Which of the following is not a downside of portfolio models used to assist a firm in balancing its portfolio of businesses?
A) Portfolio models compare SBUs on only two dimensions under the assumption that these are the only factors that matter.
B) Portfolio models view each SBU as a stand-alone entity.
C) Portfolio models rely on loose rules regarding resource allocation across the SBUs.
D) The evaluation process risks becoming mechanical and oversimplified.

Question

Quizplus · Accepted Answer

First, they compare SBUs on only two dimensions, making the implicit but erroneous assumption that (1) those are the only factors that really matter and (2) every unit can be accurately compared on that basis. Second, the approach views each SBU as a stand-alone entity, ignoring common core business practices and value-creating activities that may hold promise for synergies across business units. Third, unless care is exercised, the process becomes largely mechanical, substituting an oversimplified graphical model for the important contributions of the CEOs (and other corporate managers) experience and judgment. Fourth, the reliance on strict rules regarding resource allocation across SBUs can be detrimental to the long-term viability of a firm. Finally, while colorful and easy to comprehend, the imagery of the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

Which of the Following Is Not a Downside of Portfolio