business portfolio analysis

Prof. Prashant B. Kalaskar

Ch. 5 Business Portfolio AnalysisCh. 5 Business Portfolio Analysis

�� Business:Business:-- AnAn economic systemeconomic system in in

whichwhich goodsgoods && servicesservices are exchanged are exchanged for for

one another orone another or money, on the basis of their money, on the basis of their

perceivedperceived worth. worth.

Meanings….Meanings….

�� Every businessEvery business requiresrequires somesome formform of of

investmentinvestment & sufficient & sufficient

numbernumber ofof customerscustomers to whom to whom

itsits outputoutput can becan be soldsold atat profitprofit on on

aa consistentconsistent basis.basis.

�� PortfolioPortfolio-- AA collectioncollection ofof investmentsinvestments

all owned byall owned by--

thethe samesame individualindividual oror organization.organization.

�� Business PortfolioBusiness Portfolio-- The business portfolio is The business portfolio is

the collection of businesses and products the collection of businesses and products

Meanings….Meanings….

the collection of businesses and products the collection of businesses and products

that make up the company.that make up the company.

�� AnalysisAnalysis-- is the is the systematicsystematic way of way of

resolution or resolution or examinationexamination of any object or of any object or

happening.happening.

� Identify the

organization’s

current

mission, goals,

and strategies

External

Analysis

•Opportunities

•Threats

SWOT Analysis

Formulate

Strategies

Implement

Strategies

Evaluate

Results

Strategic Management ProcessStrategic Management Process

and strategies

Internal

Analysis

•Strengths

•Weaknesses

• Designing the business portfolio is

a key step in the strategic planning

process.

• The best business portfolio is the

one that best fits the company’s

Business Portfolio AnalysisBusiness Portfolio Analysis

one that best fits the company’s

strengths and weaknesses and to

the opportunities in the

environment.

�� The company must:The company must:

• Analyze its current business portfolio or

Strategic Business Units (SBUs).

• Decide which SBUs should receive more, less

or no investment.

Business Portfolio Analysis

or no investment.

• Develop growth strategies for growth or

downsizing

• Evaluate relative strength of all businesses in

the company.

� Strategic Business Unit analysis.

• Evaluates strength of each independent

business unit in company.

• Applying Growth-Share Matrix key analysis

Portfolio Analysis

• Applying Growth-Share Matrix key analysis

� Following tools are used for Business Portfolio

Analysis

- Growth Share Matrix (Boston Consulting Group

or Product Portfolio Analysis)

- Industry Attractiveness/Business Position Matrix

Business Portfolio Analysis

- Industry Attractiveness/Business Position Matrix

(General Electric/McKenzey Matrix)

- Hofer’s Product Market Evolution matrix

- PIMS (Profit Impact of Market Strategy)

� But commonly used techniques are BCG & GE9

cell matrix

�� Market ShareMarket Share is the ratio of sales revenue of is the ratio of sales revenue of

the firm to the total sales revenue of all firms the firm to the total sales revenue of all firms

in the industry, including the firm itself.in the industry, including the firm itself.

Market ShareMarket Share

�� A A marketing plan marketing plan is a road map for the is a road map for the

marketing activities of an organization for a marketing activities of an organization for a

specified future period of time. It allocates specified future period of time. It allocates

the the 44P’s of a firm to reach the target market.P’s of a firm to reach the target market.

Marketing PlanMarketing Plan

�� Market segmentation Market segmentation involves aggregating involves aggregating

prospective buyers into groups, or segments, prospective buyers into groups, or segments,

thatthat--

�� ((11) have ) have common needs common needs andand

Market Segmentation

�� ((11) have ) have common needs common needs andand

�� ((22) will ) will respond similarly respond similarly to a marketing to a marketing

action.action.

� Profit is the reward to a business firm for the

risk it undertakes in offering a product for

� It is also the money left over after a firm’s

total expenses are subtracted from its total

Profit

total expenses are subtracted from its total

sales (revenue generated).

- Developed by Boston Consulting Group in 1970

- Allocating resources amongst SBU’s is major issue

- Provides a framework for allocating resources

among SBU’s

BCG Growth Share Matrix

among SBU’s

- Helps in managing & comparing a portfolio of

different business units

- Places the business units on a Market Growth

rate vs. Market Share grid.

