Portfolio strategy


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  • We’re all familiar with the Boston Consulting Group matrix that places an organization’s various products into quadrants.
    The Stars are those products having high growth/high market share. These products use large amounts of cash and should be able to generate cash flow.
    Cash Cows have low growth, high market share. These products are the foundation of a company. Stars will eventually become cows.
    Dogs have low growth, low market share. Sometimes we spend lots of time and money trying to turn these puppies around. Better to liquidate them, if possible.
    Question Marks: High growth, low market share. Growing market share on these products is critical because they place high demans on an organization and may absorb lots of cash. We need to monitor these products carefully and decide if they warrant continued investment, if we can do nothing and just generate short-term cash, or sell them.
    An Aggressive Portfolio is one that places heavy emphasis on Stars and Question Marks. Some organizations make the mistake of treating all products or business units in the same way by either underfunding the growing products or overfunding the units or products that do not warrant or need additional investment.
  • Portfolio strategy

    1. 1. Strategic Management Process
    2. 2. Strategic management process in a single SBU firm
    3. 3. Defining organizational mission Organizational analysis Environmental Analysis Setting long- term objective Reset if required Identifying Alternative strategies Reformulated if required Choice of strategy Re implement If required Implementation of strategy Strategy evolution & control Feedback
    4. 4. Strategic Management Process in a Multiple SBUs firm
    5. 5. SBUs’ objective Corporate level Organizational Mission Environmental Analysis for Present & potential SBUs Organizational long-term objectives SBUs’ objective Environmental Analysis For SBUs Analysis of SBUs Organizational& SBU analysis Alternative strategies Alternative strategies Choice of strategy Choice of strategy Implementation of strategy Evaluation of Organization & SBU results Feedback Implementation Of strategy Evaluation of SBU’s results Feedback
    6. 6. Organizational mission & objectives • The mission of an organization is the fundamental unique purpose that sets it apart from other organizations and identifies the scope of its operation in product and market terms. • Choice of the objectives for an organization is a strategic decision because by choosing its objectives, the organization commits itself for these. Objectives are generally the end results which the organization makes an attempt to achieve.
    7. 7. Environmental Analysis • Organization operates within the environment. An organization has to interact continuously with its environmental factors. Various factors of the environment have dual effect in interaction process with the organization ; they affect the working of the organization & also affected by its working. The interaction process provides opportunities or threats to an organization depending on the situation.
    8. 8. Organizational Analysis Through organizational analysis, the organization evaluates its strengths and weaknesses so that it can relate itself by emphasizing its strengths and overcoming its weaknesses. Organizational strengths & weaknesses also help in identifying the relevant environmental factors taken for detailed analysis. Strategic opportunities & threats are determined on the basis of both environmental analysis as well as organizational analysis
    9. 9. Identification of Strategic Alternatives • This process may result into large number of alternatives through which an organization can relate itself to the environment. The strategic alternatives should be identified in the light of strategic opportunities & threats generated through environmental analysis, organizational analysis & organizational mission and objectives.
    10. 10. Choice of strategy • This is the stage of strategic decision process and all factor relevant for decision making are relevant here. Since the particular strategy attempts to affect the organizational operation in same predetermined manner, the choice process systematically considers how each alternative strategy affects the various critical factors of the organizational functioning. Further, the chosen alternative should be acceptable in the light of organizational objectives.
    11. 11. Implementation of strategy • To bring the result, the strategy should be put to action because mere choice of even the soundest strategy will not affect organizational activities and achievement of its objectives. In strategy implementation, various activities involved are design of organization structure to suit the chosen strategy, effective leadership, development of functional policies, development & allocation of resources, development of effective information system, etc.
    12. 12. Evaluation and Control • For effective implementation & consequently achievement of organizational objectives, it is necessary that there is continuous monitoring of the implementation of the strategy so that suitable action is taken whenever something goes wrong. Evaluation & control of strategy and its implementation may result into various actions that the organization will have to take to be successful, depending on the situation.
    14. 14. Portfolio analysis • Portfolio analysis is a set of techniques that helps an organization, particularly having many businesses/ products, in making strategic decisions with regard to individual businesses or products in its portfolio. It was introduced in strategic management in mid 1960s and since then, many approaches of portfolio analysis have been developed.
