5.

1 Multi-business Strategy:
Portfolio Analysis & Display Matrices

Strategic Management 1
5.1 Multi-business strategy: Portfolio Analysis & Display Matrices

 What is Portfolio Analysis?

 Balancing the Portfolio

2
Strategic Management
5.1 Multi-business strategy: Portfolio Analysis & Display Matrices

 Display Matrices
• BCG’s growth share Matrix (2x2)

• GE’s strategic Business Planning grid (3x3)

• Shell’s directional Policy Matrix (3x3)

• Profit Impact of Market Strategy

• Arthur D. Little Co. Matrix (5x4)

• Hofer’s Production / Market Evaluation Matrix (5x3)

3
Strategic Management
 BCG Matrix
20

Stars Question Marks

Business Growth Rate %
High

15

10

Cows Dogs
5
Low

0
10X 4X 1.5X1X 0.5X 0.1X

High Low
Relative Market Share
Strategic Management 4
 BCG Matrix
(e.g. Unbalanced Portfolio)

20

Stars Question Marks

Business Growth Rate %
High

15

10

Cows Dogs
5
Low

0
10X 4X 1.5X1X 0.5X 0.1X

High Low
Relative Market Share
Strategic Management 5
 BCG Matrix

Cash Source
20
Business Growth Rate %

Stars Question
Selected few
High

15 Marks Divest rest

Cash Use
10

Cows Dogs
Low

Liquidate

0
10X 4X 1.5X1X 0.5X 0.1X

High Low
Relative Market Share

 What are the limitations of BCG Matrix? 6

Strategic Management
 BCG ‘s Strategic Environment Matrix

Source: R.M.Grant, Contemporary Strategy Analysis.

7
Strategic Management
 GE’s Business Planning Matrix

High
Industry Attractiveness
Low Medium

Strong Average Week

Competitive Position

Strategic Management 8
5.1 Multi-business strategy: Portfolio Analysis & Display Matrices

GE’s Strategic Business Planning Grid

• Factors determining Industry attractiveness

• Typical scoring of Co.’s Competitive position

9
Strategic Management
 GE’s Business Planning Matrix

Invest & Grow Selective growth

High
Industry Attractiveness Selectivity
Medium

Selective growth Selectivity

Harvest/Divest

Harvest/Divest

Selectivity
Low

Harvest/Divest

Strong Average Weak

Competitive Position
• PIMS Model
Strategic Management 10
 Shell’s Directional Policy Matrix

Leader Try Harder Double

Attractive
or Quit
Sectoral Prospects

Leader Growth Custodial Phased

Average

Withdrawal
Unattractive

Cash Phased Disinvest

Generation Withdrawal

Strong Average Weak

Unit’s Competitive Position

Strategic Management 11
 Arthur D Little Co.’s Matrix

Tenable Favoured Strong Dominant

Business Strength

Week

Embryonic Growth Mature Decline

Industry Product Life Cycle

Strategic Management 12
5.2 Operating & Financial Analysis

Strategic Management 13
5.2 Operating & Financial Analysis

 Techniques of Strategic Financial Analysis

 Analysis of Materials, Production & Sales

 Pareto Analysis of Inventory Items

 Financial Ratios (Profitability, Activity, Market, Liquidity)

 Return on Sales & Investment

 Market Dominance / Capital Intensity Matrix

Strategic Management 14
5.2 Financial Ratio Analysis

Profitability Ratios
• Operating profit/total income (PBIT/SR)
• Gross profit/total income
((SR- Cost of goods sold/SR)
• Net profit/total income
• Gross return on investment
• Net return on investment
• Return on capital employed

Activity Ratios
• Asset turnover (times)
(Revenue/Total Asset)
• Inventory turnover (times)
(Revenue/Inventory of finished goods)
• Receivables turnover (days)
(Annual credit sales/Account Receivable)

Strategic Management 15
5.2 Financial Ratio Analysis

Liquidity Ratios
• Debt equity ratio
• Current ratio
• Quick ratio
((CA-Inventory)/CL)

Market Valuation Ratios

• Return on Equity (%)
• Earning per share (%)
• Price earning ratio (times)
• Dividend pay out ratio (%)
(Dividend per share/After tax earnings per
share)

Strategic Management 16
 Return on Sales and Investment Matrix

High Priority Attractive

Return on Sales
Medium

Attractive Acceptable Harvest

Low

Harvest Divest

High Medium Low

Return on Investment

Strategic Management 17
 Market Dominance/Capital Intensity Matrix

10x

Cash Asset
Market Dominance

Fountains Strippers

1x

Question Disaster
Mark

0.1x
0% 50% 100%
Capital Intensity

Strategic Management 18
 Strategic moves and Market Dominance/Capital Intensity Matrix

10x
Cash Asset
Fountains Strippers
Market Dominance

1x
Question Disaster
Mark
Exit

0.1x
0% 50% 100%
Capital Intensity

Strategic Management 19