PORTFOLIO STRATEGY

Portfolio Analysis
 01 PORTFOLIO ANALYSIS

CONTENTS
02 MODELS OF PORTFOLIO
ANALYSIS
PORTFOLIO
A business portfolio is a group of products, services, and business units that
conform a given company and allows it to pursue its strategic goals.

Product Portfolio can be defined as the compilation of products and services

offered by the company to the target market.

PORTFOLIO ANALYSIS
Portfolio analysis is an examination of the components included in a mix of
products with the purpose of making decisions that are expected to improve
overall return.

The key strategy is to produce a balanced portfolio of products, some with low
risk but dull growth and some with high risk bpotential for growth and profit.
 MODELS OF PORTFOLIO ANALYSIS

Boston Consultancy Group Mckinsey Portfolio Model

Model (BCG) (G E Nine Cell)
Profit Impact Market
Strategy (PIMS)

Hofer's Product/ Market Arthur D Little Company

Evolution Matrix Matrix
 1. BOSTON CONSULTANCY MODEL(BCG)

• BCG is a 4 cell Matrix (2*2 matrix.)

• The model consists of to axes: 1) Y - axis : Market Growth rate.
• 2) X - axis : Relative market share

• Market growth rate: Rate of growth in primary demand for product.

• Relative market share (RMS) = Market share
Market share of the market leader
BOSTON CONSULTANCY MODEL(BCG)
 BOSTON CONSULTANCY MODEL(BCG)

• Star- High Growth rate, High Market share

1) High growth means heavy investment.
2) High market share means economies of scale and generation of more cash
3) Need more cash than they generate.
Strategy: Take cash from cash cows to fund stars

• Cash Cows - Low Growth rate, High Market share

Stars becomes cash cows after maturity (Low market growth rate)
1) Generate both cash and profit.
2) Business is mature and needs lower investments.
3) Profits used to support Stars / Question marks.
4) Cash cow may become under support and begin to lose market.
Cash cows may ultimately become dogs if they lose market share.
 BOSTON CONSULTANCY MODEL(BCG)

• Question Marks- High Growth rate, Low Market share

1) Cash needs are High.
2) Cash generation is Low.
3) Critical decision whether to continue or sell out.

Market growth is very high but yielding big results in the future is a ?
• Dogs - Low Growth rate, Low Market share
1) Not profit earners.
2) Absord cash.
3) Unattractive often disposed off.
Strategy: Turnaround can be used or Divest when not profitable and if
profitable make the best out of its current value.
 MERITS AND DEMERITS

MERITS DEMERITS

1. EASY TO USE 1.MATRIX IS LOW AND HIGH WHILE IT

CAN BE MEDIUM ALSO

2.MARKET IS NOT CLEARLY DEFINED.

2.NEED MINIMAL DATA 3.HIGH MARKET SHARE DOES NOT

MEAN HIGH PROFIT.

4. OVERLOOKS OTHER INDICATORS OF

PROFITABILITY.

5. DOGS MAY HELP OTHER BUSINESS

IN GAINING COMPETITIVE ADVANTAGE.

2. G E NINE- CELL MATRIX (Spot-light strategy/ Business planning matrix)
3*3 Matrix
• Two dimension vs two criteria.
• Y axis: Industry attractiveness
• X axis: Business strength

1. Weights are assigned to criteria

with important variable having
higher weight.(X axis)
2. Rates the attractiveness of each
industry according to various
criteria.(Y axis)
3. Weighting is multiplied by
corresponding rating and
summed up.
4. A total score indicating overall
attractiveness is obtained.
• A product or SBU is
represented as a a circle with
the size of the circle
indicative of the size of the
market.

• The size of the pie

corresponds to the market
share for that product .

• The circle is plotted in the

matrix with the centre (x,y).
 01 Determining Factors: 02

Industry
Business strength
Attractiveness

market size relative brand strength

market growth market share

market profitability customer loyalty

relative cost position vs competitors
pricing trends
relative profit margins
competitive intensity / rivalry
distribution strength
risk of returns
production capacity
opportunity for differentiation
record of technological / innovation
segmentation quality
distribution structure management strength
 
 MERITS AND DEMERITS

MERITS DEMERITS

1. More comprehensive
1. It is more subjective.

2. More flexible
2. It ignores future.

3. More relevant 3. It ignores the stages of

development
 3. PROFIT IMPACT MARKET STRATEGY(PIMS)

PIMS DATABASE

Comprehensive, long-term study of the performance

of strategic business units (SBUs) in thousands of
companies in all major industries.

General Electric Harvard University Strategic Planning Institute(SPI)

Mid-1960s Early -1970s 1975 onwards

4. HOFER'S PRODUCT/ MARKET EVOLUTION
3*5 Matrix=15 Cell matrix

• Two criteria:

• Y axis: The maturity of the

sector, divided into 5 phases

• X axis: The competitive

position of companies in the
sector
 In Hofer matrix, we can characterize groups of products:

Products A – Dilemmas that have chance of success with appropriate marketing strategies
and financial aid
Products B – Winners, require appropriate marketing strategies and financial aid, if
company has limited resources for advertising managers must make a choice between
products A and B
Products C – Potential losers, the weak position, the sector in the growth phase – managers
should make additional analyses to rule out the possibility of going through the shock phase

Products D – despite the current difficulties can become market leaders or profitable
producers

Products E and F are profitable, so it is possible to introduce other products in the phase of
shock and generate considerable profits

Products G and H are the losers are in the exit phase of the market, ahead of the full
withdrawal managers should use strategies for “gathering the harvest”
5. ARTHUR D LITTLE COMPANY MATRIX (ADL)

4*5 Matrix= 20 Cell matrix

• Two criteria:

• Y axis: Business strength

• X axis: Stages of life cycle

The ADL Matrix is often associated

with strategic planning at business
unit level. However it works
equally well when applied to
product lines, or at the level of an
individual product.
Thank You