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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.
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
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
