Prepared By Mohsin Mohammed Ali MBA/7017/10

The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

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portfolio analysis as an organizational strategy formulation technique is based on the philosophy that organizations should develop strategy much as they handle investment portfolios. Just as sound financial investments should be supported and unsound ones discarded, sound organizational activities should be emphasized and unsound ones deemphasized.

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W. Hofer and Dan Schendel, they described seven stages of the life cycle, each with certain characteristics by which the position of the market can be identified.

A significant contribution in the field of strategic business portfolio analysis belongs to Charles W. Hofer. The specialty literature mentions in under the name of Hofer Matrix or "Product/Market Evolution Matrix. He proposed a new assessment matrix of business portfolio of a company, organized into 15 quadrants. The picture below displays the matrix where strategic business units are graphically represented according to two basic indicators: competitive position on the market and the stage corresponding to the product/market evolution.

 He took series of research studies showing that the stage of the life cycle of the product represents a factor that influences to greater or smaller extent the success of a strategy

Charles W. Hofer described seven stages of the life cycle, each with certain characteristics by which the position of the market can be identified.

Hofer matrix implies the division of the company into strategic business units. Assessing the competitive position of business units. The position occupied by the strategic business unit is graphically represented by using the two axes of the matrix. Thus, on the vertical axis the competitive position of strategic business units is set and on the vertical axis the stage of the life cycle specific to the market where these operate is set.

Further on, strategic business units are outlined, from a graphical point of view, under the form of circles.
The size of each circle is proportional to the size of the

market where the strategic business unit carries out its activity (measured on the basis of total income resulted on the mentioned markets), while the hatched areas, inside the circle, represent the market shares held by the strategic business units.

HOFERS MATRIX EXAMPLE

A B D E F G C

Business unit A It would to be a developing winner. Its relatively large share of the market combined with its being at the development stage of product- market evolution and its potential for being in a strong competitive position make it a good candidate for receiving more corporate resources. Business unit B It is somewhat similar to A. However, it has a relatively small share of the market given its strong competitive position. A strategy would have to be developed to overcome this low market share in order to justify more investments.

Business unit C It might be classified as a potential loser. A strategy must be developed to overcome the low market share and weak competitive position in order to justify future investments.

Business unit D It is in a shakeout period, has a relatively large share of the market, and is in a relatively strong position. Investment should be made to maintain that position.

Business units E and F They have relatively large market share and has strong competitive position. It should be used for cash generation. Business unit G It has low market share and weak competitive position. It should be managed to generate cash in the short run, if possible; however, the long-run strategy will more the likely be divestment or liquidation.

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Set objective and allocate resources Use of externally oriented data Cash flow availability Graphical communication of business mix Identify developing winners Illustrates distribution of business in an industry Encourages promotion of competitive analysis Selective earmarking of financial resources Reduce risks, increases concentration and involvement in competitive world.

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Difficulty in defining product/market segment. Suggests impractical standard strategies. Naively following portfolio prescriptions may reduce profit. No clear idea what makes an industry attractive.

steconomice.uoradea.ro/anale/volume/2008/v4.../166.pdf

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