Business portfolio and maturity process

We will customize the traditional Boston Consulting Group's (BCG) business portfolio matrix. The BCG matrix has two dimensions: one is relative market share on the horizontal axis, and the other is market growth rate on the vertical axis. But we will change each axis as follows:

(a) The horizontal axis: the internal business share according to sales volume of each business segment;

(b) The vertical axis: the sales growth rate of the same business segment of the company.

Through this modification, we can suppose the general maturity process of a company's diversification and compare the difference between business portfolios easily. In the first maturity stage, the company has only one segment and very few start-up segments. The internal sales share of the main business is 70% or above (see Figure 1). As the start-up segments grow (they are called "stars"), the share of the main segment will be relatively small (less than 70%). This is the second stage. When those segments

Internal share of the segment

Internal share of the segment

\ ß / ^

3rd Stage

1

less than 0.5

Fig. 1 The maturity process of the business portfolio are more matured (they are called "cash cows"), the share of each segment will be less than 50%. This is defined as the final third stage.

4 Data Collection and Analysis 4.1 Data collection and overview

I extracted listed companies from the Japanese stock market (TSE: Tokyo Stock Exchange, OSE: Osaka Securities Exchange, and JASDAQ), in the IT services industry with the following conditions, and found 83 companies with 285 segments as a whole:

(a) Main business of the company relates to S-services, P-services or N-services;

(b) The company has more than one segment and discloses its consolidated statement and segment information for the last two years.

The number of companies in the three categories was 42 S-services, 15 P-services and 26 N-services. The number of segments in the three categories was 128 in S-services, 54 in P-services and 101 in N-services. On average, one company had 3.4 segments [(128 + 54 + 101)/(42 + 15 + 26)].

Figure 2 shows the comparison of the average maturity stage of each category. I conducted the t-test method to investigate whether the maturity level of each category was different or not, and found that N-services

N-services (N=26)

P-services (N=15)

S-services (N=42)

D 1st Stage ■2nd Stage a 3rd Stage 0% 20% 40% 60% 80% 100%

Fig. 2 The comparison of the maturity stage

Table 1 Cross-table of the three categories and the profit ranks on a company basis

Type of Business

Maturity Stage

Profit Rank

0-Under

0-10%

10%-20%

20% or Above

Total

S-services

1

G

12

7

1

20

2

2

15

0

1

18

3

1

3

0

0

4

P-services

1

2

1

1

2

6

2

1

4

1

1

7

3

G

1

1

0

2

N-services

1

1

3

3

3

10

2

G

4

0

1

5

3

3

2

4

2

11

companies (the maturity level being 1.62) are more matured than S-services companies (the maturity level being 2.04). On the other hand, P-services companies were in between (the maturity level being 1.73) and had no significant difference statistically.

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