1. Business Portfolio Analysis
Prof.(Dr.) Nitin Zaware1Prof. (Dr.) Nitin Zaware

2. Business Portfolio Analysis :
Business Portfolio Analysis is an organizational
strategy formulation technique that is based on the
philosophy that Organizations should develop
strategy much as they handle investment portfolios.
Portfolio analysis is a systematic way to
analyze the products and services that make up an
association's business portfolio.
In the way, in which the sound financial
investments should be supported and unsound ones
discarded, sound organizational activities should be
emphasized and unsound ones deemphasized.
2Prof. (Dr.) Nitin Zaware

3. Purpose of Portfolio Analysis :
A viable strategy need for product-market
scopes in determining how strategic objectives will be
attained. In a diversified company, one well-accepted
concept of product-market scope is the portfolio
approach to an organization's overall strategy.
The optimal business portfolio is one that fits
perfectly to the company's strengths and helps to
exploit the most attractive industries or markets.
An SBU can either be an entire mid-size
company or a division of a large corporation.
It normally formulates its own business level
strategy and often has separate objectives from the
parent company. 3Prof. (Dr.) Nitin Zaware

4. The aim of a portfolio analysis is:
1) To Analyse:
Analyse its current business portfolio and
decide which SBUs should receive more or less
investment.
2) To Develop Growth Strategies:
Develop growth strategies for adding new
products and business to the portfolio.
3) To Take Decisions Regarding Product
Retention:
Decide which business or products should no
longer be retained.
4Prof. (Dr.) Nitin Zaware

5. Portfolio Analysis Techniques:
1) BCG Matrix:
The basis for many of these matrix analyses grew out of
work carried out in the 1960s by the Boston Consulting Group
(BCG).
BCG observed in many of their studies that producers
tend to become increasingly efficient as they gain experience
in making their product and costs usually declined with
cumulative production.
The growth-share matrix (aka the product portfolio,
BCG-matrix, Boston matrix, Boston Consulting Group
analysis, and portfolio diagram) is a chart that had been
created by Bruce D. Henderson for the Boston Consulting
Group in 1970 to help corporations with analyzing their
business units or product lines.
5Prof. (Dr.) Nitin Zaware

6. BCG Matrix
High
Stars
Cash Cows Dogs
LowHigh
Low
Growth
Fledglings
or
question
marks
Relative Market Share
6Prof. (Dr.) Nitin Zaware

7. BCG Matrix:
a)Dogs : Low Market Share and Low Market Growth :
Dogs are business units or products that have low
market share in a low-growth market. They often don't
make much profit, but they don't need much investment
either. Much of the time, you'll need to offer a price
discount to sell Dog products.
b) Cash Cows: High Market Share and Low Market
Growth :
These businesses or products are well established.
They're likely to be popular with customers, which
makes it easier for you to exploit new opportunities.
However, you should avoid spending too much effort on
these, because the market is only growing slowly, and
opportunities are likely to be limited.
7Prof. (Dr.) Nitin Zaware

8. c) Stars: High Market Share and High Market
Growth :
Businesses and products in this quadrant are
seeing rapid growth. There should be some good
opportunities here, and you should work hard to
realize them.
d) Question Marks (Problem Children): Low
Market Share and High Market Growth :
These are the opportunities that no one
knows how to handle. They aren't generating
much revenue right now, because you don't have
a large market share.
8Prof. (Dr.) Nitin Zaware

9. Portfolio Analysis Techniques:
2 )GE Nine Cell Matrix:
GE Matrix also called McKinsey Matrix is a
strategic management tool for conducting
portfolio analysis.
The portfolio which is analyzed with the
matrix may include products, services or entire
SBUs (strategic business units) owned by the
company.
This tool is very similar to the BCG Matrix and
you can actually view the GE or McKinsey Matrix
is a kind of extension of the BCG Matrix (the
multifactor portfolio analysis tool). 9Prof. (Dr.) Nitin Zaware

10. GE Nine Cell Matrix
Low
High A
E
D
C
B
Medium
Strong Medium Weak
Industryattractiveness Competitive strength
10Prof. (Dr.) Nitin Zaware

11. 2 )GE Nine Cell Matrix:
a )The Vertical Axis: Industry Attractiveness
It represents industry attractiveness which
weighs composite rating based on eight different
factors. These factors are:
1) Market size and growth rate.
2)Industry profit margin.
3)Competitive intensity.
4)Seasonability.
5)Cyclicality.
6)Economics of scale
7)Technology and
8)Social, environmental, legal and human
impacts.
11Prof. (Dr.) Nitin Zaware

12. 2 )GE Nine Cell Matrix:
b) The Horizontal Axis: Business Strength:
It represents business strength competitive
position which is again a weighed composite rating
based on seven factors. They are:
1) Relative market share
2)Profit margins
3)Ability to compete on price and quality
4)Knowledge of customer
5)Competitive strengths and weaknesses
6)Technological capability and
7)Calibre of management.
12Prof. (Dr.) Nitin Zaware

