Download - Lecture 05 - Portfolio Analysis.pptx
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Lecture Session
5
Portfolio Analysis
Dr K. Sankaran
Director
Justice KS Hegde Management Institute
Nitte, Karnataka
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- Each business has different financial characteristics
- They offer different strategic options
- Examine them separately
- The only extent of tie-up between businesses would be
for Cash flow from one to another
- The transfer depends upon whether the recipientdesigned for market share expansion
PORTFOLIO ANALYSIS
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Two Considerations
- Growth of the business (prospects of the industry)
What is the rate of growth of the industry
- Relative Market share (strength of the SBU)Relative Market Position (Share of the SBU/ Share of the
largest other competitor
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Business
Growth
Rate
Relative Competitive Position
High Low
High
Low
StarsQuestion
Marks
Cash Cows Dogs
BCG GROWTH -SHARE MATRIX
vv
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Business Strategy
Cash Cows: Insist on high profitability, least capital spending,tight financial control for cost leadership
Stars: Plough back returns towards capital spending to
maintain share, build for future
Question Marks: Identify which would become stars (and
invest in market share) and which dogs (insist on minimum
returns and divest opportunistically)
Dogs: No capital spending, be aware of any cross subsidy,
insist on minimum returns, divest away ASAP
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Corporate Strategy- Evolve separate business strategies for each business
-Try evolving the mix towards having big cash cows and having
the stars who will in turn become cash cows in future.
-Similarly have some question marks that will turn out to be
Stars at some later date.
-Divest selected question marks and dogs when opportunity
arises
-Keep a healthy mix with the eye on the future
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BCG-Type Matrix Models - Advantages
Tells what to do with different businesses
Allows for tracking changes. Can be used a control mechanism
Sends the message that differential performance of Businesses canonly be expected.
Allows for balance in terms of cash flow management
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BCG-Type Matrix Models - Disadvantages
It tells you what to do with existing businesses. It does
not tell what to acquire.
It ignore synergy. Assumes no tie-ins between businesses
It does not take into account the need for balancing the portfolio and
diversifying risk
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Modifications to BCG-Type Matrix Models
Map potential companies that could be acquired.
Develop a separate matrix that shows how the businesses are
dependent upon each other. Be aware of these connections before
suggesting any change in the portfolio/ divestment
Ask whether balancing is one of the objectives. If yes, connect up
these businesses like above.
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Engineering
Engineering +Supervision
Engineering
Procurement
Construction
Maintenance services
Audits & Certifications
Safety, Energy, Env. etc.
Other services1
Domestic
Govt.
Domestic
Private
South
AsiaMiddle
East
Developed
Currently Served Product Market Segments
Products Markets
K. Sankaran, IMI
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Profitability
= say billing per
Actual hours
Innovative Learning Opportunities/ Future billing
Circle
represents product-
market segments
Size of circle represents
annual profit from the
respective segment
EXIT
MAINTAIN
IMPROVE
PROFITABILITY
K. Sankaran, IMI
Portfolio Spread of projects
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Standardization of
engineering inputs/
reusable code
Spreading of fixed costs
Higher hourly realization
Increase ProfitabilityIncrease Volumes
Marketing Effort -
Focus on profitable
Product-Market Segments
Increase Profits in Existing Product Markets served
K. Sankaran, IMI
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Increase Profits in
Existing Product
Markets served
Attractive markets with
no presence today hasexpertise
New markets
Develop expertise
Extent of commitment to innovations required
TimeFrame
K. Sankaran, IMI
Existing Markets
New expertise
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Engineering
Engineering +Supervision
Engineering
Procurement
Construction
Maintenance services
Audits & Certifications
Safety, Energy, Env. etc.
Other services1
Domestic
Govt.
Domestic
Private
South
AsiaMiddle
East
Developed
Has Expertise But Attractive Markets Not served
Products Markets
K. Sankaran, IMI
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Expertise 1
Expertise 2
Etc.
Etc.
Domestic
Govt.
Domestic
Private
South
AsiaMiddle
East
Developed
Existing Markets No Expertise
Products Markets
K. Sankaran, IMI
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Innovative IT solutions for
engineering
Smart Buildings
Alternative Energy
Energy Efficient Transport
Infrastructure
Infrastructure projects
(BOT, BOOT)
Others
DomesticSouth
Asia
Middle
EastDeveloped
New Expertise New Markets
Products Markets
K. Sankaran, IMI
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Markets Demand SideFiction Non
Fiction
Study
Material
Reference
Industries-Supply
Side
(Usually
Product
Based)
Books
Software
Magazines
Another Firm - Book Publisher