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Granular business portfolio matrix

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Manage business portfolio in new global economy with (2-way 9-box) matrix strategy

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Granular business portfolio matrix

  1. 1. Granular (2-way 9-BOX Matrix) Business Portfolio Strategy in New Multi-Power Economy
  2. 2. <ul><li>When large organization diversify themselves into different businesses then after sometime it becomes very tough to allocate cash to each business unit </li></ul><ul><li>It is very difficult for an organization to allocate cash just on the basis of projected future results as businesses are of different types like capital intensive, service oriented & brand loyal etc. </li></ul>
  3. 3. <ul><li>GE is one of the organizations that find itself in this kind of situation when their business grows to 150 separate business units </li></ul><ul><li>GE developed 9-box matrix strategy to manage their portfolio of business </li></ul>
  4. 4. <ul><li>Most of big organization & conglomerate follows 9-box matrix strategy to manage their portfolio of business </li></ul><ul><li>9-box matrix developed by plotting industry attractiveness on x-axis and business position of each business unit on y-axis </li></ul>
  5. 5. <ul><li>Industry Attractiveness </li></ul><ul><li>Industry size </li></ul><ul><li>Growth Rate (substitute industry’s capability & expansion) </li></ul><ul><li>Number of Competitors </li></ul><ul><li>Current Profitability </li></ul><ul><li>Entry Barrier </li></ul><ul><li>Industry’s future expansion potential / govt. regulation </li></ul><ul><li>Industry approach towards social responsibility </li></ul><ul><li>Customer outlook towards industry </li></ul><ul><li>Business Position </li></ul><ul><li>Company’s business position as compare to competitors (competitive sustainable advantage) </li></ul><ul><li>Core competencies </li></ul><ul><li>Financial position </li></ul><ul><li>Market share / Brand equity </li></ul><ul><li>Use of technology in business </li></ul><ul><li>Bargaining power over supplier </li></ul><ul><li>Customer loyalty towards business (Corporate Social Responsibility) </li></ul><ul><li>Is the company natural owner of business? </li></ul>
  6. 6. Industry Attractiveness Business Position Low Medium High High Medium Low Traditional 9-box matrix strategy organization makes decision of investment / divestment on the basis of each box’s outcome Selective Investment ( Critical Decision ) Harvest/Divest Harvest/Divest Invest/Grow Selective Investment Harvest/ Divest Invest/Grow Invest/Grow Selective Investment ( Critical Decision )
  7. 7. <ul><li>After 2008 recession there is going to be huge turnaround in global economy </li></ul><ul><li>US & Europe will be no more dominant factor in global economy </li></ul><ul><li>Emergence of multi-power economy where few players will dominate the economy </li></ul>
  8. 8. <ul><li>In the coming decade US & Europe will grow merely between 2-4% </li></ul><ul><li>Emerging market will see exceptional growth particularly India & China. Emerging market will grow between 6-10% </li></ul><ul><li>BRIC nations will account for 50% of world GDP by 2030 </li></ul>* BRIC - Brazil, Russia, India & China
  9. 9. <ul><li>590 million people in India will live in cities by 2030, twice the population of United States today </li></ul><ul><li>270 million people net increases in working age population in India by 2030 </li></ul><ul><li>91 million Indian urban household will be middle class up from, 22 million today </li></ul><ul><li>Consumption in India will increase 4 fold from year 2005 to 2025 with discretionary spending will increase from 52% in 2005 to 70% in 2025 </li></ul><ul><li>1 billion people will live in China’s cities by 2030 </li></ul><ul><li>350 million will be added to China’s urban population by 2025 – more than the population of today’s United States </li></ul><ul><li>221 Chinese cities will have 1 million+ people living in them, Europe has 35 today </li></ul>* Data Source: Mckinsey & Company Research
  10. 10. <ul><li>Global economy will shift from US & EUROPE region to APAC region </li></ul><ul><li>In future there will be great disparity in consumption & growth between emerging & developed market and 9- box matrix strategy is not very helpful in taking investment & divestment decision </li></ul><ul><li>Organizations require to follow granular approach and takes investment & divestment decision considering geographic location & business segment attractiveness because an attractive Industry in developed market can provide only moderate growth however same industry in an emerging market can provide exceptional growth </li></ul>
