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Business Portfolio Analysis

Business Portfolio Analysis

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Published by Prashant Kalaskar
Business Portfolio Analysis
Business Portfolio Analysis

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Published by: Prashant Kalaskar on Jan 24, 2013
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5 Business Portfolio Analysis
Prof. Prashant B. Kalaskar

Business:Business:- An economic system in which goods & services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment & sufficient number of customers to whom its output can be sold at profit on a consistent basis.
Prof. Prashant B. Kalaskar

PortfolioPortfolio- A collection of investments all owned bybythe same individual or organization. Business Portfolio- The business portfolio is Portfoliothe collection of businesses and products that make up the company. AnalysisAnalysis- is the systematic way of resolution or examination of any object or happening.

Kalaskar . goals. and strategies SWOT Analysis Internal Analysis •Strengths •Weaknesses Formulate Strategies Implement Strategies Evaluate Results Strategic Management Process Prof.External Analysis •Opportunities •Threats Identify the organization’s current mission. Prashant B.

• The best business portfolio is the one that best fits the company’s strengths and weaknesses and to the opportunities in the environment.Business Portfolio Analysis • Designing the business portfolio is a key step in the strategic planning process. .

Business Portfolio Analysis The company must: • Analyze its current business portfolio or Strategic Business Units (SBUs). . • Develop growth strategies for growth or downsizing • Evaluate relative strength of all businesses in the company. less or no investment. • Decide which SBUs should receive more.

Prashant B. Prof.Portfolio Analysis Strategic Business Unit analysis. Kalaskar . • Applying Growth-Share Matrix key analysis tool. • Evaluates strength of each independent business unit in company.

Business Portfolio Analysis - Following tools are used for Business Portfolio Analysis Growth Share Matrix (Boston Consulting Group or Product Portfolio Analysis) Industry Attractiveness/Business Position Matrix (General Electric/McKenzey Matrix) Hofer’s Product Market Evolution matrix PIMS (Profit Impact of Market Strategy) But commonly used techniques are BCG & GE9 cell matrix .

Market Share Market Share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry. including the firm itself. .

Prashant B. Prof. It allocates the 4P’s of a firm to reach the target market. Kalaskar .Marketing Plan A marketing plan is a road map for the marketing activities of an organization for a specified future period of time.

or segments.Market Segmentation Market segmentation involves aggregating prospective buyers into groups. thatthat(1) have common needs and (2) will respond similarly to a marketing action. .

Profit Profit is the reward to a business firm for the risk it undertakes in offering a product for sale. Prashant B. Kalaskar . It is also the money left over after a firm’s total expenses are subtracted from its total sales (revenue generated). Prof.

Market Share grid.BCG Growth Share Matrix - Developed by Boston Consulting Group in 1970 Allocating resources amongst SBU’s is major issue Provides a framework for allocating resources among SBU’s Helps in managing & comparing a portfolio of different business units Places the business units on a Market Growth rate vs. .

- . businesses or products are classified as low or high performers depending upon their market growth rate and relative market share. .BCG Growth Share Matrix According to this technique.Market share is the percentage of the total market that is being serviced by a company. measured either in revenue terms or unit volume terms.

Prashant B.59% 59% Leading rival sales this year Prof.RELATIVE MARKET SHARE (RMS) ExampleExample. Kalaskar .Market Share of the India's Electronics Companies COMPANY MARKET SHARE IN 2012 Sony 27% Samsung 17% LG 16% Videocon 14% Onida 10% Business unit sales this year 16 RMS = = 27 = 0.

Prof.Market Growth Market Growth (MGR) is used as a measure of a market’s attractiveness. Prashant B. Kalaskar . money. Individual sales Current Year Individual sales Last Year MGR = Individual sales last year Markets experiencing high growth are ones where the total market share available is expanding. and there’s plenty of opportunity for everyone to make money.

Sales Development Introduction Growth Maturity Saturation Decline Time Product Life Cycle .

Extended Strategies Sales Time .Product Life Cycle.

Sales/Profits PLC and Profits PLC Profits Time Break Even Losses Product Life Cycles and the Profit .

