1 / 9

Opinions about BCG

Opinions about BCG. 95% “Some knowledge or extensive …” Help in Decisions? 66% Yes (only 5% poorer) [sample 175 MBA’s in early 1990’s]. No Prior Evidence to Support “Portfolio Planning” – Instead, Evidence is Negative. Inputs Difficult to measure market share and market growth Outputs

vian
Download Presentation

Opinions about BCG

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Opinions about BCG 95% “Some knowledge or extensive …” Help in Decisions? 66% Yes (only 5% poorer) [sample 175 MBA’s in early 1990’s] Portfolio Planning

  2. No Prior Evidence to Support“Portfolio Planning” –Instead, Evidence is Negative • Inputs • Difficult to measure market share and market growth • Outputs • Firms that use BCG had a lower return on capital1 • Firms whose decisions were consistent with portfolio planning methods lost market value2 Capon, Farley, & Hulbert (1987), Corporate Strategic Planning. New York; Columbia University Press. Slater and Zwirlein (1992), Shareholder value and investment strategy using the general portfolio model,” Journal of Management, 18, 717-732. Portfolio Planning

  3. Why BCG Portfolio Matrix Was Expected to Harm Decision Making • Mental accounts mislead • Theater ticket problem • BCG assumes that market share causes profits Portfolio Planning

  4. Task Used in Laboratory Experiments • You are in charge of investments: • “Digits” – invention in production that produces 100% gain over 10 years • “Sunbars” – advertising campaign that loses 50% over ten years • You attended: • No course (control group) • BCG course • NPV course Portfolio Planning

  5. Many Laboratory Experiments Conducted • Subjects • 1,015 from ten countries • Administration • by 6 faculty • on 27 occasions • over six years Portfolio Planning

  6. Method Used Treatment (n) BCG NPV ? BCG (104) 55 30 15 Profit (70) 6 60 34 Other (70) 4 59 37 Method Actually Used by Percent Portfolio Planning

  7. Selection of Unprofitable Project* BCG 63 (296) Control** 46 (228) NPV 37 (232) Payback 35 (112) Percent by Treatment (Sample Size) * Sunbars (the star) ** The Conglomerate, inc. exercise was the control group. Portfolio Planning

  8. Selection of Unprofitable Project* BCG 87 (219) Proft 15 (432) Other 70 (246) Percent by Method (Sample Size) * Sunbars (the star) Portfolio Planning

  9. Conclusion Do not use portfolio planning methods. • No economic theory to support use • Psychological theory says it will be detrimental • Firms that use it earn less • Firms whose decisions were consistent with BCG lost value • Experimental evidence shows managers are misled For further details, see Armstrong and Brodie (1994), “Effects of portfolio planning methods on decision making,” International Journal of Forecasting, 11, 73-84. (In full text on jscottarmstrong.com) Portfolio Planning

More Related