Portfolio Analysis

ITSPLAN Sherwin E Ona

Purpose of Portfolio Analysis

Aid in developing corporate strategy View that a business is a series of investments with an expected profitable return Vertical Axis: Industry attractiveness Horizontal Axis: Units capability or competitive position Tools:
4 cell BCG Growth-Share Matrix Nine Cell GE Business Screen

Portfolio Analysis
Based on the assumption that the best way to assess a firms current situation is to look at what the company does best & where the opportunities are greatest. Recommends that each product, SBU, or division be considered separately for purposes of strategy formulation.

BCG Growth-share Matrix

Steps:
Determine relative competitive position Market share divided by that of the largest other competitor Business growth rate: % by which sales of the particular line of products have increased Plot product line/business unit position

Portfolio Analysis
G r o w t h R a t e

Stars

Question Mark

Cash Cows

Dogs

L
Relative Competitive Position

Matrix dynamics
Stars
Considered as market leaders Peak of product life cycle

Question Marks
New products with lots of potential but need cash investment

Cash Cows
High return but there is possibility of decline

Dogs
Low market share and potential

Disadvantage
Too simplistic Growth is only one aspect of industry attractiveness Misses all competitors Market share one aspect of competitive position

9-Cell GE Business Screen

Select criteria to rate industry for each product line or business unit on a scale of 1 to 5 Select key factors needed for success in each product line. Assess competitive position Plot position in 9-cell matrix Plot portfolio

I N D U S T R Y
A T T R A C T I V E N E S S

Model of Corporate Strategies

GROWTH
High
Concentration via Vertical Integration

GROWTH
Concentration via Horizontal Integration

RETRENCHMENT
Turnaround

STABILITY
Medium
Pause or Proceed with Caution

GROWTH
Concentration via Horizontal Integration

RETRENCHMENT
Captive company or Divestment

STABILITY GROWTH

No Change in Profit Strategy

GROWTH
Low
Concentric Diversification

RETRENCHMENT
Bankruptcy or Liquidation

Conglomerate Diversification

Strong

Ave

Weak

BUSINESS STRENGTH/COMPETITIVE POSITION

Advantages
Force managers to evaluate business Graphical representation Raises issue of cash flow availability for expansion and growth

Disadvantage
Difficult to define market/product segments Using of standardized strategies may be impractical May lead to self-fulfilling prophecies May provide illusion of scientific rigor