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Portfolio Analysis: Separating Winners From Losers in The Association Work Plan
Portfolio Analysis: Separating Winners From Losers in The Association Work Plan
2.
3.
It raises the issue of cash flow availability for use in expansion and growth.
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2.
It provides an illusion of scientific rigor when some subjective judgments are involved.
Considering both its advantages and disadvantages, portfolio analysis should be regarded as a
disciplined and organized way of thinking about asset allocation. It is only a subjective tool,
however, and is not a substitute for the ultimate professional judgment of the responsible decisionmakers.
Step 1: Identify Lines of Business
The first step in portfolio analysis is to identify the lines of businesses (SBUs) that make up the
association's portfolio. The guideline to keep in mind is this: if we were a corporation instead of a
professional society, which groups of programs would be logical candidates to be grouped
together as independent businesses?
Step 2: Group Lines of Business
There are three lines of businesses an association typically engages in. The first is core businesses
that are of vital importance to your broad membership. These are the businesses that directly
support the objectives in the strategic plan and have a priority claim on resources.
The second line of business is support functions that make it possible to deliver the core business
benefits to members. Examples of support functions are administrative, accounting, legal,
governance support, etc. These do not have a priority claim on resources. Rather, the objective
is to minimize the cost of these functions and transfer resources to support the core business.
The third line of business is money-makers that provide low-priority member benefits but are the
source of revenues that support the associations core businesses. Ideally, the associations core
businesses should be self-supporting and perhaps even contribute to reserves. Often, this is not
the case and activities must be subsidized with other income. Money-makers provide this income.
Examples of money-makers are rental car discounts, affinity cards, insurance programs.
Step 3: Compare Core Businesses with Mission Statement
Once you have separated out your core businesses, compare them with the association's mission
statement. To pass this screen, a business must directly support the goals that are defined in the
mission statement. Support should be direct and not peripheral. If a line of business does not
support the strategic plan, it should be discontinued or phased out and its resources transferred to
support the association's other core businesses.
Step 4: Define Products and Services in Each Line of Business
Once lines of business have been tested for relevance to the mission statement, the next step is to
subdivide those that are relevant into their component products and services. For example, the
publishing business would be subdivided into each of its products. Each product or service would
then be compared to the Program Evaluation Matrix.
Step 5: Apply the Program Evaluation Matrix
The Program Evaluation Matrix is a graphic device that simplifies the process of analyzing all the
products and services in the association's portfolio of products and services. In running its
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programs through the Program Evaluation Matrix, the association makes several assumptions.
Assumptions
1.
Since the need for resources is competitive, the association must view the problem of
securing resources in a competitive context.
2.
3.
2.
Is it easy to implement?
3.
4.
For a program to survive the competition for the association's resources, there should be a
positive response to all these questions. No program is in a strong position unless it is
superior to all programs in that category. If it is not, it should be classified as being in a weak
position.
The effect of these generic strategies is to serve the client base with a small number of strong,
excellent providers rather than with a larger number of fragmented providers competing for
limited dollars.
Step 6: Determine Product Fit
Using the Program Evaluation Matrix, the first step is to determine whether the product or service
under review fits the association's mission and priorities. The screens for good product fit are:
1.
2.
Focus on core concerns that are of vital interest to the association's members/customers.
Step 7: Determine Ease of Funding and Implementation (Is this an easy business?)
The criteria for determining whether a program or service has the prospect of relatively easy
funding and implementation are:
1.
2.
3.
4.
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5.
2.
2.
3.
4.
5.
Strong match between the program and the future needs of members/customers.
Well-fitting, easy programs where the association has a strong position and competes
aggressively for a dominant position.
2.
Well-fitting, difficult programs with low coverage that the association has the unique,
strong capability to provide to important stakeholders.
Applying these steps will reveal the association's current portfolio situation. The ideal would be
to have a portfolio that has primarily winners, and contains enough winners and profit producers
to finance the growth of potential winners. In reality, however, there will probably be a few
question marks and even perhaps a small loser. Then, of course, there are those untouchable
programs that, although marginal or even losers, are considered to be of fundamental importance
to members and must be subsidized.
