Portfolio analysis-matrix-explanation-and-questionnaire

PORTFOLIO ANALYSIS:
SEPARATING WINNERS FROM LOSERS
IN THE ASSOCIATION WORK PLAN
Once an association has adopted a strategic plan, the next step is to convert the goals and
objectives in that plan to a work plan and budget. But how can this be done? Every association
program or service has a constituency and a claim on resources. How then to weigh the
allocation of scarce resources to ensure that the objectives of the plan are attained and member
needs are served? Portfolio analysis has been devised to help associations bridge the gap between
strategy formulation and strategy implementation. In other words, it helps you make the hard
choices of where to put your money. It is the creation of Dr. Ian MacMillan of the University of
Pennsylvania’s Wharton School and the basis for The Forbes Group’s model.
What Portfolio Analysis Is
Portfolio analysis is a systematic way to analyze the products and services that make up an
association's business portfolio. All associations (except the simplest and the smallest) are
involved in more than one business. Some of these include publishing, meetings and conventions,
education and training, government representation, research, standards setting, public relations,
etc. Each of these is one of the association's strategic business units (SBUs). Each business
consists of a portfolio of products and services. For example, an association's publishing business
might include a professional journal, a lay magazine, specialized newsletters geared to different
member segments, CDs, a website, social networking sites, etc.
Portfolio analysis helps you decide which of these products and services should be emphasized
and which should be phased out, based on objective criteria. Portfolio analysis consists of
subjecting each of the association's products and services through a progression of finer screens.
During a time of cutbacks and scarce resources, it is essential to screen out programs and services
that are not essential to most members. Those that appeal to a more limited segment can be
funded by those desiring the product or service rather than by dues.
Advantages and Disadvantages of Portfolio Analysis
Portfolio analysis offers the following advantages:
1. It encourages management to evaluate each of the organization's businesses individually and
to set objectives and allocate resources for each.
2. It stimulates the use of externally oriented data to supplement management's intuitive
judgment.
3. It raises the issue of cash flow availability for use in expansion and growth.
Portfolio analysis does, however, have some limitations.
1. It is not easy to define product/market segments.
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2. It provides an illusion of scientific rigor when some subjective judgments are involved.
Considering both its advantages and disadvantages, portfolio analysis should be regarded as a
disciplined and organized way of thinking about asset allocation. It is only a subjective tool,
however, and is not a substitute for the ultimate professional judgment of the responsible
decision-makers.
Step 1: Identify Lines of Business
The first step in portfolio analysis is to identify the lines of businesses (SBUs) that make up the
association's portfolio. The guideline to keep in mind is this: if we were a corporation instead of a
professional society, which groups of programs would be logical candidates to be grouped
together as independent businesses?
Step 2: Group Lines of Business
There are three lines of businesses an association typically engages in. The first is core businesses
that are of vital importance to your broad membership. These are the businesses that directly
support the objectives in the strategic plan and have a priority claim on resources.
The second line of business is support functions that make it possible to deliver the core business
benefits to members. Examples of support functions are administrative, accounting, legal,
governance support, etc. These do not have a priority claim on resources. Rather, the objective
is to minimize the cost of these functions and transfer resources to support the core business.
The third line of business is money-makers that provide low-priority member benefits but are the
source of revenues that support the association’s core businesses. Ideally, the association’s core
businesses should be self-supporting and perhaps even contribute to reserves. Often, this is not
the case and activities must be subsidized with other income. Money-makers provide this income.
Examples of money-makers are rental car discounts, affinity cards, insurance programs.
Step 3: Compare Core Businesses with Mission Statement
Once you have separated out your core businesses, compare them with the association's mission
statement. To pass this screen, a business must directly support the goals that are defined in the
mission statement. Support should be direct and not peripheral. If a line of business does not
support the strategic plan, it should be discontinued or phased out and its resources transferred to
support the association's other core businesses.
Step 4: Define Products and Services in Each Line of Business
Once lines of business have been tested for relevance to the mission statement, the next step is to
subdivide those that are relevant into their component products and services. For example, the
publishing business would be subdivided into each of its products. Each product or service would
then be compared to the Program Evaluation Matrix.
Step 5: Apply the Program Evaluation Matrix
The Program Evaluation Matrix is a graphic device that simplifies the process of analyzing all the
products and services in the association's portfolio of products and services. In running its
programs through the Program Evaluation Matrix, the association makes several assumptions.
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Assumptions
1. Since the need for resources is competitive, the association must view the problem of
securing resources in a competitive context.
2. It is preferable to provide good service to a focused market than to provide mediocre or
poor service to too large a market.
3. It is pragmatic to surrender mediocre programs to better competitors and wrest away
promising programs from weaker competitors.
Evaluating Program Characteristics
The Program Evaluation Matrix helps an association determine the answers to the following
questions about each product or service in its portfolio:
1. Is it a good fit with our other programs?
2. Is it easy to implement?
3. Is there poor alternative coverage in the marketplace?
4. Is our competitive position strong?
For a program to survive the competition for the association's resources, there should be a
positive response to all these questions. No program is in a strong position unless it is
superior to all programs in that category. If it is not, it should be classified as being in a weak
position.