    15. 15. Portfolio Techniques • • • • • BCG growth- share matrix GE nine- cell planning grid Product / market evolution matrix Directional policy matrix, and Strategic position and action evaluation
    16. 16. Low Growth rate High BCG Growth-share matrix Low High Market share
    17. 17. GE nine- cell planning grid Zone High Green (Industry Attractiveness) Yellow medium Red low Strong Average Weak (Business strength/ competitive Position)
    18. 18. The GE Nine-Cell Planning Grid
    19. 19. Hofer’s Product / Market Evolution Matrix
    20. 20. The life cycle model Development User/ buyers Competitive conditions Growth Shakeout Maturity Decline Few: trial of early adopters Growing adopters: trial of product / service Growing selectivity of purchase Saturation of users Drop-off in usage Few: competitors Entry of competitors May be many Attempt to achieve trial Likely price-cutting for volume Fight for share Shakeout of weakest competitors Undifferentiated products / services Repeat purchase reliance Fight to maintain share Exit of some competitiors Difficulties in gaining / taking share Selective distribution Emphasis on efficiency / low cost
    21. 21. Competitive position Strong Development Growth Stage of product / market evolution Decline Weak A C B D Shakeout Maturity Average E F
    22. 22. Cont… • Business A would appear to be a developing winner, business B may be classified as a potential winner, business C can be developed into future winner by improving its competitiveness, business D may be labeled as a established winner, business E may be cash cow, business F may be called a loser or dog, and so on.
    23. 23. Shell’s directional policy matrix
    24. 24.  Divestment:- A business with weak capability and unattractive business prospects usually incurs losses at the present and the situation is likely to continue in future too.  Gradual withdrawal :- such businesses which fall in quadrant 2 with weak capability and average business prospects, or in quadrant 4 with average capability and average business prospects may be divested in phases as these business are not likely to earn enough as compared to other business in the portfolio.
    25. 25.  Take a risk:- The business prospects but weak capability may have two alternatives. Either the business is strengthen by allocating additional resources to take the advantages of the attractive business prospects, or if it is not possible to allocate additional resources, it is advisable to divest.
    26. 26.  Maintain or look for growth:- the business falling under average capability and average business prospects has two alternatives. Either the organization may bear with the situation and make good the overall position with the help of other businesses, or it may divest this to concentrate on other businesses.
    27. 27.  Try Harder:- the business which has average capability that attractive business prospects needs additional resources to strengthen its capability so as to take the advantage of attractive business prospects.  Cash Generation:- the business which has strong capability but unattractive business prospects may be used for cash generation and no further investment is required because of unattractive business prospects.
    28. 28.  Look for growth:- the business with strong capability and average business prospect requires additional investment in the form of product innovation through R&D and creation of additional production capacity so as to fight in the market to increase market share.  Market leadership:- the business with strong capability and attractive business prospects may be used to become market leader by allocating additional resources and, once market leadership is established by innovation, to maintain leadership position.
    29. 29. Strategic Position and Active Evaluation • Strategic Position and action evolution (SPACE) is an extension of twodimensional portfolio analysis which helps an organization to hammer out an appropriate strategic posture. SPACE involves a consideration of four dimensions:
    30. 30. SPACE involves a consideration of four dimensions:  Organization’s competitive advantage,  Organization’s financial strength,  Industry strength, and  Environmental stability
    31. 31. Competitive advantages Industry strength Market share Product quality PLC Product replacement cycle Customer loyalty Competitor’s capacity utilization Technical know-how Vertical integration Profit potential Growth potential Financial stability Resource utilization Ease of entry into market Productivity, capacity utilization Financial strength Environmental stability Return on investment Leverage Liquidity Capital required and available Cash flow Ease of exit from market Risk involved in the business Technological changes Rate of inflation Price range of competitive products Competitive pressure Price elasticity of demand Entry barriers
    32. 32. Financial strength Conservative Aggressive Competitive Advantage Industry Strength Defensive Competitive Environmental Stability
    33. 33. GAP ANALYSIS • In GAP analysis, the central focus is on the examination of whether established norms are likely to be achieved by the existing strategy. If the answer is positive organization continues its present strategy but in case of negative answer, organization has to go for alternative strategy.
    34. 34. Desired performance Performance Present performance Performance gap T1 Time GAP Analysis T2