Meaning of PPM analysis

PPM analysis is an abbreviation for Product Portfolio Management, which classifies businesses, products, and services based on two axes: “market growth rate” and “market share” and determines the investment allocation of management resources. This is a method for doing so.

PPM analysis was proposed by the Boston Consulting Group in the 1970s. By using PPM analysis, you can check each business of your company and the position of your company and competitors.

Points of PPM analysis

PPM analysis classifies your business into the following four categories.

Star

This is a business that can truly be called a star, with both a high market growth rate and market share. Although it is easy to make a profit due to a high market share, competition is fierce due to the high market growth rate. In order to overcome competition in the market, it is desirable to continue to make active investments.

Cash Cow

This is a business with a low market growth rate and few new entrants. Competition is moderate and active investment is not required, but a high market share makes it easy to generate stable profits.

Problem Child

A business that has a high market growth rate and therefore is highly competitive and requires active investment, but has a low market share and is difficult to generate profits. If we can increase our market share, it has the potential to become a star or a cash cow in the future.

A business that does not require investment due to a low market growth rate, but does not generate profits due to a low market share. Since business growth is not expected, it may be an appropriate business decision to liquidate the business and raise funds and distribute them to star or underdog businesses.

The above classification makes it possible to prioritize the investment allocation of management resources, making it easier to make business decisions such as strengthening, maintaining, or withdrawing from a business. On the other hand, please note that PPM analysis uses only limited financial indicators, so there are aspects such as synergies between businesses that may be overlooked.