10 portfolio analysis ppt
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Portfolio analysis (PA) is a technique used to analyze organizations with multiple business units or product lines. PA helps managers allocate resources by assessing each business unit's market share, industry growth, competitive strengths, and attractiveness. Common PA models include the BCG matrix, GE model, and life cycle matrix. The BCG matrix analyzes market share and growth to classify business units as stars, cash cows, dogs, or question marks. The GE model rates industry attractiveness and competitive strength to identify build, maintain, or divest categories. PA aids strategic decisions like balancing risk and return across a portfolio.
10 portfolio analysis ppt
- 1. Portfolio Analysis (PA) • PA is a technique used to analyse organisations in relation to their environments • Portfolio (set, collection, assortment, range, group) • A biz portfolio may be any collection of brands / products, markets, branches / divisions, income generating assets, e.t.c • PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)
- 2. PA Introduction– Cont. • Helps managers in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic point in time • After portfolio analysis firm makes an informed strategic choice e.g. – To have a balanced portfolio (minimize risk and maximize return) of all portfolios – To actively deploy a retrenchment strategy
- 3. Portfolio Analysis Models: • Have been developed by large firms in developed world, mostly named against their inventors • Are applicable even to smaller firms with multiple SBUs. Examples are shown below: • The B.C.G model (Growth/Share matrix) • The G.E Multi-directional model (competitive strengths/Attractiveness matrix) • Contribution Margin Analysis (how much profit margin does that biz portfolio contribute?)
- 4. Boston Consulting Group (BCG) Model • This is the most popular business portfolio matrix • It analyses the business portfolio in relation to market share and market / industry growth • The above 2 variables (share & growth) range from low to high • A SBU is positioned in the model and the firms strategy is guided by the SBU’s positioning.
- 5. Question marks Cash cows Dogs Industry/ market growth rate Relative market share High Low The BCG(Boston Consulting Group) model High Low Stars
- 6. BCG Sections Stars • Business with a high market share and high growth rate • Generate huge sums of money • Require huge sums of money to cope with growth Cash Cows • Businesses with low growth but high market share • Generate huge sums of money at low cost • Are used to develop and promote new businesses (they are “milked”)
- 7. BCG Sections – Cont. Dogs • Have low market share in an aged industry • The strategy is, normally to sell them off. Question marks (Fledglings) • Sometimes called problem children (they need to be grown). • They generate low cash but need a lot to tap the high growth rate. • They can be grown into stars, resources allowing. • Too much commitment to question marks can lead lead to liquidity problems.
- 8. The General Electrics (GE) Model • This analyses – Long term industry attractiveness and – Business competitive strength • These factors are assigned weights / ratings based on their perceived importance • The business is rated on each of the factors • A combined rating is determined (factor importance rating combined with the business rating on the factor) • Each business result is plotted on a 2- dimensional matrix
- 9. Industry attractiveness Determinants • Market growth and size • Industry profitability • Seasonality • Porter's five forces • Technology & Capital requirements • Economies of scale • Emerging opportunities and weakness • etc
- 10. Competitive Strengths Determinants • Relative market share • Production capacity • Company Image • Profit margins • Technological capabilities • R & D strengths • Market and customer knowledge • Employee commitment • Etc.
- 11. GE Model Usage • The 9 cells of the matrix are grouped into 3 broad categories: • The favorable category (1,2,3) – The organisation should build and grow these businesses • The medium investment allocation priorities (A,B,C) – These should simply be maintained – no expansion and no divesting • Businesses that are not doing well (i,ii,iii) – These should be harvested and divested
- 12. Industry/ market attractivene ss Competitive Strengths High Low The GE model Strong Average 1 2 C 3 B Ii A i iii Medium Weak
- 13. The Life Cycle Matrix • Attempts to include new businesses in new industries • The 1st 2 models do not position businesses that are about to emerge • The matrix analyses the business competitive position and the stage of the industry / product in the life cycle • The size of the industry is also represented with a circle symbol and the market share / competitive position as a fraction of the circle. • Fig 15 in Bakunda and Ngoma