It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories: Stars Question marks Cash cows Dogs BCG Matrix It is based on the combination of market growth and market share relative to the best competitor (Market Leader). Kalaskar . Prof. Prashant B.

BCG Matrix & PLC .

2 .20%20%18%18%16%16%14%14%12%12%10%10%8%8%6%6%4%4%2%2%0 Low High Market Growth Rate Stars 4 Question marks 3 5 Cash cows ? 2? Dogs 1 8 6 10x 4x 2x 1.1 Low High Relative Market Share The Boston Consulting Group’s Growth-Share Matrix .1x .5x .2x .3x .4 .4x .3 .5x 1x 7 .

Product is in growth stage. Generates high revenues and also requires huge cash for sustaining the STAR position. Star represent the best profits and growth opportunities in the market. Prof. Kalaskar .Stars Stars are the unit with a high market share in a fast growing industry. Prashant B.

Strategic Implications: • Huge potential • May be expensive to develop • Worth spending money to promote • Consider the extent of their product life cycle in decision making

Strategic Decisions: Invest high & huge promotions to attract larger customer base to match with the industry growth rate. Competition will be increasing & hence, holding the customer base (MS) with concentration & product development strategy.

Cash Cows
A cash cow is a product or a business unit that generates unusually high profit margins. They are the business with low growth rate and high market share. Generating cash more than its requirement which can be used by other units (positive cash flows). Product in maturity Stage.

Cash Cows Strategic Implications: • Less Cost to promote • Generate large amounts of cash – can be used for further investment? • Costs of developing and promoting have largely gone • Need to monitor their performance – the long term? • At the maturity stage of the PLC? Prof. Kalaskar . Prashant B.

to encash as mush share in slow industry growth. Kalaskar .Cash Cows Strategic Decisions: Holding the position through Stability Strategy & through integration strategy Differentiation of products in stiff competitive environment is must. Prashant B. Prof.

They have the potential to generate profits and achieve a dominant position in market. in a fast growing market. for e. They required large amount of cash to grow their market share.g. Prashant B. Product is in introduction stage. Kalaskar . Prof.: Promotional expenses.Question Marks Question Marks are the units with low market share in a fast growing industry.

Question Marks Strategic Implications: • What are the chances of these products securing a hold in the market? • How much will it cost to promote them to a stronger position? • Is it worth it? Prof. Prashant B. Kalaskar .

Kalaskar .Question Marks Strategic Decisions: • Aggressive investment & expansion to capitalise on Industry’s Growth rate with Focus Differentiation or Low cost Strategy or • Divestiture. Prashant B. if the cost of expansion & building MS is outweigh the potential payoff & financial risk Prof.

with no chance of revival. They do not generate any profit for the overall business and hence can be sold off and hired off. Prashant B. It is a self sustaining unit (Negative Cash Flow). Generating cash just to BREAK-EVEN. Kalaskar .Dogs Dogs often have little future and are big cash drainer on the company. Product is in decline stage. Prof.

Dogs Strategic Implications: • Are they worth persevering with? • How much are they costing? • Could they be revived in some way? • How much would it cost to continue to support such products? • How much would it cost to remove from the market? .

BCG Matrix of Amul Prof. Prashant B. Kalaskar .

It is a US $6. Prashant B.BCG Matrix of M & M Introduction: Mahindra Group is one of the largest corporate groups of India.000. Prof.3 billion conglomerate with employee strength of over 50. Kalaskar . It is ranked amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies.

BCG Matrix of M & M SBU’s of M & M Tractors Two Wheelers Utility Vehicles Prof. Prashant B. Kalaskar .

26x Prof.BCG Matrix of M & M Place of Tractor: AMGR of Tractor industry = 18% Market share of M&M = 29% (Market Leader) 2nd largest player is Tafe group (messy tractor) Market share of Tafe group = 23% RMS of M&M Tractor = 1. Prashant B. Kalaskar .

1 x TRADITIONAL BCG MATRIX BCG Matrix of M&M Tractor .5 x 0.20% 18% 16% Market growth Rate 14% 12% 10% 8% 6% 4% 2% 10x 0% 4x 2x 1x 0.4 x 0.2 x 0.3 Relative Market share x 0.