The effect of these generic strategies is to serve the client base with a small number of strong,
excellent providers rather than with a larger number of fragmented providers competing for
limited dollars.
Step 6: Determine Product Fit
Using the Program Evaluation Matrix, the first step is to determine whether the product or service
under review fits the association's mission and priorities. The screens for good product fit are:
1. Congruence with mission and purpose of the association.
2. Focus on core concerns that are of vital interest to the association's members/customers.
Step 7: Determine Ease of Funding and Implementation (Is this an easy business?)
The criteria for determining whether a program or service has the prospect of relatively easy
funding and implementation are:
1. High appeal to groups capable of providing current and future support.
2. Stable source of funding.
3. Market demand from a large, concentrated, growing client base.
4. Appeals to volunteer leadership.
5. Measurable, reportable program results.
Step 8: Determine Availability of Alternative Coverage
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This is the first step in a competitive analysis. Even nonprofits operate in a competitive
environment, which has a strong impact on the ability to successfully deliver member products
and services. Alternative coverage means is anyone else offering similar programs. Programs
should be classified according to two alternatives:
1. Low coverage: If there are few comparable programs offered elsewhere.
2. High coverage: If many similar programs are offered elsewhere.
Step 9: Assess Competitive Position of Product or Service
The following criteria should be considered in determining whether an association product or
service is in a strong competitive position. Competition is not limited to other nonprofits. For-
profit companies can and do compete directly with the association in the delivery of many
products and services. Publications are a good example of this. Criteria for a strong competitive
position are:
1. Dominant market share or strong prospects for achieving market dominance.
2. Better quality/value/service than competitors.
3. Superior ability to produce and market this program.
4. Cost-effective program delivery.
5. Strong match between the program and the future needs of members/customers.
Step 10: Determine Program Fit
Ideally, the association will have two types of programs:
1. Well-fitting, easy programs where the association has a strong position and competes
aggressively for a dominant position.
2. Well-fitting, difficult programs with low coverage that the association has the unique,
strong capability to provide to important stakeholders.
Applying these steps will reveal the association's current portfolio situation. The ideal would be
to have a portfolio that has primarily winners, and contains enough winners and profit producers
to finance the growth of potential winners. In reality, however, there will probably be a few
question marks and even perhaps a small loser. Then, of course, there are those untouchable
programs that, although marginal or even losers, are considered to be of fundamental importance
to members and must be subsidized.
Summing Up
Portfolio analysis is an important aid in the association's quest to identify its specific competitive
role. This role should be so well suited to the association's external and internal environments
that other associations are unlikely to challenge or dislodge it. The association then has a
distinctive competence that enables it to take advantage of specific environmental opportunities.
To accomplish this, the association must be on the constant lookout for strategic windows or
market opportunities.
In today’s competitive world, successful associations will have three characteristics in common,
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and portfolio analysis will have an important role to play in helping associations achieve them.
• They will innovate as a way of life.
• They will compete on value in meeting member needs, not on price.
• They will achieve leadership in related niche markets.
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PROGRAM EVALUATION WORKSHEET
Line of Business_______________________________________
Product or Service______________________________________
Analysis by_________________________ Date______________
Instructions: Evaluate the program or service on a scale of 1 to 5, with 1 being least favorable
and 5 being most favorable. Then add your ratings in each section, average them, and write the
numerical score at the end of the section. Then check which description best fits your analysis.
Give a high score if the average was 5. Give everything else a low score. Example: if you rate
Question 1 as 5 and 3 respectively, this would result in an average score of 4. You would then
check "poor fit."
1. GOOD PROGRAM FIT: Does the program fit our mission?
a. Does this program carry out the mission, goals and objectives of the
association's strategic plan?
1 2 3 4 5
b. Is the program sharply focused on core concerns that are vital to a significant
segment of the members/customers?
1 2 3 4 5
NUMERICAL SCORE for #1:______  GOOD FIT  POOR FIT
2. EASY BUSINESS: Is this program an "easy business" for the association?
a. High appeal to those whose financial support is essential to the continuing
success of the program?
1 2 3 4 5
b.Is financial support stable for the foreseeable future?
1 2 3 4 5
c. Does this program appeal to the volunteer leadership?
1 2 3 4 5
d. Is there a market demand from a large, concentrated customer base?
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1 2 3 4 5
e. Are there measurable, reportable program results?
1 2 3 4 5
SCORE for #2:______  EASY BUSINESS  DIFFICULT BUSINESS
3. ALTERNATIVE COVERAGE
a. High Alternative Coverage: Do others offer many similar programs?
b. Low Alternative Coverage: Do others offer few comparable programs?
