I ~~-+-~~~-+--~~-~~~~~~Co po aie l-' 0,lx Rela i e Ma ke Dominance Figu e 6 Mul ile el po olio planning • The de ini ion o he s a egic business uni s e ol es h ough- ou he in oduc ion o he p ocess. As companies go h ough mo e planning cycles he SBU's become mo e o a o mal o ganiz.a ional eali y and he segmen de ini ion becomes be e . • ~as y p oblems a e c ea ed by he p oblems o s a egic m ~dependence. ~ i s _simples he cash low and p o i - abili y o an SBU JS easily manipula ed by ans · · licies ,e pncmg po on p oduc s ~ e ed om one SBU o ano he . A i:no e ~omy ques ion a ises in he case o sha ed ex- penence VJa sha ed manu ac u ing acili ies, common basic echnology, o common dis ibu ion channels Wi h many di e ing dimensions ade-o s ·ha e o be made (Haspeslagh, 1982). The guiding p inciple appea s > be ha a company should de me he SBU o include hose S.-A . Tydsk . Bed y sl. 1986, l7(1 : esou ces ha will be he key s a egic a iables in he u u e, This p edica es a knowledge o he co po a e ision a dis ea ly s age o a leas a mul iple pass ope a ion achie ed by planning and eplanning o compe en ongoing p~ Haspeslagh ( 1982) indica ed ha a numbe o compania su eyed made hese ade-o s in p ac ice wi h a bias o, wa ds cos e iciency in ela ion o esponsi eness. The business economics and expe ience-based o ien a ion o po olio planning mus end o push cos s uc u es as a basis o business de ini ion. As a esul companies may end o de ine SBU's along echnological and manu ac u q a he han ma ke lines. Because he SBU esponsi eness o local ma ke and o he in luences is di icul o quan i y, companies may ind ha hei wo ld-wide SBU's may be less esponsi e o local issues and coole owa ds in e n&, ional ac i i ies han unde p e ious s uc u es and plannq app oaches (Haspeslagh, 1982). In low alue added businesses, such as se ice indus ies and eselle indus ies, he implica ion could be ha SBU de ini ion may be mo e alidly based on ma ke c i e ia a he han on echnology o cos c i e ia dependen on an expe ience cu e. • Sha ed expe ience, in which expe ience gains om a ela m echnology causes cos s o d op below hose o compe i o s wi h a backg ound only in a single echnology, can u n a new en an wi h a small ma ke sha e in o a s ong cash gene a o (Hammond & Allan, 1975). 'Texas Ins umen s' explosi e domina ion o he consume elec onic calcula o ma ke o e es ablished bu mo e specialised compe i o s such as Bowma Ins umen s is a classic example.' The key o Texas Ins umen s' success was i s sha ed expe ience in in eg a ed ci cui manu ac u e. • The Bos on Consul ing G oup's app oach ela es o a long- e m decision-making ho izon. I is no a echnique o making sho - e m adjus men s o business po olios. I is ecommended (Hammond & Allan, 1975 and Abell & Hammond, 1979) ha a i e-yea ho izon be conside ed minimal, excep o p oduc s in which i e yea s ep esen s a subs an ial pa o he p oduc li e cycle. Blow ho , blow cold s a egic commi men by managemen will p obably lead o disappoin ing ou comes. I may be necessa y o be con en wi h medioc e sho - un pe o mance in ques o he inal goal o a balanced po olio. I sho - e m dec eases in ea nings pa e ns a e likely o dissuade manage, men hey should be ad ised no o emba k on he s a egy in he i s place. Conclusion The Bos on Consul ing G oup a emp s o add ess he e- sou ce alloca ion p oblem ia a numbe o echniques. The concep ual bases unde lying he p ima y planning ma ix, he g ow h sha e ma ix, a e he concep s o he expe ience cu e and he p oduc li e cycle. The idea is o op imize he bene i s associa ed wi h ela i e ma ke sha e, and hence he busin~' compe i i e cos posi ion, and he impac o he g ow h a e ~ he ma ke , a su oga e a iable o posi ion on he p oduc h e cycle. The basis o esou ce allocij ion is he expec ed cash low cha ac e is ics o businesses on he BCG g id. • cash cows a e cash gene a o s, hey equi e an in es o hold s a egy while maximizing cash low • s a s a e po en ial cash cows which eq~e adequa e undini o es ablish a dominan posi ion be o e ma ke g ow h a e sl?ws down and hey change in o cows, • wildca s, ques ion ma ks, o p oblem child en ha e nei he ma ke sha e no g ow h on hei side. They a e poo ly S. A . J. Bus. Mgm . 