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The Product Portfolio

1970 by Bruce Henderson
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  • The value of a product depends on its obtaining a leading share of its market before growth slows.

  • Every product should eventually be a cash generator; otherwise it is worthless.

  • Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on growth opportunities.


To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both kinds are needed simultaneously.

Four rules determine the cash flow of a product.

  • Margins and cash generated are a function of market share. High margins and high market share go together. This is a matter of common observation, explained by the experience curve effect.

  • Growth requires cash input to finance added assets. The added cash required to hold share is a function of growth rates.

  • High market share must be earned or bought. Buying market share requires an additional increment of investment.

  • No product market can grow indefinitely. The payoff from growth must come when the growth slows, or it never will. The payoff is cash that cannot be reinvested in that product.