Many Programs Few Programs
1 2 3 4 5
 LOW ALTERNATIVE COVERAGE (Few programs)
 HIGH ALTERNATIVE COVERAGE (Many programs)
COMPETITIVE POSITION: Is our program strongly positioned against
competition?
a. Dominant market share or strong prospects for achieving market dominance
1 2 3 4 5
b.Better quality/value/service than competitors
1 2 3 4 5
c. Superior ability to produce and market this program
1 2 3 4 5
d. Cost-effective program delivery
1 2 3 4 5
e. Strong match between the program and the future needs of
members/customers
1 2 3 4 5
SCORE for #4:______  STRONG COMPETITIVE POSITION
WEAK COMPETITIVE POSITION
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APPLYING THE PROGRAM EVALUATION MATRIX
The next step is to apply each of the scores against the Program Evaluation Matrix. When you
have completed this exercise, use the checklist below to classify this program or service. Then
assign it to its proper place on the matrix.
 Aggressive Competition (Cell I)
 Aggressive Growth (Cell II)
 Aggressive Divestment (Cell III)
 Build Strength or Get Out (Cell IV)
 Build Up Best Competitor (Cell V)
 "Soul of the Association" (Cell VI)
 Orderly Divestment (Cell VII)
 "Foreign Aid" or Joint Venture (Cell VIII)
 Aggressive Divestment (Cell IX)
 Orderly Divestment (Cell X)
EXPLANATION OF THE PROGRAM EVALUATION MATRIX CHART
Using the numerical ratings from your Program Evaluation Worksheet, find out which cell fits
each program or service you have analyzed.
The top row of the Matrix indicates whether the program is an easy business or a difficult
business. It is further subdivided according to whether you rated it as having high alternative
coverage or low alternative coverage.
The left vertical row of the Matrix indicates whether the program is a good fit or a poor fit for
the association. This is further subdivided according to whether the association's program is in a
strong competitive position or a weak competitive position.
The juncture of the horizontal and vertical axes will advise you of the best course to follow in
your assessment of the product or service under review. Each cell on the Matrix is made up of
the following components from your Program Evaluation Worksheet:
CELL I: Aggressive Competition - Association has a dominant market position and has the
prospect to compete successfully.
Good fit
Easy business
High alternative coverage
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Strong position
CELL II: Aggressive Growth - Association has a clear field and should move rapidly to take full
advantage of its opportunities.
Good fit
Easy business
Low alternative coverage
Strong position
CELL III: Aggressive Divestment - Lots of competition and a weak market position signal rapid
exit and redeployment of assets to something more productive.
Good fit
Easy business
Weak position
CELL IV: Build Strength or Get Out - The association has a weak competitive position but
there isn't anyone out there much better, so either get better and dominate the niche or redeploy
assets.
Good fit
Easy business
Weak position
CELL V: Build Up Best Competitor - It's a difficult business with lots of competition; strike a
deal with the best competitor and get out.
Good fit
Difficult business
Strong position
CELL VI: The Soul of the Association - It's a difficult business but essential to the members.
The association does it well and no one else can do it, so find funds to subsidize it and keep going
even though it makes little economic sense.
Good fit
Difficult business
Strong position
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CELL VII: Orderly Divestment - If you're in a difficult business and a weak competitive position
with high alternative coverage, it's time to plan a graceful withdrawal.
Good fit
Difficult business
Weak position
CELL VIII: "Foreign Aid" or Joint Venture - If it is a difficult business, with low alternative
coverage and you are in a weak competitive position -- but it is a good fit for the association,
consider a joint venture with another organization, or getting an outside funding source to
support it.
Good fit
Difficult business
Weak position
CELLS IX. & X: - Aggressive/orderly divestment: It doesn't matter whether it's an easy business
if it doesn't fit the association's mission: get out and use the resources on something that supports
the mission.
Poor fit
Easy or difficult business
Cells I and II are clearly winners and are candidates for priority resource allocation.
Cell VI and VIII programs should be made self-supporting where possible so they do not divert
resources from potential winners in Cells I and II.
Cell IV programs should be retained or discontinued according to whether performance improves
enough to move to Cell I or II.
Cells III, V, VII, IX and X are potential sources of revenue for higher-priority programs.
Resources should be transferred from these cells to other cells as rapidly as possible.
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PROGRAM EVALUATION MATRIX*
A Strategy Matrix for Selecting Programs in Nonprofit Organizations
EASY "BUSINESS" DIFFICULT "BUSINESS"
HIGH
ALTERNATIVE
COVERAGE
LOW
ALTERNATIVE
COVERAGE
HIGH
ALTERNATIVE
COVERAGE
LOW
ALTERNATIVE
COVERAGE
GOOD FIT
STRONG
COMPETITIVE
POSITION
I.
AGGRESSIVE
COMPETITION
II.
AGGRESSIVE
GROWTH
V.
BUILD UP
THE BEST
COMPETITION
VI.
"SOUL OF
THE
ASSOCIATION"
WEAK
COMPETITIVE
POSITION
III.
AGGRESSIVE
DIVESTMENT
IV.
BUILD
STRENGTH OR
GET OUT
VII.
ORDERLY
DIVESTMENT
VIII.
"FOREIGN AID"
OR JOINT
VENTURE
POOR FIT
IX.
AGGRESSIVE DIVESTMENT
X.
ORDERLY DIVESTMENT

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