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Portfolio Analysis (PA)
• PA is a technique used to analyse
organisations in relation to their
environments
• Portfolio (set, collection, assortment, range,
group)
• A biz portfolio may be any collection of
brands / products, markets, branches /
divisions, income generating assets, e.t.c
• PA is usually applied to firms with multiple
SBUs (more than one product/services,
customer categories, markets , divisions)
PA Introduction– Cont.
• Helps managers in taking decisions
regarding which SBUs to allocate more
or less resources to at a given strategic
point in time
• After portfolio analysis firm makes an
informed strategic choice e.g.
– To have a balanced portfolio (minimize risk
and maximize return) of all portfolios
– To actively deploy a retrenchment strategy
Portfolio Analysis Models:
• Have been developed by large firms in developed
world, mostly named against their inventors
• Are applicable even to smaller firms with multiple
SBUs.
Examples are shown below:
• The B.C.G model (Growth/Share matrix)
• The G.E Multi-directional model (competitive
strengths/Attractiveness matrix)
• Contribution Margin Analysis (how much profit margin
does that biz portfolio contribute?)
Boston Consulting Group (BCG) Model
• This is the most popular business portfolio
matrix
• It analyses the business portfolio in relation
to market share and market / industry
growth
• The above 2 variables (share & growth)
range from low to high
• A SBU is positioned in the model and the
firms strategy is guided by the SBU’s
positioning.
Question
marks
Cash cows Dogs
Industry/
market
growth rate
Relative market share
High
Low
The BCG(Boston Consulting Group) model
High Low
Stars
BCG Sections
Stars
• Business with a high market share and high
growth rate
• Generate huge sums of money
• Require huge sums of money to cope with
growth
Cash Cows
• Businesses with low growth but high
market share
• Generate huge sums of money at low cost
• Are used to develop and promote new
businesses (they are “milked”)
BCG Sections – Cont.
Dogs
• Have low market share in an aged industry
• The strategy is, normally to sell them off.
Question marks (Fledglings)
• Sometimes called problem children (they
need to be grown).
• They generate low cash but need a lot to tap
the high growth rate.
• They can be grown into stars, resources
allowing.
• Too much commitment to question marks
can lead lead to liquidity problems.
The General Electrics (GE) Model
• This analyses
– Long term industry attractiveness and
– Business competitive strength
• These factors are assigned weights / ratings
based on their perceived importance
• The business is rated on each of the factors
• A combined rating is determined (factor
importance rating combined with the
business rating on the factor)
• Each business result is plotted on a 2-
dimensional matrix
Industry attractiveness
Determinants
• Market growth and size
• Industry profitability
• Seasonality
• Porter's five forces
• Technology & Capital requirements
• Economies of scale
• Emerging opportunities and weakness
• etc
Competitive Strengths
Determinants
• Relative market share
• Production capacity
• Company Image
• Profit margins
• Technological capabilities
• R & D strengths
• Market and customer knowledge
• Employee commitment
• Etc.
GE Model Usage
• The 9 cells of the matrix are grouped into 3
broad categories:
• The favorable category (1,2,3)
– The organisation should build and grow these
businesses
• The medium investment allocation priorities
(A,B,C)
– These should simply be maintained – no
expansion and no divesting
• Businesses that are not doing well (i,ii,iii)
– These should be harvested and divested
Industry/
market
attractivene
ss
Competitive Strengths
High
Low
The GE model
Strong Average
1 2 C
3 B Ii
A i iii
Medium
Weak
The Life Cycle Matrix
• Attempts to include new businesses in new
industries
• The 1st
2 models do not position businesses that are
about to emerge
• The matrix analyses the business competitive
position and the stage of the industry / product in
the life cycle
• The size of the industry is also represented with a
circle symbol and the market share / competitive
position as a fraction of the circle.
• Fig 15 in Bakunda and Ngoma

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10 portfolio analysis ppt

  • 1. Portfolio Analysis (PA) • PA is a technique used to analyse organisations in relation to their environments • Portfolio (set, collection, assortment, range, group) • A biz portfolio may be any collection of brands / products, markets, branches / divisions, income generating assets, e.t.c • PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)
  • 2. PA Introduction– Cont. • Helps managers in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic point in time • After portfolio analysis firm makes an informed strategic choice e.g. – To have a balanced portfolio (minimize risk and maximize return) of all portfolios – To actively deploy a retrenchment strategy
  • 3. Portfolio Analysis Models: • Have been developed by large firms in developed world, mostly named against their inventors • Are applicable even to smaller firms with multiple SBUs. Examples are shown below: • The B.C.G model (Growth/Share matrix) • The G.E Multi-directional model (competitive strengths/Attractiveness matrix) • Contribution Margin Analysis (how much profit margin does that biz portfolio contribute?)
  • 4. Boston Consulting Group (BCG) Model • This is the most popular business portfolio matrix • It analyses the business portfolio in relation to market share and market / industry growth • The above 2 variables (share & growth) range from low to high • A SBU is positioned in the model and the firms strategy is guided by the SBU’s positioning.
  • 5. Question marks Cash cows Dogs Industry/ market growth rate Relative market share High Low The BCG(Boston Consulting Group) model High Low Stars
  • 6. BCG Sections Stars • Business with a high market share and high growth rate • Generate huge sums of money • Require huge sums of money to cope with growth Cash Cows • Businesses with low growth but high market share • Generate huge sums of money at low cost • Are used to develop and promote new businesses (they are “milked”)
  • 7. BCG Sections – Cont. Dogs • Have low market share in an aged industry • The strategy is, normally to sell them off. Question marks (Fledglings) • Sometimes called problem children (they need to be grown). • They generate low cash but need a lot to tap the high growth rate. • They can be grown into stars, resources allowing. • Too much commitment to question marks can lead lead to liquidity problems.
  • 8. The General Electrics (GE) Model • This analyses – Long term industry attractiveness and – Business competitive strength • These factors are assigned weights / ratings based on their perceived importance • The business is rated on each of the factors • A combined rating is determined (factor importance rating combined with the business rating on the factor) • Each business result is plotted on a 2- dimensional matrix
  • 9. Industry attractiveness Determinants • Market growth and size • Industry profitability • Seasonality • Porter's five forces • Technology & Capital requirements • Economies of scale • Emerging opportunities and weakness • etc
  • 10. Competitive Strengths Determinants • Relative market share • Production capacity • Company Image • Profit margins • Technological capabilities • R & D strengths • Market and customer knowledge • Employee commitment • Etc.
  • 11. GE Model Usage • The 9 cells of the matrix are grouped into 3 broad categories: • The favorable category (1,2,3) – The organisation should build and grow these businesses • The medium investment allocation priorities (A,B,C) – These should simply be maintained – no expansion and no divesting • Businesses that are not doing well (i,ii,iii) – These should be harvested and divested
  • 12. Industry/ market attractivene ss Competitive Strengths High Low The GE model Strong Average 1 2 C 3 B Ii A i iii Medium Weak
  • 13. The Life Cycle Matrix • Attempts to include new businesses in new industries • The 1st 2 models do not position businesses that are about to emerge • The matrix analyses the business competitive position and the stage of the industry / product in the life cycle • The size of the industry is also represented with a circle symbol and the market share / competitive position as a fraction of the circle. • Fig 15 in Bakunda and Ngoma