PROJECT REPORT

ON
CORPORATE PORTFOLIO ANALYSIS

SUBMITTED TO: SUBMITTED BY:

Prof. Jai Singh Parmar Shivani Bhandari : 3727

Rajeev Chauhan : 3729

Vikrant verma : 3731

 ACKNOWLEDGEMENT
We would like to express our sincere gratitude to our professor Jai
Singh Parmar who gave us this opportunity to do this assignment on the
topic portfolio analysis. It has not only increased our knowledge but has
also helped us to gain new insight about the topic.
 INTRODUCTION

CORPORATE PORTFOLIO ANALYSIS

A corporate portfolio analysis takes a close look at a company’s
services and products. Each segment of a company’s product
line is evaluated including sales, market share, cost of
production and potential market strength. The analysis
categorizes the company’s products and looks at the
competition. The goal is to identify business opportunities,
strategize for the future and direct business resources towards
that growth potential.
Portfolio analysis can be performed by an outside firm or by
company management. There are various tools used for a
portfolio analysis with some that look at market share and
others that evaluate a company’s product line against the
competition. While the process typically points the way for
spending for future growth, it can also be used to identify
products or services which short-term may become obsolete,
suggesting that part of the portfolio be retired and the funds
used for areas with more promising growth potential.
The business portfolio is the complete collection of products
and businesses that make up a company. Designing and
maintaining a healthy portfolio involves thorough understanding
of the firm’s objectives and the markets it wants to serve.
Business portfolio planning consists of two steps, in which the
Boston Matrix provides a great aid. Firstly, the business must
analyze its current business portfolio to determine which
businesses should receive more, less, or no investment. This is
significantly influenced by the life cycle stage the products are
in. Then, it should not receive too much attention anymore.
Secondly, the firm must shape its future portfolio, based on the
analysis of the current portfolio, by developing strategies for
growth and downsizing.

There are two steps to plan the portfolio:

1. Analyze your current business portfolio

2. Develop strategies for growth and downsizing

1. Analyzing the Current Business Portfolio

It's at this time during your strategic planning that you need to
evaluate the products and businesses that make up your
company. This is called "portfolio analysis". You need to put
strong resources into your more profitable businesses and
phase down (or drop) weaker ones.
2.Developing Strategies for Growth and Downsizing

don't let growth be your sole objective. Your objective should be

to manage profitable growth and marketing is the main way to
achieve this. You need to identify, evaluate, select market
opportunities, and establish strategies to capture them. One
way to do this is by using a portfolio planning tool that helps
identify company growth opportunities through market
penetration, market development, product development, or
diversification.

Aim of portfolio analysis

1) to analyze its current business portfolio and decide which
SUBs should receive more or less investment
2) to develop growth strategies for adding new products and
business to the portfolio.
3)To take decision regarding retention. Deciding which business
or product should no longer be retained.
PORTFOLIO ANALYSIS TECHNIQUES

