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Portfolio approach and analysis
Prof.Rupesh Dahake
Introduction:Portfolio analysis is a most important strategic management tools for design the strategy for the business organization,
portfolio analysis is mostly applicable for the Multinational companies like Hindustan Uniliver, Videocon, Tata Group etc. in
portfolio analysis help to find which business, product, division of business in profit or loss it clear portfolio analysis help to find
the position of the business in the market. Many companies having their operation in all over world it is very difficult to find
position of company in the market but portfolio analysis help to find position of business where the company stands in the
market with help of some portfolio analysis techniques. 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. 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.
BCG’s Growth-Share Matrix
The Boston Consulting Group (BCG) Matrix is a simple tool to assess a company’s position in terms of its product
range. It helps a company think about its products and services and make decisions about which it should keep,
which it should let go and which it should invest in further.
BCG Matrix Model
The BCG matrix model organizes businesses along two dimensions—business growth rate and market share. Business
growth rate pertains to how rapidly the entire industry is increasing. Market share defines whether a business unit has a
larger or smaller share than competitors. The combinations of high and low market share and high and low business growth
provides four categories for a corporate portfolio. The BCG matrix model utilizes a concept of experience curves, which are
similar in concept to learning curves. The experience curve includes all costs associated with a product and implies that the
per-unit cost of a product should fall, due to cumulative experience, as production volume increases. The manufacturer with
the largest volume and market share should have the lowest marginal cost. The leader in market share should be able to
under price competitors and discourage entry into the market by potential competitors. As a result, the leader will achieve an
acceptable return on investment. The BCG model (growth/market share matrix) is based on the assumption that profitability
and cash flows will be closely related to sales volume. Here, growth means use of cash, and market share means source of
cash. Each SBU is classified in terms of its relative market share and the growth rate of the market the SBU is in, and each
product is classified as stars, cash cows, dogs, or question marks. Relative market share is the market share of a firm relative
to that of the largest competitor in the industry.
The following list describes the components of the BCG model:
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Stars are SBUs with a high market share of a high growth market. They require large amounts of cash to sustain
growth despite producing high profits.
Cash cows are often market leaders (high market share), but the market they are in is a mature, slow-growth industry
(low growth). They have a positive cash flow.
Dogs are poorly performing SBUs that have a low market share of a low-growth market. They are modest cash users
and need cash because of their weak competitive position.
Question marks (problem children) are SBUs with a low market share of a new, high-growth market. They require
large amounts of cash inflows to finance growth and are weak cash generators because of their poor competitive
position. The question mark business is risky: it could become a star, or it could fail.
The General Electric Model
The General Electric Model (developed by GE with the assistance of the consulting firm McKinsey & Company) is
similar to the BCG growth-share matrix. However, there are differences. Firstly, market attractiveness replaces
market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just
the market growth rate. Secondly, competitive strength replaces market share as the dimension by which the
competitive position of each SBU is assessed. This also uses two factors in a matrix / grid situation as shown
below:
Each of the above two factors are rated according to criteria such as the following:
The criteria used to rate market attractiveness and business position assigned different ways because some
criteria are more important than others. Then each SBU is rated with respect to all criteria. Finally, overall rating
for both factors is calculated for each SBU. Based on these ratings, each SBU is labelled as high, medium or low
with respect to (a) market attractiveness, and (b) business position.
Every organization has to make decisions about how to use its limited resources most effectively. That’s’ where
this planning models can help determining which SBU should be stimulated for growth, which one maintained in
their present market position and which one eliminated.
ADL Matrix
The ADL Matrix, developed by the consulting firm Arthur D. Little in the late 1970, is all about how industry
maturity and competitive position affects your strategy. It compares two axes: Industry maturity (embryonic,
growing, mature, aging) and competitive position (from dominant to weak). For each quadrant, a number of
generic strategies are identified: invest or divest, build market share, go for a niche positioning, etc. The ADL
matrix is most often associated with developing strategies for business units, but it also works just as well for
product lines or individual products.
Conclusion: - Portfolio analysis play vital role in the development of strategy for the business organization, BCG,
GE Nine Matrix and ADL Matrix help the organization to systematic analysis of product, division etc. these tools
provide systematic and scientific analysis of market position of the business organization, Portfolio analysis
techniques widely popular techniques. Every organization should use this tools and techniques for better strategy
development for long term growth of the organization.
Bibliography:1. Strategic Management: Creating Competitive Advantages Gregory G. Dess, G. T. Lumpkin, Gregory
Dess – 2009
2. Strategic Management: Competitiveness & Globalization, Concepts Michael A. Hitt, R. Duane Ireland,
Robert E. Hoskisson – 2010
3. Understanding Business Strategy: Concepts and Cases R. Duane Ireland, Michael A. Hitt, Robert E.
Hoskisson - 201
4. Norton.P (2007). Marketing Strategy Desktop Guide. 2nd ed. London: Thorogood. p130.
5. Unknown. (2011). The Arthur D Little (ADL) Strategic Condition Matrix.Available:
http://www.marketingteacher.com/lesson-store/lesson-a-d-little.html. Last accessed 18 May 2011.
6. ^Norton.P (2007). Marketing Strategy Desktop Guide. 2nd ed. London: Thorogood. p130.
http://site.ebrary.com/lib/staffordshire/Doc?id=10210849&ppg=142
7. ^Norton.P (2007). Marketing Strategy Desktop Guide. 2nd ed. London: Thorogood. p130.
http://site.ebrary.com/lib/staffordshire/Doc?id=10210849&ppg=142