1. Business Portfolio Analysis By Nakato Ruth

2. Portfolio Analysis A common technique used to analyze an organization in relation to its environment. It mainly focuses on the organisations products, services and divisions or strategic business units ( SBUs). The portfolio analysis is commonly applied to firms with multiple strategic business units, making decisions about what strategic business unit to expand, maintain, or retrench.

3. What is a business portfolio? – A business portfolio is a collection of businesses & products that make up the company. – Take an example of uniliver; it has food item s e.g. kimbo, oils, blue band, biscuits. It has detergents like omo, Vim,. It has soap like Geisha, dettol, etc. – Each of these have advertisements and have managers managing them independently.

4. What is a Strategic Business Unit – It may be a company division/branch, a product line, a single product or a brand. – The creation of SBUs enables the setting of SBU’s mission and objectives and the allocation of resources across SBUs in the organization. – Senior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysis.

5. Business portfolio The best business portfolio is one that marches the strong points and weaknesses to the opportunities that are available in the environment. When analysing an SBU consider: Invest Maintain Drop Mentain something because it is a competitive advantage – Re: invest in because it may catch up in future.

6. Business portfolio analysis… Analyze its current portfolio to determine which one should be maintained, dropped, or reinvested in. Develop growth strategies for adding new products or businesses to the portfolio. When you decide to drop consider the costs involved. Dropping is the most expensive strategy. Decide to maintain consider the improvements which must be noticed, & improvements that will give you competitive advantage.

7. Business portfolio models These have been developed to help undertake portifolio analysis. Most have been named after their inventors. The most common one is the Boston Consulting group product portifolio matrix.

8. Business portfolio models A) BCG (Boston Consulting Group) Matrix BCG (Boston Consulting Group) Matrix Provides a framework for senior management in allocating resources across business units in a diversified firm by Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC)

9. BCG (Boston Consulting Group) Matrix... The horizontal axis shows the relative market share which indicates the strenghth of the company in the market. The vertical axis indicates the growth rate and this shows how attractive the market is.

10. BCG (Boston Consulting Group) Matrix

11. BCG (Boston Consulting Group) Matrix... Market share is that percentage of the market that makes up your customers. The mkt share shows how strong you are in the market. Market growth rate is the rate at which the market is growing. If the market is attractive they all join & before you notice there is already a competition.

12. The stars These have a high growth rate and a high market share. They need a lot of investment to finance the rapid growth. The strategy here is to invest heavily in it to be able to reap the benefits of rapid growth.

13. The cash cows Low grow rate but a high market share. They have a low operating costs and therefore generate a lot of money due to their market share. Cash cows should be maintained so that the money is used to support other SBUs that may not be doing well.

14. The dogs Low market share and low growth rates. They may make enough money to maintain themselves, but may not make large amounts of money. Here the strategy is to phase it out unless it is still performing a useful function like providing a competitive advantage.

15. Question marks (problem child) High growth rate but low market share. These need a lot of cash to maintain them and hold the market share. Strategy; the management should think about phasing it out or making it a star by getting it more market share so that it later becomes cash cow.

16. Assumptions of BCG MODEL It assumes that high market or high growth rate leads to high profitability. Stable cost/price relationship; Not valid if the firm is pricing on projected lower average unit. costs in the future Market leader influences the average costs. – Profit margin is a function of market share. – This ignores profitable niches

17. Why study BCG model If you are a business manager, you want to know where your strategic business unit lies. Determine the future role of each SBU and choose the appropriate resource allocation strategy: 4 strategies can be persued; Build Hold Harvest Divest SBUs change positions over time

18. To build This involves increasing market share even if it means foregoing short term earnings or profits. invest in the question marks that are not self- sustaining and whose market shares have to be increased if they are to be stars.

19. To hold This involves preserving the current market share. This is appropriate for strong cash cows, if they are to continue yielding a large positive cash flow.

20. To harvest When harvesting, short term cash flow is increased but no form of investments is made into the business. The hope is to reduce costs at a faster rate than any potential drop in sales leading to increased cash flow. This is appropriate for weak cash cows whose future is dim. The company that is harvesting faces social and ethical questions on information to be shared with stake holders. You are not investing so what do you tell your stakeholders.

21. Divest Sell or close the SBU because the resources can better be used elsewhere. This is appropriate for dogs and question marks that are dragging the company’s profits

22. Common mistakes that companies make 1.Expecting all SBUs to aim for the same growth rate. 2.Making major investments in dogs hopping they will turn around but each time they fail. 3.Leaving cash cows with too little or a lot of retained funds. Get a balanced position 4.Maintaining many question marks and under investing in them.

23. GENERAL ELECTRIC MODEL The GE model is based on industry attractiveness and competitive strength. A company is successful to the extent that they enter attractive markets and acquire the strength to compete in these markets.

24. Market attractiveness Value to company: “Why should the company offer this product or service?“ It is very profitable It provides the organization with a good image There is a huge demand for it There is no investment required It´s what the organization is good at providing etc.

25. Competitive strength Value to customer: “Why should the customer buy this product or service?“ Price Quality Delivery performance Pre-sales advice Product reliability Availability Brand strength Diversifications Customer care Personnel ( qualified personnel)

26. GE MODEL 4 5 6 7 8 9 123 Market attractiveness high medium low weakaverageStrong Competitive strength

27. GE MODEL 1,2 and 4 make up the green zone. They have attractive markets & good competitive strength. They should be given high priority when allocating resources. Companies should build and grow these SBUs.(1,2,4)

28. The yellow zone 3,5 and 7make up the yellow zone. Companies spend enough money maintaining them. Expand or contracting would be more costly, so the strategy is to hold. They have a medium priority in allocation of investment resources.

29. The red zone 6, 8 and 9 form the red zone. These SBUs are not doing well and should be harvested or sold off (divested).

30. THANK YOU