BUSINESS PORTFOLIO ANALYSIS

Introduction

The business portfolio is the collection of businesses

and products that make up the company.
Portfolio analysis is a major activity in strategic
planning whereby management evaluates the
products and businesses that make up the company
The aim of a portfolio analysis is:

1) To Analyze:
Analyze its current business portfolio and decide
which SBUs should receive more or less investment.
2) To Develop Growth Strategies:
Develop growth strategies for adding new products
and business to the portfolio.
3) To Take Decisions Regarding Product Retention:
Decide which business or products should no longer
be retained.
Two steps are important in this analysis:

1. The first step is to identify the key businesses (SBUs).

The strategic business unit (SBU) is a unit of the company
that has a separate mission and objectives and which can
be planned independently from other company businesses.
An SBU has three characteristics:
1. It is a single business, or a collection of related
businesses, that can be planned separately from the rest of
the company.
2. It has its own set of competitors.
3. It has a manager responsible for strategic planning and
profit performance, who controls most of the factors
affecting profit.
2. The second step is to assess the attractiveness
of its various SBUs and decide how much support
each deserves.
Various models have been suggested which aim to
help the marketing planner with their analysis of the
product portfolio of an organization.
The two best-known business portfolio analysis
models are
1. The Boston Consulting Group model
2. The General Electric model.
The Boston Consulting Group model

The BCG matrix has four cells based on two axes.

The horizontal axis is labeled relative market share,
Relative market share refers to a firm’s market share
relative to its largest competitor.
The vertical axis is labeled market growth rate, the
market growth rate is usually based on average
annual growth rate over the last few years, depending
on the age of the industry or category
The BCG Matrix suggests that products
can be categorized into four main groups.
Stars
 These are products that are in high growth markets
with a relatively high share of that market.
 Stars tend to generate high amounts of income..
 Stars are leaders in business.
 They also require heavy investment, to maintain its
large market share.
 Attempts should be made to hold the market share
otherwise the star will become a CASH COW.
Cash Cows
These are products with a high share of a slow
growth market. Cash Cows generate more than is
invested in them. So keep them in your portfolio of
products for the time being.
Question Mark(Problem Child)
These are products with a low share of a high
growth market. They consume resources and
generate little in return. They absorb most money
as you attempt to increase market share.
Question marks have potential to become star and
eventually cash cow but can also become a dog.
Investments should be high for question marks
Dogs
These are products with a low share of a low
growth market. They do not generate cash for the
company rather they tend to absorb it.
Business is situated at a declining stage.
Get rid of these products.
The four strategies that can be pursued for each SBU

Four potential strategies you can follow based on the results of

your BCG matrix analysis:
build- The company can invest more in the business unit in
order to build its share.this strategy is appropriate for question
marks
Hold – this strategy is appropriate for stars.The company can
invest enough just to maintain its position as a star
Harvest – this strategy is appropriate for cash cows.The
company can harvest the SBU. Reduce investment and try to
take out the maximum cash flow from the product, which
increases its overall profitability (best for cash cows).

Divest – the objective is to sell or liquidate the business

because resources can be better used elsewhere. This strategy
is appropriate for dogs.
BENEFITS

BCG MATRIX is simple and easy to understand.

It helps marketer to quickly and simply screen the
opportunities open
It is used to identify how corporate cash resources
can best be used to maximize a company’s future
growth and profitability.
 LIMITATIONS

 BCG MATRIX uses only two dimensions, Relative

market share and market growth rate.
 Problems of getting data on market share and
market
 growth.
 High market share does not mean profits all the
time.
 Business with low market share can be profitable
too.
 Growth strategies
Although the BCG matrix can help manager decide which
SBUs they should invest in for the growth. It does not tell them
much about how to make that growth happen
The marketer use the Ansoff growth matrix (sometimes called
the “product-market matrix”) shows different growth strategies
Product-Market Matrix
Market penetration strategy:(existing markets, existing
products)
This strategy involves selling existing products to existing
markets. To penetrate and capture the market, a firm may cut
prices, improve distribution network, increase promotional
activities etc.
Market Development strategy: (new markets, existing
products)
This strategy involves extending existing products to
new market.
This strategy aims at reaching new customer
segments or expansion into new geographic areas.
Market development aims to increase sales by
capturing new market area.
Product Development strategy (existing markets, new
products):
 This strategy involves developing new products for existing
markets or for new markets.
 Also Product development means making some
modifications in the existing product to give value to the
customers for their purchase.
Diversification strategy (new markets, new products)
 it is a business strategy in which the company enters the
new market with new product.
 Diversification strategy is adopted by the company if the
current market is saturated due to which revenues and
profits are lower.
 it is the riskiest of the four strategies because you’re
dealing with two unknowns here; a new market and new
customers.
 it is best used when your firm have good R&D capabilities
for the least risk possible