BCG MATRIX
BCG MATRIX was developed by the Boston Consulting Group
(BCG), which is a leading management consulting group, and is
today the best-known and most popular portfolio analysis and
portfolio planning method. The Boston Matrix classifies all the
companies SBUs according to the attractiveness of the SBUs
industry or market, which is measured in terms or market
growth rate, and the SBUs position in that industry or market,
measured in terms of relative market share the company has.
On the vertical axis, market growth rate provides a measure for
the attractiveness of the SBUs market. On the horizontal axis,
relative market share measures the company’s strength in that
market.
 The 4 Categories
The market growth and relative market share of each SBU leads
to a classification into one of four categories:
1. Stars are high-growth, high-share products or businesses. Those
often require heavy investments to finance their rapid growth.
Once their growth slows down, which will eventually be the
case, Stars will turn into Cash Cows.
2. Cash Cows. Cash Cows are low-growth, but high-share products
or businesses. They need less investment to hold their market
share, being well-established and successful SBUs. Therefore,
Cash Cows produce a lot of cash which the company can use to
invest in and support other SBUs that need investments to
finance their growth, namely Question Marks and Stars.
3. Question Marks. Question Marks are low-share Strategic
Business Units, but in high-growth markets. To hold their share,
not mentioning increasing it which would be desirable, Question
Marks require a lot of cash. If Question Marks become a success,
they will turn into Stars one day. However, the likelihood that
they fail must not be neglected. For that reason, management
has to decide carefully which Question Marks will receive
attention and investment in order to build them into stars, and
which other, less promising ones will be phased out.
4. Dogs are low-growth, low-share businesses and products. In
other words, Dogs are the least desirable SBUs of a company.
They may generate enough cash still to maintain themselves.
However, Dogs will not be large sources of cash, and should be
phased out as soon as they become unprofitable or as soon as
the firm can make better use of its resources to support other
SBUs.
Usually, products or businesses of a company always start as a
Question Mark. If they succeed, they will move on and market
share will grow, turning them into Stars. As the market is
satisfied and market growth falls, Stars become Cash Cows, a
major source of cash for the firm. Finally, even the best Cash
Cows become dogs when the end of their life cycle is reached.
Limitations of BCG Matrix
The BCG Matrix produces a framework for allocating resources
among different business units and makes it possible to
compare many business units at a glance. But BCG Matrix is not
free from limitations, such as-

1. BCG matrix classifies businesses as low and high, but

generally businesses can be medium also. Thus, the true
nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always lead to high profits.
There are high costs also involved with high market share.
4. Growth rate and relative market share are not the only
indicators of profitability. This model ignores and overlooks
other indicators of profitability.
5. At times, dogs may help other businesses in gaining
competitive advantage. They can earn even more than cash
cows sometimes.
6. This four-celled approach is considered as to be too
simplistic.

Portfolio Analysis: The Connection with the Product Life Cycle

As said before, the classification into Stars, Cash Cows, Question
Marks and Dogs is strongly linked to the Product Life Cycle stage
the Strategic Business Unit is in. Question Marks are new,
innovative products, which may become a large success in the
future, but still carry the risk that they will not be a hit. Stars are
still growing, while Cash Cows are in the maturity stage when
the market is satisfied and does not grow much anymore.
Finally, when decline is reached, SBUs can be called Dogs.

The GE McKinsey Matrix

The GE McKinsey Matrix comprises two axes. The attractiveness
of the market is represented on the y-axis and the
competitiveness and competence of the business unit are
plotted on the x-axis. Both axes are divided into three categories
(high, medium, low) thus creating nine cells. The business unit is
placed within the matrix using circles. The size of the circle
represents the volume of the turnover.

The percentage of the market share is entered in the circle. An

arrow represents the future course for the business unit.
GE McKinsey Matrix factors
It is possible to determine in advance whether a market is
attractive enough to enter.

This can be done by using the following factors:

 Market size
 Historical and expected market growth rate
 Price development
 Threats and opportunities (component of SWOT Analysis)
 Technological developments
 Degree of competitive advantage

Other factors are used to determine competitiveness:

 Value of core competences

 Available assets
 Brand recognition and brand strength
 Quality and distribution
 Access to internal and external finance resources

GE McKinsey Matrix vs BCG Matrix

The GE McKinsey Matrix bears a strong resemblance to the BCG
Matrix.
However, there are some differences:

1. The GE McKinsey Matrix does not only considergrowth, it

mainly considers market attractiveness.
2. In addition to market share the GE McKinsey Matrix also
considers the strength of a business unit.
3. Instead of the four cells that are created in the BCG
Matrix, the GE McKinsey Matrix creates nine cells.

Application

Three different strategies can be distinguished and adopted

using the GE McKinsey Matrix:

Invest/ grow
Growth is facilitated by expanding the market or making
investments.

Hold
By making careful investments, the current market is
consolidated.

Harvest / sell
No extra investments but mainly focusing on maximizing
returns. By assigning a weight to each factor, the GE McKinsey
Matrix can be used more effectively. Based on these weights,
the scores for competitiveness and market attractiveness can be
calculated more accurately for each business unit.