  11. 11. <ul><li>Organization should make selective decision on the basis of business position, industry attractiveness, geographical attractiveness & business segment attractiveness </li></ul><ul><li>Granular (2-way 9-box matrix) business portfolio strategy can solve the problem by modifying existing 9-box matrix </li></ul>
  12. 12. <ul><li>Industry Attractiveness </li></ul><ul><li>Industry size </li></ul><ul><li>Growth Rate (substitute industry’s capability & expansion) </li></ul><ul><li>Number of Competitors </li></ul><ul><li>Current Profitability </li></ul><ul><li>Entry Barrier </li></ul><ul><li>Industry’s future expansion potential / govt. regulation </li></ul><ul><li>Industry approach towards social responsibility </li></ul><ul><li>Customer outlook towards industry </li></ul><ul><li>Business Position </li></ul><ul><li>Company’s business position as compare to competitors (competitive sustainable advantage) </li></ul><ul><li>Core competencies </li></ul><ul><li>Financial position </li></ul><ul><li>Market share / Brand equity </li></ul><ul><li>Use of technology in business </li></ul><ul><li>Bargaining power over supplier </li></ul><ul><li>Customer loyalty towards business </li></ul><ul><li>Is the company natural owner of business? </li></ul>Business Segment Attractiveness Business Segment expected life-cycle period Current State position (business life cycle) Easy & Cost effectiveness to diversify into other business segment in the same industry Granular Business Portfolio Matrix Medium Growth Medium Growth Low Growth Future Growth High Growth High Growth Developed Market Emerging Market Geography Attractiveness
  13. 13. Matrix - 1 Industry Attractiveness Business Segment Attractiveness Business Position Geography Attractiveness Low Medium High High Medium Low Selective Investment ( Critical Decision ) Harvest/Divest Harvest/Divest Invest/Grow Selective Investment Harvest/ Divest Invest/Grow Invest/Grow Selective Investment ( Critical Decision )
  14. 14. <ul><li> </li></ul><ul><li>In matrix 1 business position & geography attractiveness both plotted on y-axis and industry attractiveness & business segment attractiveness plotted on x-axis. It is assumed that both the position go hand-in-hand. High business position occurs in high geography attractiveness and low business position occurs in low geography attractiveness. Same is applicable for industry attractiveness & business segment attractiveness also </li></ul><ul><li>Matrix 1 provides traditional 9-box matrix outcome however the situation can be different when high business position occurs in low geography attractiveness & high business segment attractiveness occurs in low industry attractiveness </li></ul><ul><li>Matrix 2 will reveal investment & divestment strategy as per granular approach </li></ul>Granular Business Portfolio Matrix
  15. 15. Matrix - 2 Industry Attractiveness Business Segment Attractiveness Business Position Low Medium High High Medium Low Geography Attractiveness High Medium Low Low Medium High Harvest/Divest Invest/Grow Selective Investment ( Critical Decision ) Selective Investment Invest/Grow Selective Investment ( Critical Decision ) Selective Investment Selective Investment Selective Investment ( Critical Decision )
  16. 16. <ul><li>In matrix 2 business position are plotted on y-axis and geography attractiveness are plotted parallel to it in reverse order of low-medium-high . Industry attractiveness are plotted on x-axis and business segment attractiveness are plotted parallel to it in reverse order of high-medium-low </li></ul><ul><li>Upper Right ( yellow ) provides selective investment opportunity as it caters to high-medium business position & industry attractiveness and low-medium business segment & geography attractiveness </li></ul><ul><li>Middle Column ( green ) of 2 & 3 row should be invested/grow as it caters to medium-high industry attractiveness, business segment attractiveness & geography attractiveness and medium-low business position </li></ul><ul><li>Lower Right Corner ( orange ) should be divested as it serves in low business position & low business segment attractiveness. However it works in high industry & geography attractiveness. Organization shall invest the harvested amount in other business segment of the same geography & industry. </li></ul><ul><li>Other Column ( grey ) are critical decision that should be taken considering business segment life-cycle period & current state position. It mostly caters to high business segment attractiveness & low industry attractiveness in high-medium-low business position & geography attractiveness </li></ul>Granular Business Portfolio Matrix
  17. 17. Thank You Please provide your feedback. Your feedback will be highly appreciated For more information please contact: Deepak Agrawal [email_address] http://www.deepakagrawalblog.wordpress.com/ http://in.linkedin.com/in/deepakagrawal2009

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