- According to this technique, businesses or

products are classified as low or high

performers depending upon their market

growth rate and relative market share.

BCG Growth Share Matrix

growth rate and relative market share.

- Market share is the percentage of the total

market that is being serviced by a company,

measured either in revenue terms or unit

volume terms.

RELATIVE MARKET SHARE (RMS)ExampleExampleExampleExampleExampleExampleExampleExample-------- Market Market Share of the Share of the India's ElectronicsIndia's Electronics

CompaniesCompanies

COMPANYCOMPANY MARKET SHARE MARKET SHARE IN IN 20122012

Sony 27%

Samsung 17%

LG 16%

Videocon 14%

LG 16%

Videocon 14%

Onida 10%

RMS = = = 0000....59595959%%%%Business unit sales this year

Leading rival sales this year

Market GrowthMarket Growth (MGR) is used as a measure of a

market’s attractiveness.

MGRMGR = =

Individual sales Individual sales

Current YearCurrent Year

Individual sales last year Individual sales last year

Individual sales Individual sales

Last YearLast Year

MarketsMarkets experiencingexperiencing highhigh growthgrowth areare onesones wherewhere

thethe totaltotal marketmarket shareshare availableavailable isis expanding,expanding, andand

there’sthere’s plentyplenty ofof opportunityopportunity forfor everyoneeveryone toto makemake

moneymoney..

Individual sales last year Individual sales last year

Development Introduction Growth Maturity Saturation Decline

Product Life Cycle

Product Life Cycle- Extended Strategies

Sales/ProfitsPLC and Profits

Profits

Product Life Cycles and the Product Life Cycles and the ProfitProfit

TimeLosses

Break Even

� It is a portfolio planning model which is based on

the observation that a company’s business units

can be classified in to four categories:

� Stars Stars

�� Question marks Question marks

Cash cowsCash cows BCG MatrixBCG Matrix�� Cash cowsCash cows

�� DogsDogs

� It is based on the combination of market growth

and market share relative to the best competitor

(Market Leader).

BCG MatrixBCG Matrix

BCG Matrix & PLCBCG Matrix & PLC

20%20%--

18%18%--

16%16%--

14%14%--

12%12%--

10%10%--

8%8%--

6%6%--

4%4%--

Market Growth Rate

Dogs 8

Question marks

Cash cows

High High

The Boston Consulting Group’s Growth-Share Matrix

6%6%--

4%4%--

2%2%--

Market Growth Rate

10x 4x 2x 1.5x 1x 10x 4x 2x 1.5x 1x

Relative Market ShareRelative Market Share

..55x .x .44x .x .33x .x .22x .x .11xx

High High

Low Low

� Stars are the unit with a high market share in a

fast growing industry.

� Star represent the best profits and growth

opportunities in the market.

� Generates high revenues and also requires huge

cash for sustaining the STAR position.

� Product is in growth stage.

� Strategic Implications:

• Huge potential

• May be expensive to develop

• Worth spending money to promote

• Consider the extent of their product life

cycle in decision making

� Strategic Decisions:

� Invest high & huge promotions to attract

larger customer base to match with the

industry growth rate.

Competition will be increasing & hence,

� Competition will be increasing & hence,

holding the customer base (MS) with

concentration & product development

strategy.

� A cash cow is a product or a business unit that

generates unusually high profit margins.

� They are the business with low growth rate and

Cash Cows

� They are the business with low growth rate and

high market share.

� Generating cash more than its requirement

which can be used by other units (positive cash

flows).

� Product in maturity Stage.

• Less Cost to promote

• Generate large amounts of cash –can be used for further investment?

Cash Cows

can be used for further investment?

• Costs of developing and promoting have largely gone

• Need to monitor their performance –the long term?

• At the maturity stage of the PLC?

� Holding the position through Stability Strategy

& through integration strategy

� Differentiation of products in stiff competitive

Cash Cows

� Differentiation of products in stiff competitive

environment is must, to encash as mush share

in slow industry growth.

� Question Marks are the units with low market

share in a fast growing industry.

� They required large amount of cash to grow

their market share. for e.g.: Promotional

Question Marks

their market share. for e.g.: Promotional

expenses.

� They have the potential to generate profits

and achieve a dominant position in market.

� Product is in introduction stage, in a fast

growing market.

• What are the chances of these products

securing a hold in the market?

• How much will it cost to promote them to

Question Marks

• How much will it cost to promote them to

a stronger position?