Prashant B.02x Prof. Kalaskar .BCG Matrix of M & M Place of Two Wheeler’s AMGR of two wheelers industry = 12% Market Share of M&M two Wheelers = 1% Market Share of Hero Honda = 47% RMS of M&M two wheelers = 0.

4x 0.BCG Matrix of M & M (2 Wheelers) 20% HIGH 18% 16% Business growth Rate 14% 12% 10% 8% 6% 4% 2% 4x 2x 10x 1x 0% 0. Kalaskar .5x 0.1x HIGH Relative Market share LOW Prof.3x LOW 0. Prashant B.2x 0.

7% Market Share of M&M Utility Vehicle = 42% (Market Leader) Market Share of Tata Motors in UV = 21% RMS of M&M Utility Vehicle = 2x Prof. Kalaskar . Prashant B.BCG Matrix of M & M Place of Utility Vehicles AMGR of Utility vehicle industry = 8.

Kalaskar . Prashant B.5x 0.1x 0% 2x 1x Business growth Rate Relative Market share Prof.2x 0.BCG Matrix of M & M 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0.3x 0.4x 10x 4x 0.

Prashant B. Kalaskar .26 TWO WHEELERS 12% 1% 0.00 Prof.02 UTILITY VEHICLES 8.BCG Matrix of M & M SBU AMGR M&M Market Share (a) Largest Competitor Market Share (b) X = a/b 18% TRACTORS 29% 23% (TAFE) 52% (HERO HONDA) 21% (TATA MOTORS) 1.7% 42% 2.

5x 0.2x 0.4x 0.BCG Matrix of M & M HIGH 20% 18% Business growth Rate 16% 14% 12% 10% 8% 6% 4% 2% LOW 0. Prashant B.3x 0.1x 1x HIGH 10 x 4x 0% LOW Relative Market share Prof. Kalaskar .

BCG Matrix of M & M Appropriate Strategies: TRACTORS (STAR) HOLD STRATEGY (Invest to protect) Build capacity expansion Increase investment Increase advertisement and promotion Increase market reach Prof. Kalaskar . Prashant B.

Kalaskar .BCG Matrix of M & M Appropriate Strategies: TWO WHEELERS (QUESTION MARK ?) Exceptional case (Money hogger) Product is in early stage Try to build it and turn in to STAR Invest intensively Prof. Prashant B.

BCG Matrix of M & M Appropriate Strategies: Utility Vehicles (Cash Cows) HOLD STRATEGY (INVEST TO PROTECT) Increase advertisement & promotion Increase market reach Increase Investment Prof. Prashant B. Kalaskar .

Developed by GE & McKensey & Co. This tool compares different businesses on "Business Strength" and "Market Attractiveness" Strength" "Market Attractiveness" as two variables . of USA in 1971 It is similar to the BCG Matrix and actually the GE / McKinsey Matrix is an extension of the BCG Matrix .Multifactor Portfolio Analysis Tool.GE9 Cell-McKensey Matrix GE Matrix or McKinsey Matrix is a strategic tool for portfolio analysis.

Further. . the market size and the current sales will distinguish each SBU. Based on clear understanding of all of these factors decision makers are able to develop effective strategies. Based on the strength of the business and its market attractiveness each SBU will have a different position in the matrix.nine alternatives (3x3) for positioning of any SBU or product offering.GE9 Cell-McKensey Matrix The GE / McKinsey Matrix is divided into nine cells .

Each axis is divided into Low.Objective of GE9 Cell-McKensey Matrix Thus. . the objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. giving the nine-cell matrix as shown nineahead. Medium and High.

where the size of the circle represents a factor such as Market Size.GE9 Cell-McKensey Matrix SBUs are portrayed as a circle plotted on the GE/McKinsey Matrix. The GE/McKinsey Matrix differs from other tools. in that multiple factors are used to define Industry Attractiveness and Business Unit Strength. like the Boston Consulting Group Matrix. .

