1.2Business portfolio and growth strategy

For a firm with multiple businesses, the firm-level judgment of resource allocation—which business to invest funds in, which to harvest funds from, and which to withdraw from—is central to management. An IT strategist, beyond streamlining individual businesses, takes a bird's-eye view of the whole business portfolio and proposes to management where to concentrate resources, including IT investment. This section covers reading business positions and fund flows with PPM (the BCG matrix), choosing growth direction with Ansoff's growth matrix, and the merits of M&A / alliances, concentrating on core competence, and diversification—all as the judgment of "how to allocate limited funds and time."

1.2.1PPM (the BCG matrix) and resource allocation

• The PPM classifies each business into four quadrants on two axes: market growth rate (vertical) x relative market share (horizontal). Star (high growth, high share = keep investing to sustain growth), cash cow (low growth, high share = a fund source generating much cash), question mark (high growth, low share = selective investment toward becoming a star, or withdrawal), and dog (low growth, low share = consider withdrawal/downsizing).
• The basic fund flow is to allocate the cash generated by the cash cow to question marks and stars to nurture future earnings sources. A question mark cannot win if left alone; the judgment required is to concentrate funds to grow it into a star if there is a path to winning, or to withdraw before resources are locked in if there is no prospect. A dog is, as a rule, a target for withdrawal/downsizing.

1.2.2Ansoff's growth matrix and means of growth

• Ansoff's growth matrix organizes growth direction into four by product (existing/new) x market (existing/new): market penetration (grow share with existing products in existing markets), market development (take existing products to new markets, regions, or customer segments), product development (introduce new products into existing markets), and diversification (new products x new markets = highest risk).
• In choosing means of growth, judge—centered on the firm's core competence (a central capability rivals cannot copy)—whether to strengthen it in-house, buy time via M&A (acquisition/merger), or complement each other via alliances. Because unrestricted diversification into low-relatedness businesses has scant synergy and disperses resources, selection and concentration centered on the core is the basic approach.

Suppose you are an IT strategist at a multi-business firm, supporting a review of the business portfolio. A new cloud-service business is growing rapidly at over 20% a year in market terms, but the firm's share is still small and it is in the red—a textbook question mark in PPM. The management meeting split between "since it is loss-making, we should withdraw quickly" and "since the market is growing, it will expand even if left alone." Both are simplistic. A question mark, if left alone, falls into a dog stuck at low share when the market matures; conversely, aimlessly continuing to invest without a path to winning merely bleeds funds. The axis of judgment here is: "Is there a realistic path to pushing this business up to a star (high growth, high share) by concentrating investment of the funds the cash cow generates?" If the firm's core competence (the customer base and technology cultivated in existing businesses) can be leveraged, and investment could aim for top-tier share, then boldly concentrating the cash cow's funds to pursue star status is the rational judgment. On the other hand, if a strong first mover already exists and additional investment is unlikely to overturn share, the firm should withdraw/downsize early before resources are locked in, and redirect those funds to a winnable question mark or a star. Rather than judging by a single year's red-or-black alone, deciding allocation by the whole-portfolio optimum among market growth, the firm's share, and the fund provider (the cash cow)—this is the heart of business-portfolio management judgment.

1.2.3Section summary

• The PPM divides businesses into four quadrants by market growth x relative share, and allocates the cash cow's funds to question marks and stars to nurture earnings sources
• A question mark is grown into a star by concentrated investment if a path to winning exists, or withdrawn early otherwise—not judged by a single year's loss alone
• Ansoff chooses growth direction by product x market (diversification being highest risk), and selection-and-concentration—including M&A and alliances—is judged centered on core competence