• Is it worth it?

• Aggressive investment & expansion to

capitalise on Industry’s Growth rate with

Focus Differentiation or Low cost Strategy

Question Marks

• Divestiture, if the cost of expansion &

building MS is outweigh the potential

payoff & financial risk

� Dogs often have little future and are big cash

drainer on the company.

� Generating cash just to BREAK-EVEN. It is a self

sustaining unit (Negative Cash Flow).

� They do not generate any profit for the overall

business and hence can be sold off and hired

� Product is in decline stage, with no chance of

revival.

• Are they worth persevering with?

• How much are they costing?

• Could they be revived in some way?

• How much would it cost to continue

to support such products?

• How much would it cost to remove

from the market?

BCG Matrix of Amul

BCG Matrix of M & M

Introduction:

� Mahindra Group is one of the largest corporate groups of India. It is a US $6.3 billion conglomerate with employee strength of over 50,000. strength of over 50,000.

� It is ranked amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies.

BCG Matrix of M & M

SBU’s of M & M

� Tractors

� Two Wheelers

� Utility Vehicles

BCG Matrix of M & M

Place of Tractor:

� AMGR of Tractor industry = 18%

� Market share of M&M = 29% (Market Leader)

2nd largest player is Tafe group (messy tractor)� 2nd largest player is Tafe group (messy tractor)

� Market share of Tafe group = 23%

� RMS of M&M Tractor = 1.26x

Matrix o

Tractor

Market growth Rate

TRADITIONAL BCG MATRIX

Market growth Rate

TRADITIONAL BCG MATRIX

lative

rket sh

BCG Matrix of M & M

Place of Two Wheeler’s

� AMGR of two wheelers industry = 12%

� Market Share of M&M two Wheelers = 1%

� Market Share of Hero Honda = 47%

� RMS of M&M two wheelers = 0.02x

BCG Matrix of M & M (2 Wheelers)

teHIGH

Relative Market shareHIGH LOW

BCG Matrix of M & M

Place of Utility Vehicles

� AMGR of Utility vehicle industry = 8.7%

� Market Share of M&M Utility Vehicle = 42%

(Market Leader)(Market Leader)

� Market Share of Tata Motors in UV = 21%

� RMS of M&M Utility Vehicle = 2x

BCG Matrix of M & M

Relative Market share

BCG Matrix of M & M

SBUSBU AMGRAMGR M&M M&M

Market Market Share (a)Share (a)

Largest Largest Competitor Competitor Market Market

Share (b)Share (b)

X = a/bX = a/b

TRACTORSTRACTORS18%18% 29%29% 23% 23%

(TAFE)(TAFE)1.261.26

TRACTORSTRACTORS (TAFE)(TAFE)

TWO TWO

WHEELERSWHEELERS12%12% 1%1% 52% 52%

(HERO (HERO HONDA)HONDA)

0.020.02

UTILITY UTILITY

VEHICLESVEHICLES8.7%8.7% 42%42% 21% (TATA 21% (TATA

MOTORS)MOTORS)2.002.00

BCG Matrix of M & M

Relative Market shareHIGH

BCG Matrix of M & M

Appropriate Strategies:Appropriate Strategies:

TRACTORS (STAR)

HOLD STRATEGY (Invest to protect)

� Build capacity expansion

� Increase investment

� Increase advertisement and promotion

� Increase market reach

BCG Matrix of M & M

� TWO WHEELERS (QUESTION MARK ?)

� Exceptional case (Money hogger)Exceptional case (Money hogger)

� Product is in early stage

� Try to build it and turn in to STAR

� Invest intensively

BCG Matrix of M & M

Utility Vehicles (Cash Cows)HOLD STRATEGY (INVEST TO PROTECT)

� Increase advertisement & promotion� Increase market reach� Increase Investment

GE9 Cell-McKensey Matrix

� GE Matrix or McKinsey Matrix is a strategic tool

for portfolio analysis.

� Developed by GE & McKensey & Co. of USA in

� It is similar to the BCG Matrix and actually the GE � It is similar to the BCG Matrix and actually the GE

/ McKinsey Matrix is an extension of the BCG

Matrix - Multifactor Portfolio Analysis Tool.