How to set up a GE McKinsey Matrix

This analysis is characterized by seven steps that must be
followed:
 1. Define the Product Market Combinations (PMC’s). Who
are the customers of an organization and what are its
products and/or services?
2. Define the aspects that determine the attractiveness of
the market. Certain weight factors can be assigned to
certain aspects. Market attractiveness is a critical factor
that has to be considered carefully.
3. Define the aspects that determine the competitive
power of the organizations.
4. Assign scores to the different PMC’s. Have this done by
several people within and outside of the organization.
This will ensure a fair representation.
5. Calculate the final scores. By comparing the final scores
for market attractiveness and competitive power with
the maximum score, it is possible to determine their
position on the matrix.
6. Draw the matrix and plot market attractiveness on the x-
axis and competitive power on the y-axis. The higher the
volume in turnover of a PMC, the larger the circle.
7. Evaluate and discuss. The matrix can serve as the basis
for a discussion about strategic decisions.

Advantages of Portfolio Analysis:

1) Encourages Management for Evaluation:
It encourages management to evaluate each of the
organization's businesses individually and to set objectives
and allocate resources for each.
2) Stimulates Use of Externally Oriented Data:
It stimulates the use of externally oriented data to
supplement management's intuitive judgment.
3) Key Areas:
These models highlight certain aspects of business that
are considered essential to success or failure.
4) Cash Flows :
They focus on cash flow requirements of the SBU's and
help identify the different cash flow implications and
requirements of different business activities. This helps
management to carry out its resource allocation function.
5) Balance Portfolio :
They help identify strengths and weaknesses in the
portfolio, the gaps that to be filled; when a new SBU needs to be
added or when one needs to be removed; and the
duplicative businesses in the portfolio.
6) Diverse Perspective :
The diverse activities of a multi-business company are
analyzed in a systematic manner and enterprise diversity
highlighted.
7) Flexible Comparisons :
Some matrices, like the McKinsey Matrix, are highly
flexible in being able to select different factors for different
industries. This kind of analysis can provide coverage of a
wide number of strategically relevant variables
Disadvantages of Portfolio Analysis:
1) Too Simple:
Matrix models are simplistic. The important factors are
reduced to only two dimensions (e.g. market share and
business attractiveness) other factors are necessarily
excluded or lose their distinctiveness in the collapsed
dimensions.
2)Market Share:
Market share, though used widely, may not be the best
measure of a company's success. For example, product
differentiation for a particular market segment may have low
market share but produce high success within a market segment

.
3) Market Share and Cash Flow Mismatch:
High market share in a low-growth industry does not
necessarily result in large positive cash flow characteristics of a
"cash cow" business.
4)Market Share and Cost Savings
Mismatch :
The connection between relative market share and
economics of scale may also not be a direct relationship.
5) Subjective Numbers :
The numerical format of some matrices may lead the
user to place greater confidence in them than is
warranted. The numbers from most ratings are
subjectively derived, subject to personal biases, political
pressure, and budgetary needs.
6) Static Pictures :
The analyses most often provide a static picture of
SBUs. They are not projective, they do not account
adequately for changes due industry evolution,
technological change, and other environmental forces,
etc.
7) Multiple SBUs :
There is a limit to the number of SBUs that can be
examined; otherwise the resulting analysis becomes
increasingly superficial. Such problems can occur when
the volume exceeds 40-50 SBUs.

8) Conflict of Interests :
When a SBU contains several different but related
business conflicts of interest can occur between the cash
flow priorities of a SBU and the priorities of the company
as a whole.

9) Inappropriate divesting :
Improper application of portfolio techniques may
result in inappropriate divesting of useful between the
cash flow priorities of a SBU and the priorities of the
company as a whole.
Business portfolio analysis is an
organizational strategy formulation
technique that is based on the philosophy
that organizations should develop
strategy …… much as they handle
investment portfolios…..