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Portfolio approach to analysis

Analysing your networking relationships using the Boston Consulting Group (BCG) Matrix, a well-known business model, will help you identify those that will generate economic value.

First, some background to the model itself. Founded in 1963, the BCG is a business strategy firm whose ideas continue to influence many organisations. One of the BCG’s most celebrated contributions to strategic thinking is the ‘BCG Matrix’. This started out as a way to help large companies prioritise their investment across various activities to make the best use of resources. A good way of understanding it would be to think of a confectionery manufacturer which makes a wide range of products aimed at different customer groups (or markets). Some of those markets might be growing – for example an increasing number of consumers are interested in reduced-calorie confectionery. Other markets might be stable or even shrinking – for example the market for boiled sugar sweets is in decline because of concerns about dental health. Our hypothetical confectionery company might be lucky enough to have a product with a large share of a particular market, such as a very popular chocolate bar, or it may have a small slice of a market dominated by competitors.

The BCG saw these two measures – how fast a market was growing and how large a share of it a company enjoyed – as the key to making decisions about how best to allocate resources like investment and effort between the various products that a company might have in its business portfolio (see the chart below). To make the model more memorable, the BCG gave nicknames to each quadrant in the market share/market growth matrix:

  • Stars: products with large shares of growing markets – the kind of product every business would like to have
  • Cash cows: products with a large share of a market that was either stable or shrinking – solid and valuable business but with little further growth potential
  • Question marks: products with a low share of a rapidly growing market – in other words, it was open to question whether they would become stars, or disappear in the intense competition that growing markets attract
  • Dogs: products with a low share of a static or declining market – an uncomplimentary term for products which may end up consuming more resources of time and investment than they have the capacity to generate.

The BCG Matrix can be applied to any collection of valuable assets that need managing, including networking relationships. Although you may feel uncomfortable about analysing your ‘portfolio’ of relationships as if they were products rather than people, adapting the BCG Matrix can provide useful insights when considering how to spread the investment of your limited time and effort.

chart divided into four. Axis are: vertical, Market growth, low to high and horizontal, Relative market share, low to high. clockwise, high low is Question marks, High high is stars, low high is Cash Cows, low low is Dogs. BCG Matrix

In order to adapt the BCG Matrix, let’s decide what the networking equivalents of ‘market share’ and ‘market growth’ might be. Each of your contacts will have connections of their own – their share, in effect, of a ‘market’ of connections. So we can substitute ‘how well-networked’ for ‘market share’ in how we adapt the matrix. For the ‘market growth’ measure, we can substitute ‘how productive’ – in other words, the number of opportunities for mutual benefit in which the relationship has resulted.

chart divided into four. Axis are: vertical, How well-networked, low to high and horizontal, How productive, low to high. clockwise, high low is Question marks, High high is stars, low high is Cash Cows, low low is Dogs. Amended BCG Matrix

The Italian economist Pareto argued that 80% of the value of any activity comes from 20% of the time spent doing it. So a relatively small number of your connections is likely to be responsible for most of the opportunities created. These high-value, highly productive connections are the ‘stars’ in your portfolio and they deserve most of your attention.

Networks change over time, as will your personal and business goals (and those of your connections). Some relationships will inevitably become less productive as a result. These contacts are the rough equivalent of the BCG’s ‘cash cows’. While still valuable, they are unlikely to develop any further, so after a while you need to review the time and effort they consume, in the interest of all parties. Those resources might be better applied to the ‘question marks’ in your network – new connections capable of opening up great opportunities, but who are still unproven. Their potential for success makes ‘question marks’ worth the risk of investment of time and effort – unlike the final category of low-productivity, inactive connections where withdrawal is the obvious option.

Analysing your network relationships in this way to promote some and retire others may appear unattractively calculating on the face of it. However, it is entirely in keeping with the principle of mutual value that underpins effective networking. Your investment in a relationship implies some level of investment from the other party. Withdrawing from mutually unproductive relationships saves wasted resources on all sides.

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This article is from the free online course:

Business Fundamentals: Effective Networking

The Open University