�� This tool compares different businesses on This tool compares different businesses on

""Business StrengthBusiness Strength" and "" and "Market AttractivenessMarket Attractiveness" "

as two variablesas two variables

� The GE / McKinsey Matrix is divided into nine

cells - nine alternatives (3x3) for positioning of

any SBU or product offering.

� Based on the strength of the business and its

market attractiveness each SBU will have a market attractiveness each SBU will have a

different position in the matrix.

� Further, the market size and the current sales will

distinguish each SBU.

� Based on clear understanding of all of these

factors decision makers are able to develop

effective strategies.

Objective of GE9 Cell-McKensey Matrix

�� Thus, the objective of the analysis is to Thus, the objective of the analysis is to

position each SBU on the chart depending on position each SBU on the chart depending on

the SBU's Strength and the Attractiveness of the SBU's Strength and the Attractiveness of

the Industry Sector or Market on which it is the Industry Sector or Market on which it is

focused. focused. focused. focused.

�� Each axis is divided into Low, Medium and Each axis is divided into Low, Medium and

High, giving the nineHigh, giving the nine--cell matrix as shown cell matrix as shown

ahead.ahead.

�� SBUs are portrayed as a circle plotted on the SBUs are portrayed as a circle plotted on the

GE/McKinsey Matrix, where the size of the circle GE/McKinsey Matrix, where the size of the circle

represents a factor such as Market Size. represents a factor such as Market Size.

�� The GE/McKinsey Matrix differs from other tools, The GE/McKinsey Matrix differs from other tools,

like the Boston Consulting Group Matrix, in that like the Boston Consulting Group Matrix, in that

multiple factors are used to define Industry multiple factors are used to define Industry

Attractiveness and Business Unit Strength. Attractiveness and Business Unit Strength.

General Electric’s Industry

Attractiveness-Business Strength Matrix

• Market SizeMarket Size•• Growth RateGrowth Rate•• Profit MarginProfit Margin

•• Relative Market ShareRelative Market Share•• Reputation/ ImageReputation/ Image•• Bargaining LeverageBargaining Leverage

Industry Attractiveness Business Strength

•• Profit MarginProfit Margin•• Intensity of CompetitionIntensity of Competition•• SeasonalitySeasonality••ResourceResource•• Social ImpactSocial Impact•• RegulationRegulation•• EnvironmentEnvironment•• Opportunities & ThreatsOpportunities & Threats••TechnologyTechnology

•• Bargaining LeverageBargaining Leverage•• Ability to Match Ability to Match Quality/ServiceQuality/Service

Harvest/DivestHarvest/Divest

Protect Position

Invest to Build

Build selectively

Selectively manage for earnings

Limited expansion/ harvest

HighHigh

MediumMedium

Industry AttractivenessIndustry Attractiveness

HighHigh MediumMedium LowLow

GE9 Multifactor Portfolio Matrix

Harvest/DivestHarvest/Divest

SelectivitySelectivity/earnings/earnings

Build/GrowBuild/Grow

Protect & refocus Divest

Manage for earningsLowLow

� Invest to Build

• Challenge for leadership

� Protect Position

• Invest to grow

• Effort on maintaining strength

• Challenge for leadership

• Build selectively on strength

� Build Selectively

• Invest in most attractive segment

• Build up ability to counter competition

• Emphasize profitability by raising productivity

�� Protect & RefocusProtect & Refocus

•• Manage for current earningManage for current earning

•• Defend strengthDefend strength

�� Selectivity for EarningSelectivity for Earning

•• Protect existing programProtect existing program

•• Investments in profitable segments Investments in profitable segments •• Investments in profitable segments Investments in profitable segments

�� Build Selectively Build Selectively

•• Specialize around limited strengthSpecialize around limited strength

•• Seek ways to overcome weaknessesSeek ways to overcome weaknesses

•• Withdraw if indication of sustainable Withdraw if indication of sustainable

growth are lackinggrowth are lacking

� Manage for Earnings

• Protect position in profitable segment

� Limited Expansion for Harvest

• Look for ways to expand

without high risk

• Protect position in profitable segment

• Upgrade product line

• Minimize investment

� Harvest

• Sell at time that will maximize cash value

• Cut fixed costs and avoid investment

meanwhile

GE9 Multifactor Portfolio Matrix

Harvest/DivestHarvest/Divest-- Businesses or products which are in Businesses or products which are in red zone, signals to stop indicating red zone, signals to stop indicating Retrenchment Retrenchment Strategy of divestmentStrategy of divestment & liquidation or a rebuilding & liquidation or a rebuilding approach for adopting Turnaround Strategiesapproach for adopting Turnaround Strategies

