PREPARED BY ISHVEEN KAUR

WHAT IS BUSINESS PORTFOLIO ANALYSIS?

The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

• Business portfolio analysis as an organizational strategy formulation technique is based on the philosophy that organizations should develop strategy much as they handle investment portfolios. Just as sound financial investments should be supported and unsound ones discarded, sound organizational activities should be emphasized and unsound ones deemphasized.

• BCG Growth-Share Matrix• The GE Multifactor Portfolio Matrix• Matsushita Strategy Matrix• Road-mapping• The GE Multifactor Portfolio Matrix was

deliberately designed by General Electric Company (GE) and McKinsey and Company to be more complete that the BCG Growth-Share Matrix.

 

Promotes competitive analysis at the level of SBU’s.

Better utilization of financial resources

It reduces risk, increase concentration, identification of strategies at corporate level.

• The short term financial condition and health of the company must be determined to assess whether it is a feasible entity or likely to go bankrupt

• The relative competitive position of the business must be ascertained because even if the business is not about to become bankrupt, liquidation of the business may be one of the strategic choices.

• It is then necessary to determine the position of evolution of the market that the business competes in. This will help decide whether the preferred strategy is share increasing, growth or profit.

• A plot is then made of the business’s basic strategic position.

 Liquidity trends  Profitability trends  Turnover trends  Ratio analyses should be calculated  Short and long term cash flows

should be examined  Corporate and business financial

models can also be of assistance

To develop a better measure of the long-term growth potential and profit potential of the organizations businesses.

Method is more comprehensive Market Share is an indicator of profit

potential but other factors also influence this measurement

Success factors of the organization's businesses vary from business to business

Market share SBU growth rate Breadth of product line Sales distribution effectiveness Capacity and productivity Experience curve effects Raw materials cost Value added Relative product quality and ETC…….

Examples of success factors – Hofer-Schendel (1978)

Charles W. Hofer and Dan Schendel, they described seven stages of the life cycle, each with certain characteristics by which the position of the market can be identified.

1. A major blunder by the industry leader2. A major investment program by a well

positioned follower3. Through the acquisition and effective

integration of another firm within the industry

4. Through a sustained effort to produce small, consistent incremental advantages over a long period of time.

“ He took series of research studies showing that the stage of the life cycle of the product represents a factor that influences to greater or smaller extent the success of a strategy”

• According to Hofer and Schendel, "The Principal difficulty with GE Business Screen is that it does not depict as affectively at it might the positions of new businesses that are just starting to grow in new industries.

• In such instances, it may be preferable to use a fifteen-cell matrix in which businesses are plotted in terms of their competitive position and their stage of product/market evolution". Thus, Hofer developed the Product/Market Evolution Portfolio Matrix, or Life Cycle Matrix.

Dimensions STAGE OF INDUSTRY EVOLUTION • Early Development• Rapid Growth/Takeoff• Shake-Out• Maturity/Saturation• Decline/StagnationCOMPETITIVE POSITION

The business unit competitive position

Strong Average WeakThe Life-Cycle Portfolio Matrix

Development

Growth

Competitive shakeout

Maturity

Decline

Saturation

Th e

Indu

stry

’s s

tage

in th

e ev

oluti

onar

y lif

e cy

cle

Advantages Used to identify developing winners Illustrates how businesses are

distributed across the stages of industry evolution

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