HOFER’S PRODUCT MARKET EVOLUTION

Done by: Athira Soman

BUSINESS PORTFOLIO ANALYSIS

The business portfolio is the collection of

businesses and products that make up the
company.
The best business portfolio is one that fits the
company's strengths and helps exploit the
most attractive opportunities.
Business portfolio analysis as an organizational
strategy formulation technique is based on the
philosophy that organizations should develop
strategy much as they handle investment
portfolios. Just as sound financial investments
should be supported and unsound ones
discarded, sound organizational activities
should be emphasized and unsound ones
deemphasized.
Hofer’s Product Market Matrix
Product Market Evolution Matrix displays the
matrix where strategic business units are
graphically represented according to two
basic indicators:
 Competitive position on the market
 stage corresponding to the product/market
evolution.
 Charles W. Hofer described seven stages of the
life cycle, each with certain characteristics by
which the position of the market can be
identified.

 DEVELOPMENT
 GROWTH
 SHAKE-OUT
 MATURITY
 DECLINE
 PETRIFICATION
Business unit A
It would to be a developing winner. Its relatively
large share of the market combined with its being at
the development stage of product- market evolution
and its potential for being in a strong competitive
position make it a good candidate for receiving more
corporate resources.

Business unit B
It is somewhat similar to A. However, it has a
relatively small share of the market given its strong
competitive position. A strategy would have to be
developed to overcome this low market share in
order to justify more investments.
Business unit C
It might be classified as a potential loser. A
strategy must be developed to overcome the low
market share and weak competitive position in
order to justify future investments.

Business unit D
It is in a shakeout period, has a relatively large
share of the market, and is in a relatively strong
position. Investment should be made to maintain
that position.
Business units E and F
They have relatively large market share and has
strong competitive position. It should be used for
cash generation.

Business unit G
It has low market share and weak competitive
position. It should be managed to generate cash in the
short run, if possible; however, the long-run strategy
will more the likely be divestment or liquidation.
 STRENGHTS
o Set objective and allocate resources
o Use of externally oriented data
o Cash flow availability
o Graphical communication of business mix
o Identify developing winners
o Illustrates distribution of business in an industry
o Encourages promotion of competitive analysis
o Selective earmarking of financial resources
o Reduce risks, increases concentration and
involvement in competitive world.
WEAKNESS
o Difficulty in defining product/market
segment.
o Suggests impractical standard strategies.
o Naively following portfolio prescriptions
may reduce profit.
o Provides an illusion of scientific rigor.
o No clear idea what makes an industry
attractive .
The power of the Hofer matrix resides in the fact
that it may outline the distribution of strategic business
units during stages specific to life cycle of the market.
Similar to the McKinsey matrix, the present matrix
offers the company the possibility to make a diagnosis
regarding the portfolio, in order to establish if it exhibits
a balanced or unbalanced structure.

A balanced portfolio should be composed of

strategic business units of the type corresponding to
”Stars” and to ”Cash Cows” and to a few ”Question
Marks”, which have recently penetrated the market
or which are about to become ”Stars”.