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)

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

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?)

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.

Question marks

Cash cows Dogs

Industry/ market

growth rate

Relative market share

High

Low

The BCG(Boston Consulting Group) model

High Low

Stars

BCG SectionsStars• Business with a high market share and high

growth rate• Generate huge sums of money• Require huge sums of money to cope with

growthCash 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”)

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.

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

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

Competitive Strengths Determinants

• Relative market share• Production capacity• Company Image • Profit margins• Technological capabilities• R & D strengths• Market and customer knowledge• Employee commitment• Etc.

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

Industry/ market

attractiveness

Competitive Strengths

High

Low

The GE model

Strong Average

1 2 C

3 B Ii

A i iii

Medium

Weak

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