1986, 17(1) posi ioned in g owing ma ke s and need unding o become s a s. I esou ces a e inadequa e i is sugges ed ha wi h- d awal ake place, • dogs a e nei he cash gene a o s, no in many ins ances cash d ains, hey can be le alone o i necessa y be emo ed om he po olio. The maximum sus ainable a e o g ow h o a po olio can be calcula ed and used o assess he po olio's abili y o sus ain g ow h om in e nally gene a ed sou ces. Compa isons can be made using he g ow h gain ma ix o assess bo h he ela i e g ow h a e o businesses agains he indus y a e age and o check he po olio o balance. F on ie cu es can be used o highligh g ow h a eas, cash gene a o s and money aps. Lines o equally a ac i e oppo uni ies can be used o make in es men decisions. The o e all e ec is o gi e a se o guidelines o se ing compe i i e s a egy based on: • a balanced po olio o businesses; • an analysis o po olio ends; • an e alua ion o compe i o s' po olios; and • he de elopmen o a ge po olios. Ve y eal e.e a ions mus be made in connec ion wi h he nai e applica ion o he echniques sugges ed, pa icula ly because • ela i e ma ke sha e may no be co ela ed wi h cash low; • ma ke g ow h a e may no be s ongly nega i ely co ela - ed wi h cash low; • i is di icul o de ine he ma ke ; • le els o ma ke segmen a ion a ec he posi ioning o businesses; • in la ion clouds he pic u e; • o eign exchange a ia ions cause p oblems; • o he planning c i e ia, such as ax conside a ions may be mo e alid; • he o ganiza ion s uc u e a ely e lec s he s a egic business uni s conce ned; • cash con ol sys ems equen ly do no exis in companies; • ans e p icing clouds he pic u e; • he join o e head cos alloca ion p oblem and i s a endan accoun ing p ocedu es is a headache; • mo i a ional p oblems occu ; and • s a us and poli ics in e e e. 37 These ese a ions imply ha a numbe o p ac ical con- side a ions mus be bo ne in mind, • lip se ice may be all ha is paid; • i akes ime o adap and adop po olio planning sys ems; • po olio planning is a mul ile el ac i i y wi h le els o agg ega ion; • he co ec de ini ion o he SBU may ake ime o e ol e; • s a egic in e dependence causes p oblems; • sha ed expe ience e ec s mus be iden i ied; and • he ocus is long e m and pe ipa e ic planning is no aposi e. The bene i s claimed a e ha he app oach • helps o eapp aise SBU objec i es ealis ically; • gi es guidelines on he op imum inancial s uc u e; • aids he esou ce alloca ion p ocess; • a oids minimum a e o e u n, o hu dle a e, calcula ions in which he assump ions a e manipula ed; • a oids s a egic aps and in es men s in manage ial ego; • gi es guidelines o g ow h; • gi es guidelines o con ac ion o ha es ing; and • helps pinpoin he black holes o inance. Re e ences Abell, D.F. & Hammond, J.S. 1979. S a egic ma ke planning. Englewood Cli s. P en ice Hall. Channon, D.F. July 1981. S a egic managemen in in la iona y condi ions. P e o ia. Lec u e se ies, Uni e si y o Sou h A ica. Channon, D.F. & Jalland, M. 1979. Mul ina ional s a egic planning. London, MacMillan. C a , M. 1980. S a egic planning: Wha is i ? Camb idge, Massachuse s, S a egic Planning Ins i u e. Day, G.S. 1977. Diagnosing he p oduc po olio. J. Ma ke . ol. 41, 29-38. Hammond, J.S. & Allen, G.B. 1975. A no e on he Bos on Consul ing G oup concep o compe i i e analysis and co po a e s a egy. Bos on, Massachuse s. Ha a d Business School, no e 9- 175 - 175. Haspeslagh, P. Janua y, Feb ua y 1982. Po olio planning: uses and limi s. Ha . Bus. Re ., p. 58 -71. Po e , M. 1980. Compe i i e s a egy. The ee P ess, New Yo k. Robe s, K. 1981. The p o i assessmen epo . Camb idge. The S a egic Planning Ins i u e. Robinson, C.G. 1982. Expe ience cu es as a planning ool. Uni e si y o Sou h A ica. Wo king pape , School o Business Leade ship. Schoe le , S., Buzzell, R.D. & Heany, D.F. Ma ch, Ap il, 1974. Impac o s a egic planning on p o i pe o mance. Han•. Bus. Re ., 137-145.