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BUSINESS PORTFOLIOANALYSIS• The analysis methods of the business portfolio analysis are used in order to identify and examine the various strategic alternatives that must be approached at corporate level.
POTENTIAL BENEFITS• It encourages the promotion of competitive analysis at the level of strategic business units.• Selective earmarking of financial resources by means of identification of strategic issues and by means of adoption of a standardized and objective negotiation process.• It helps to reduce risks, increases concentration and involvement
(COMPETITIVE POSITION)(STAGE OFEVOLUTION) STRONG AVERAGE WEAK DEVELOP GROWTH SUPER GROWTH MATURITY DECLINE HOFER’S MATRICES
Contd…..• Strategic business unit ”A” seems to be a potential ”Star”. It holds a large market share, it is in the stage of life cycle development and has a strong competitive position on the market. As such, unit ”A” represents a potential candidate in the competition for corporate resource competition.• Investments in unit ”B” must take into account the fact that although it has a strong market position, its market share is quite small. strategy that may contribute to the increase of market share must be developed, thus accounting for the future necessary investment.
Contd……• Unit ”C” has a small market share, and it holds a competitively weak position and it entered a small market whose development is underway. For the unit ”C” a strategy residing in the elimination from the market must be applied, so that the investment for the first two units may be favored.• Unit ”D” is characterized by a strong competitive position on the market and it holds a large market share. In this case, it is recommended that investments be made with a view to maintaining the current position on the market. On the lung run, it will become a “Cash Cow”.
Contd……• Unit ”E” together with unit ”F” are included into the “Cash Cow” category and they should be capitalized on because of great cash flows that they generate.• Unit ”G” is included into the “Dogs” category and the management thereof is recommended, with a view to generating short-term cash flows in as much as it is possible. Nevertheless, on the long term, the strategy of limitation or liquidation on the market must be selected.
Advantages of Hofer’s Matrices• It provides an image regarding the manner of distribution of the businesses undertaken by a company during specific stages of a life cycle.• The company may predict how the present portfolio will develop in the future.• It manages to divert the management’s attention from the corporate level and focus on potential strategies specific to the strategic business unit.
Disadvantages• Identification of Key Success Factors.• Weight assignment to different Key Success Factors can be difficult.• Managers tend to underestimate their weaknesses and overestimate their strengths.
Characterize Your Enterprise The expert system will position your enterprise on the chart based upon your description of: – Supplier Bargaining Power – Threat of Substitutes – Threat of New Entrants – Competitive Rivalry – Buyer Bargaining Power – Product Quality – Product Value – Relative Market Share – Reputation – Customer Loyalty – Staying Power – Experience• You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied your description accurately characterizes your enterprise.
Analysis of Your Enterprise Position Invest Grow Harvest Divest• High Market • High Market • Low Market • Low Market Attractiveness Attractiveness Attractiveness Attractiveness• High Business • Low Business • High Business • Low Business Strengths Strengths Strengths Strengths• This is the • You are in an • In this quadrant • Think carefully about ideal quadrant. uncomfortable you have high what you are doing to• Your strengths quadrant. strengths in a be in this quadrant. are directed at a • The market potential market that has • The market is not highly is attractive but you lost its particularly attractive attractive do not have the attractiveness in and your business market. business strengths terms of future strengths are below• Invest your necessary for being potential. average here. best resources really successful. • It is still good for • Keep in this segment in those parts • The options facing near term profits, only if it supports a of your you are either to take so maintain the more profitable part business which what you can while it position for as of your business (for are in this is still possible or to long as possible. instance, if this quadrant. invest in building a segment completes a better competitive product line range) or position. if it absorbs some of • You must be selective the overhead costs of in your efforts here, a more profitable as this segment will segment. cost you to invest in every aspect of the business.
Shell Directional Policy Matrix• Another refinement upon the Boston Matrix• Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a companys competitive capability• The location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions• However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.
Each of the zones is described as follows:o Leader - Major resources are focused upon the SBUo Try Harder - Could be vulnerable over a longer period of time, but fine for nowo Double or Quit - Gamble on potential major SBUs for the futureo Growth - Grow the market by focusing just enough resources hereo Custodial - Just like a cash cow, milk it and do not commit any more resourceso Cash Generator - Even more like a cash cow, milk here for expansion elsewhereo Phased Withdrawal - Move cash to SBUs with greater potentialo Divest - Liquidate or move these assets on a fast as you can
Best UseThe DPM shows• Markets categorised based on a scale of attractiveness to the organisation• The organisation’s relative strengths in each of these markets• The relative importance of each marketBrief History• This Directional Policy Matrix uses the GE multi-factor approach using the same fundamental ideas as the Boston Consulting Group Matrix.• It provides for Market attractiveness on the y-axis and Relative Strength on the x-axis. The matrix is traditionally a four-box matrix but can also be a nine-box matrix.
Model Weaknesses• Quadrant names McDonald initially labeled the different quadrants as those in the Boston Consulting Group matrix and received a lot of criticism from this. These labels created confusion. More recently he merely refers to these positions but does not label the quadrants as they were in the past.• Products-for-markets This concept is confusing to many people and limits the analysis.
Strategic Emphasis• The McDonald DPM like other models of portfolio analysis attempts to define a firm’s strategic position and strategy alternatives. The accepted level at which a firm can be analysed using the DPM is that of strategic business unit.• Professor Malcolm McDonald of the Cranfield School of Management developed the matrix to define Business Strengths in terms of Critical Success Factors (CSF’s). A critical success factor represents something that a company must do right in the eyes of the customer.• For the first time the business strengths are looked at from the customer’s point of view and are therefore more objective. In the past defining the factors was a very subjective exercise from the company’s point of view. The Business Strengths in this matrix are relative strengths (relative to the best in the market)• The DPM can be used at any level in the organisation and for any kind of SBU.
Summary• Was developed to overcome the limitations seen in the BCG matrix and to simplify the Shell directional policy and GE matrices, which both illustrated a nine box matrix.• This matrix provides for Market attractiveness on the y-axis and Relative Business Strength on the x-axis and is made up of four quadrants (but nine quadrants can also be used).• Business Strengths are defined in terms of Critical Success Factors (CSF’s).• Factors on both matrices are weighted and scored. Relative strength on the x-axis is included in the mathematical calculation of the co-ordinates.• The circles are placed in any one of five positions on the matrix each with a specific generic strategy or guideline for management. These are – Invest for growth – Maintain market position, manage for earnings – Selective – Manage for cash – Opportunistic development• This matrix is a good one to use if the organisation wishes to assess the competitors relative to themselves as it allows for a good analysis of the strengths and weaknesses of the competitors from the customers point of view.
Conclusion There is always a better strategy than the one you have; you just havent thought of it yet– Sir Brian Pitman, former CEO of Lloyds TSB, Harvard Business Review, April 2003
References• Strategic Management-from Theory to Implementation, 4th edition David Hussey• Business Portfolio Analysis by Hofer’s Method – Ionescu Florin Tudor The Academy of Economic Studies, Bucureti – Cescu tefan Claudiu The Academy of Economic Studies, Bucureti – Cruceru Anca Francisca The Academy of Economic Studies, Bucureti• http://www.cipher-sys.com/hofhelp/