Portfolio Management
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Portfolio Management

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Portfolio Management Portfolio Management Presentation Transcript

  • Portfolio Management for New Products
  • Portfolio Management
    • Portfolio Management for product innovation has surfaced as one of the most important management function.
    • The reasons being
    • Shorter PLC
    • Heightened Global Competition
    • Portfolio Management is the manifestation of the business strategy---- it dictates where and how you will invest for the future
  • Pitfalls of Poor Portfolio management
    • Strategic-
    • Projects not strategically alligned with the business strategy
    • Many strategically unimportant products in the portfolio
    • R&D spending that does not reflect strategic priorities of the business
    • Low Value Projects-
    • Deficient Go/kill and project selection decisions
    • No Focus —
    • Strong reluctance to kill project
    • The wrong projects
  • Importance of Portfolio Management
    • Financial-to maximise returns, to maximise R&D productivity, to achieve financial goals
    • To maintain the competitive position of the business
    • To properly and efficiently allocate scarce resources
    • To forge a link between project selection and business strategy
    • To achieve focus
    • To achieve balance
    • Better communicate priorities within the organization
    • To provide better objectivity to project selection
  • A typical Scoring Model For Project Prioritization
    • Strategic Alignment:
    • • Degree to which project aligns with our strategy
    • • Strategic importance
    • Product/Competitive Advantage :
    • • Offers customers/users unique benefits
    • • Meets customer needs better
    • • Provides value for money for the customer/user
    • Market Attractiveness:
    • • Market size
    • • Market growth rate
    • • Competitive intensity in the market (high=low score)
    • Synergies (Leverages Our Core Competencies):
    • • Marketing synergies
    • • Technological synergies
    • • Operations/manufacturing synergies
    • Technical Feasibility:
    • • Size of technical gap (large=low score)
    • • Technical complexity (barriers to overcome)
    • (many/high = low score)
    • • Degree of technical uncertainty (high=low score)
    • Risk Vs. Return:
    • • Expected profitability (magnitude: NPV)
    • • Return on investment (IRR)
    • • Payback period (years; many=low score)
    • • Certainty of return/profit estimates
    • • Low cost & fast to do
  • Portfolio Methods
    • Financial Methods
    • BCG Matrix
    • GE Matrix
  •  
  • Portfolio Analysis
    • Strategic Business Unit (SBU) Definition
      • Single independent operation of a company
      • Has its own competitors
      • One manager responsible for performance
    • Allocation of resources over all SBUs
    • Goals
      • Set benchmarks
      • Create generalized descriptions of strategic situations
  • Basis of the BCG Portfolio Matrix Time Introductory Phase “?” Growth Phase “Star” Sales Volume Mature Phase “Cash Cow” Decline Phase “Dog” Source: Das Boston-Consulting-Group-Portfolio Dipl.-Ing. Holger Blumhof
  • BCG Matrix Construction
    • Internal measure: Relative market share
      • Firm’s sales of the SBU . Total market’s average sales
      • Firm’s Sales of the SBU . Strongest Competitor’s Sales
    • External measure: Market growth
      • Match strategy with market stage
  • The BCG Matrix High Low High Low Product Sales Growth Rate Relative Market Share
  • Strategy Recommendations
    • Investment
      • Further Growth
      • Maintain Market Position
    • Cash flow
      • Self-sustaining: Fund their own growth
      • Require funds from other SBUs (Cash Cows)
    • Assure the future of the company
    • Grow into Cash Cows
  • Strategy Recommendations
    • Investment
      • Increase market share
      • Selectively develop into Stars
    • Cash Flow
      • Require funds from other SBUs (Cash Cows)
    • Unrealized future opportunities
  • Strategy Recommendations
    • Investment
      • Maintain market share
      • Maintain capacity
    • Cash Flow
      • Positive cash flow
      • Provides funding to support Stars and “?”
    • No potential for profit growth
  • Strategy Recommendations
    • Investment
      • Divestiture strategy
      • Reduce capacity to free up resources
    • Cash Flow
      • Goal of Positive Cash Flow
      • Negative Cash Flow = Divestment
    • No real growth opportunities
  • Evaluation of BCG Matrix: Cons
    • Oversimplifies complex decisions
    • Only 2 factors considered = creates risk
    • Uncertainty in market and SBU definition
    • Only considers current businesses  no dynamics
    • Does not recognize possible synergies between SBUs
  • Evaluation of BCG Matrix: Pros
    • Simple and rapid
    • Solid basis for decision-making
    • Good measurability of market share and growth
    • Provides information about efficient resource allocation within the organization
    • Generator for strategic options
  • Conclusion
    • As long as management understands that the BCG Growth/Share Matrix generates options which require further analysis and validation, this tool can greatly enhance strategic decision making