General Electric’s Industry Attractiveness-Business Strength Matrix Industry Attractiveness Business Strength • Relative Market Share • Reputation/ Image • Bargaining Leverage • Ability to Match Quality/Service • Market Size • Growth Rate • Profit Margin • Intensity of Competition • Seasonality •Resource • Social Impact • Regulation • Environment • Opportunities & Threats •Technology .

Industry Attractiveness High High Protect Position Medium Invest to Build Low Build selectively Medium Build selectively Selectively manage for earnings Limited expansion/ harvest Harvest/Divest Low Protect & refocus Manage for earnings Divest Selectivity /earnings Build/Grow GE9 Multifactor Portfolio Matrix .

GE9 Cell-McKensey Matrix Protect Position • Invest to grow • Effort on maintaining strength Invest to Build • Challenge for leadership • Build selectively on strength Build Selectively • Invest in most attractive segment • Build up ability to counter competition • Emphasize profitability by raising productivity .

GE9 Cell-McKensey Matrix Protect & Refocus • Manage for current earning • Defend strength Selectivity for Earning • Protect existing program • Investments in profitable segments Build Selectively • Specialize around limited strength • Seek ways to overcome weaknesses • Withdraw if indication of sustainable growth are lacking .

GE9 Cell-McKensey Matrix Limited Expansion for Harvest • Look for ways to expand without high risk Manage for Earnings • Protect position in profitable segment • Upgrade product line • Minimize investment Harvest • Sell at time that will maximize cash value • Cut fixed costs and avoid investment meanwhile .

GE9 Cell Matrix is also known as Stop Light Strategy GE9 Matrix. indicating Hold & Maintain type of Strategies. aiming at Stability & Consolidation. Harvest/DivestHarvest/Divest.Business in the Green Zone. Wait. attract major investment & adaption of Growth Strategies . Build/GrowBuild/Grow. Consolidation. as these are like the Traffic Signals Lights Lights. See & Proceed.GE9 Multifactor Portfolio Matrix .Business or Products which are in yellow zone signals.Businesses or products which are in red zone. Strategies. signals to stop indicating Retrenchment Strategy of divestment & liquidation or a rebuilding approach for adopting Turnaround Strategies Selectivity/earningsSelectivity/earnings.

Strategy Implications of Attractiveness/Strength Matrix Businesses in upper left corner • Accorded top investment priority • Strategic prescription is grow and build Businesses in three diagonal cells • Given medium investment priority • Invest to maintain position Businesses in lower right corner • Candidates for harvesting or divestiture • May be candidates for an overhaul and reposition strategy .

Titan etc. •Textiles : Tata Fabrics. West Sides etc .Example TATA • IT (Information Technology) : TCS • Consumer Durable : Automobiles.

Example High High Business Strengths IT Consumer Durables Low Market Attractiveness Low Textiles .

Synergy “Synergy is the energy or force created by the working together of various parts or processes.” . .Synergy in business is the benefit derived from combining two or more elements (or businesses) so that the performance of the combination is higher than that of the sum of the individual elements (or businesses).

Ex.-Leadership-Management Synergy LeadershipLeaders: Provide vision. ► Resulting synergy: Employee empowerment . vision.Synergy - The interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects. • Managers: Provide resources. resources.

Kalaskar .” Prof.Dysergy “Dysergy is the negative energy or force or impact produced due to the inability of working together of various parts or processes. Prashant B.

Dysergy - Dysergy in business is the losses derived from combining two or more elements (or businesses) so that the performance of the combination is lower than that of the sum of the individual elements (or businesses). Prashant B. Kalaskar - . The interaction of two or more agents or forces so that their combined effect is poor than the sum of their individual effects. Prof.

. it means. accumulating. complementing.Concept of fit is opposite to the concept of stretch. conserving & recovering the resources in such a way that the available resource are stretched so as to meet the aspirations that organization wants to achieve. & Fit Stretch is the misfit between the resources & aspirations. Leverage.Leverage refers to concentrating.positioning the firm with available resources so as to match with the requirements of environment - . .Concept of Stretch.

. Kalaskar .com If Any Query. Prashant B. Kalaskar # 9975770407.. Prashant B.Prof.?? Prof. 7350520025 prashantkalaskar007@gmail.com prashant_pk4@rediffmail..

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