- GEGE9 9 Cell Matrix is also known as Stop Light Strategy Cell Matrix is also known as Stop Light Strategy Matrix, as these are like the Matrix, as these are like the TrafficTraffic SignalsSignals LightsLights.

approach for adopting Turnaround Strategiesapproach for adopting Turnaround Strategies

Selectivity/earningsSelectivity/earnings-- Business or Products which Business or Products which are in yellow zone signals, Wait, See & Proceed, are in yellow zone signals, Wait, See & Proceed, indicating indicating Hold & Maintain type of StrategiesHold & Maintain type of Strategies, , aiming at aiming at Stability & ConsolidationStability & Consolidation..

Build/GrowBuild/Grow-- Business in the Green Zone, attract Business in the Green Zone, attract major investment & major investment & adaption of Growth Strategiesadaption of Growth Strategies

� Businesses in upper left corner

• Accorded top investment priority

• Strategic prescription is grow and build

� Businesses in three diagonal cells

• Given medium investment priority

Strategy Implications of Strategy Implications of

Attractiveness/Strength MatrixAttractiveness/Strength Matrix

• Given medium investment priority

• Invest to maintain position

� Businesses in lower right corner

• Candidates for harvesting or divestiture

• May be candidates for an overhaul and

reposition strategy

Example

� TATA

• IT (Information Technology) : TCS

• Consumer Durable : Automobiles, • Consumer Durable : Automobiles,

Titan etc.

•Textiles : Tata Fabrics, West Sides etc

Example

Business StrengthsMarket Attractiveness

LowHigh

Consumer

Durables

Market Attractiveness

LowTextiles

�� “Synergy is the energy or force created by the “Synergy is the energy or force created by the

working together of various parts or working together of various parts or

processes.”processes.”

-- Synergy in business is the benefit derived from Synergy in business is the benefit derived from

SynergySynergy

-- Synergy in business is the benefit derived from Synergy in business is the benefit derived from

combining two or more elements (or combining two or more elements (or

businesses) so that the performance of the businesses) so that the performance of the

combination is higher than that of the sum of combination is higher than that of the sum of

the individual elements (or businesses).the individual elements (or businesses).

-- The interaction of two or more agents or forces The interaction of two or more agents or forces

so that their combined effect is greater than the so that their combined effect is greater than the

sum of their individual effects.sum of their individual effects.

� Ex.-LeadershipLeadership--Management SynergyManagement Synergy

Leaders:Leaders: Provide visionProvide vision..

SynergySynergy

�� Leaders:Leaders: Provide visionProvide vision..

•• Managers:Managers: Provide resourcesProvide resources..

�� ►► Resulting synergy: Employee empowerment

�� ““DysergyDysergy is the negative energy or force or is the negative energy or force or

impact produced due to the inability of impact produced due to the inability of

working together of various parts or working together of various parts or

DysergyDysergy

-- DysergyDysergy in business is the losses derived from in business is the losses derived from

combining two or more elements (or combining two or more elements (or

businesses) so that the performance of the businesses) so that the performance of the

combination is lower than that of the sum of combination is lower than that of the sum of

DysergyDysergy

-- The interaction of two or more agents or The interaction of two or more agents or

forces so that their combined effect is poor forces so that their combined effect is poor

than the sum of their individual effects.than the sum of their individual effects.

- Stretch is the misfit between the resources &

aspirations.

- Leverage refers to concentrating, accumulating,

complementing, conserving & recovering the

resources in such a way that the available resource

are stretched so as to meet the aspirations that

Concept of Stretch, Leverage, & Fit

are stretched so as to meet the aspirations that

organization wants to achieve.

- Concept of fit is opposite to the concept of stretch,

it means- positioning the firm with available

resources so as to match with the requirements of

environment

Prof. Prashant B. KalaskarProf. Prashant B. Kalaskar

# 9975770407, 7350520025# 9975770407, 7350520025

prashantkalaskar007@gmail.comprashantkalaskar007@gmail.com

prashant_pk4@rediffmail.comprashant_pk4@rediffmail.com

If Any Query....??If Any Query....??If Any Query....??If Any Query....??

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