Summing Up
Portfolio analysis is an important aid in the association's quest to identify its specific competitive
role. This role should be so well suited to the association's external and internal environments that
other associations are unlikely to challenge or dislodge it. The association then has a distinctive
competence that enables it to take advantage of specific environmental opportunities. To
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accomplish this, the association must be on the constant lookout for strategic windows or market
opportunities.
In todays competitive world, successful associations will have three characteristics in common,
and portfolio analysis will have an important role to play in helping associations achieve them.
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Date______________
Instructions: Evaluate the program or service on a scale of 1 to 5, with 1 being least favorable
and 5 being most favorable. Then add your ratings in each section, average them, and write the
numerical score at the end of the section. Then check which description best fits your analysis.
Give a high score if the average was 5. Give everything else a low score. Example: if you rate
Question 1 as 5 and 3 respectively, this would result in an average score of 4. You would then
check "poor fit."
1.
Does this program carry out the mission, goals and objectives of the
association's strategic plan?
1
b.
Is the program sharply focused on core concerns that are vital to a significant
segment of the members/customers?
1
d.
2
2
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1
e.
4
4
DIFFICULT BUSINESS
ALTERNATIVE COVERAGE
a.
Few Programs
3
e.
d.
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Strong position
CELL II: Aggressive Growth - Association has a clear field and should move rapidly to take full
advantage of its opportunities.
Good fit
Easy business
Low alternative coverage
Strong position
CELL III: Aggressive Divestment - Lots of competition and a weak market position signal rapid
exit and redeployment of assets to something more productive.
Good fit
Easy business
High alternative coverage
Weak position
CELL IV: Build Strength or Get Out - The association has a weak competitive position but
there isn't anyone out there much better, so either get better and dominate the niche or redeploy
assets.
Good fit
Easy business
Low alternative coverage
Weak position
CELL V: Build Up Best Competitor - It's a difficult business with lots of competition; strike a
deal with the best competitor and get out.
Good fit
Difficult business
High alternative coverage
Strong position
CELL VI: The Soul of the Association - It's a difficult business but essential to the members.
The association does it well and no one else can do it, so find funds to subsidize it and keep going
even though it makes little economic sense.
Good fit
Difficult business
Low alternative coverage
Strong position
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CELL VII: Orderly Divestment - If you're in a difficult business and a weak competitive position
with high alternative coverage, it's time to plan a graceful withdrawal.
Good fit
Difficult business
High alternative coverage
Weak position
CELL VIII: "Foreign Aid" or Joint Venture - If it is a difficult business, with low alternative
coverage and you are in a weak competitive position -- but it is a good fit for the association,
consider a joint venture with another organization, or getting an outside funding source to support
it.
Good fit
Difficult business
Low alternative coverage
Weak position
CELLS IX. & X: - Aggressive/orderly divestment: It doesn't matter whether it's an easy business
if it doesn't fit the association's mission: get out and use the resources on something that supports
the mission.
Poor fit
Easy or difficult business
Cells I and II are clearly winners and are candidates for priority resource allocation.
Cell VI and VIII programs should be made self-supporting where possible so they do not divert
resources from potential winners in Cells I and II.
Cell IV programs should be retained or discontinued according to whether performance improves
enough to move to Cell I or II.
Cells III, V, VII, IX and X are potential sources of revenue for higher-priority programs.
Resources should be transferred from these cells to other cells as rapidly as possible.
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EASY "BUSINESS"
STRONG
COMPETITIVE
POSITION
HIGH
ALTERNATIVE
COVERAGE
LOW
ALTERNATIVE
COVERAGE
HIGH
ALTERNATIVE
COVERAGE
I.
II.
V.
VI.
AGGRESSIVE
COMPETITION
AGGRESSIVE
GROWTH
BUILD UP
THE BEST
COMPETITION
"SOUL OF
THE
ASSOCIATION"
III.
IV.
VII.
VIII.
AGGRESSIVE
DIVESTMENT
BUILD
STRENGTH OR
GET OUT
ORDERLY
DIVESTMENT
"FOREIGN AID"
OR JOINT
VENTURE
GOOD FIT
WEAK
COMPETITIVE
POSITION
DIFFICULT "BUSINESS"
IX.
POOR FIT
AGGRESSIVE DIVESTMENT
LOW
ALTERNATIVE
COVERAGE
X.
ORDERLY DIVESTMENT
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