13. GE Matrix Positions and Strategy:
The GE / McKinsey Matrix are actually divided into
nine cells. These 9 cells represent the nine alternatives for
positioning of any SBU or product / service offering.
Based on clear understanding of all of these factors decision
makers are able to develop effective strategies.
The nine cells in the matrix grouped into 3 major
segments: Segment 1
This is mostly the best segment. The business in this
position is strong and the market is attractive.
In this case the company should allocate resources in
this business and focus on growing the business and
increase its current market share.
13Prof. (Dr.) Nitin Zaware

14. Segment 2:
The business is either strong but the market is not
attractive or the market is strong and the business is not
strong enough to pursue potential opportunities.
Decision makers should make judgment on how to
further deal with these SBUs or products.
Some of them may consume too much resource and are
not really promising any strong potential while others may
need additional resources and better strategy for growth.
14Prof. (Dr.) Nitin Zaware

15. Segment 3:
This is the worst positioning segment.
Businesses or products and services in this segment
are very weak and their market is not attractive.
Decision makers should consider either
repositioning these SBUs into a different market
segment, develop better cost-effective offering, or get
rid of these SBUs and invest the resources into more
promising and attractive SBUs.
15Prof. (Dr.) Nitin Zaware

16. Advantages of GE Matrix:
1)It offers an intermediate classification of medium
and average ratings.
2)It incorporates a larger variety of strategic
variable like the market share and industry size.
3)It is a powerful analytical tool to channel
corporate resources to businesses that combine
medium to high industry attractiveness with an
average to strong business competitive position.
Disadvantages:
The major drawback of the GE matrix is that it
only provides broad strategic prescriptions rather
than the specifics of business strategy.
16Prof. (Dr.) Nitin Zaware

17. Advantages of Portfolio Analysis
Encourages
Managemen
t for
Evaluation Stimulates
Use of
Externally
Oriented
Data
Key
Areas
Cash
Flow
Balance
Portfolio
Diverse
Perspective
Flexible
Comparisons
17Prof. (Dr.) Nitin Zaware

18. Advantages of Portfolio Analysis:
1) Encourages Management for Evaluation:
It encourages management to evaluate each of the
organization's businesses individually and to set objectives
and allocate resources for each.
2) Stimulates Use of Externally Oriented Data:
It stimulates the use of externally oriented data to
supplement management's intuitive judgment.
3) Key Areas:
These models highlight certain aspects of business that
are considered essential to success or failure.
4) Cash Flows :
They focus on cash flow requirements of the SBU's and
help identify the different cash flow implications and
requirements of different business activities. This helps
management to carry out its resource allocation function. 18Prof. (Dr.) Nitin Zaware

19. 5) Balance Portfolio :
They help identify strengths and weaknesses in the
portfolio, the gaps that to be filled; when a new SBU needs to
be added or when one needs to be removed; and the
duplicative businesses in the portfolio.
6) Diverse Perspective :
The diverse activities of a multi-business company are
analyzed in a systematic manner and enterprise diversity
highlighted.
7) Flexible Comparisons :
Some matrices, like the McKinsey Matrix, are highly
flexible in being able to select different factors for different
industries. This kind of analysis can provide coverage of a
wide number of strategically relevant variables.
19Prof. (Dr.) Nitin Zaware

20. Disadvantages of Portfolio Analysis
Disadvantages
To Simple
Market Share
Market Share and
Cash Flow
Mismatch
Market Share and
Cost Savings
Mismatch
Subjective
Numbers
Static Pictures
Multiple SBUs
Conflict of
Interests
Inappropriate
divesting
20Prof. (Dr.) Nitin Zaware

21. Disadvantages of Portfolio Analysis:
1) Too Simple:
Matrix models are simplistic. The important factors are
reduced to only two dimensions (e.g. market share and
business attractiveness) other factors are necessarily
excluded or lose their distinctiveness in the collapsed
dimensions.
2) Market Share:
Market share, though used widely, may not be the best
measure of a company's success. For example, product
differentiation for a particular market segment may have low
market share but produce high success within a market
segment.
3) Market Share and Cash Flow Mismatch :
High market share in a low-growth industry does not
necessarily result in large positive cash flow characteristics of
a "cash cow" business.
21Prof. (Dr.) Nitin Zaware

22. 4)Market Share and Cost Savings Mismatch :
The connection between relative market share and
economics of scale may also not be a direct relationship.
5) Subjective Numbers :
The numerical format of some matrices may lead the
user to place greater confidence in them than is
warranted. The numbers from most ratings are
subjectively derived, subject to personal biases, political
pressure, and budgetary needs.
6) Static Pictures :
The analyses most often provide a static picture of
SBUs. They are not projective, they do not account
adequately for changes due industry evolution,
technological change, and other environmental forces,
etc.
22Prof. (Dr.) Nitin Zaware

23. 7) Multiple SBUs :
There is a limit to the number of SBUs that can be
examined; otherwise the resulting analysis becomes
increasingly superficial. Such problems can occur when the
volume exceeds 40-50 SBUs.
8) Conflict of Interests :
When a SBU contains several different but related
business conflicts of interest can occur between the cash
flow priorities of a SBU and the priorities of the company as
a whole.
9) Inappropriate divesting :
Improper application of portfolio techniques may
result in inappropriate divesting of useful between the cash
flow priorities of a SBU and the priorities of the company as
a whole.
23Prof. (Dr.) Nitin Zaware

24. Prof. (Dr.) Nitin Zaware 24