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Ch. 5- Ch. 5- Business Business Portfolio Portfolio Analysis Analysis

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Ch. 5-

Business Portfolio Analysis

Meanings.

which goods and services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis. Portfolio- A collection of investments all owned by the same individual or organization. Business Portfolio- The business portfolio is the collection of businesses and products that make up the company. Analysis- is the systematic way of resolution or examination of any object or happening.

Business:- An economic system in

Strategic Management Process

External Analysis Opportunities Threats Identify the organizations current mission, goals, and strategies

SWOT AnalysisInternal Analysis Strengths Weaknesses

Formulate Strategies

Implement Strategies

Evaluate Results

Business Portfolio Analysis

Designing the business portfolio is a key step in the strategic planning process. The best business portfolio is the one that best fits the companys strengths and weaknesses and to the opportunities in the environment.

Business Portfolio AnalysisThe business portfolio is the collection of businesses and products that make up the company. The company must:

Analyze its current business portfolio or Strategic Business Units (SBUs). Decide which SBUs should receive more, less or no investment. Develop growth strategies for growth or downsizing

Portfolio Analysis.

Evaluates relative strength of all businesses in the company.

Strategic Business Unit analysis.

Evaluates strength of each independent business unit in company. Growth-Share Matrix key analysis tool.

Business Portfolio AnalysisFollowing tools are used for Business Portfolio Analysis - Growth Share Matrix (Boston Consulting Group or Product Portfolio Anaylsis) - Industry Attractiveness/Business Position Matrix (General Electric/McKenzey Matrix) - Hofers Product Market Evolution matrix - Strategic Position & Action Evaluation Matrix - PIMS (Profit Impact of Market Strategy) But commonly used techniques are BCG & GE9 cell matrix

Market Share

Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.

Marketing PlanA marketing plan is a road map for the marketing activities of an organization for a specified future period of time. It allocates the 4Ps of a firm to reach the target market.

Market Segmentation

Market segmentation involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action.

Profit

Profit is the reward to a business firm for the risk it undertakes in offering a product for sale. It is also the money left over after a firms total expenses are subtracted from its total sales.

BCG Growth Share Matrix-

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Developed by Boston Consulting Group in 1970 Allocating resources amongst SBUs is major issue Provides a framework for allocating resources among SBUs 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. Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.

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BCG MatrixRELATIVE MARKET SHARE (RMS) Business unit sales this year RMS = Leading rival sales this yearExample- Market Share of the India's Largest Music Companies COMPANY Sony (BMG) Tips T-Series HMV Music Venus Music MARKET SHARE IN 2010 27% 17% 16% 14% 10%

RMS = Business unit sales this year = 16 = 0.59% Leading rival sales this year 27

Market GrowthMarket growth (MGR) is used as a measure of amarkets attractiveness. MGR = Individual sales -- individual sales this year last year Individual sales last year

Markets experiencing high growth are ones where the total market share available is expanding, and theres plenty of opportunity for everyone to make money.

Product Life Cycle

SalesDevelopmentIntroduction

Growth

Maturity

Saturation Decline

Time

Product Life Cycle- Extended StrategiesSales

Effects of Extension Strategies Time

Product Life Cycles and the Boston MatrixSales/Profits PLC and Profits

PLCProfits Losses Break Even Time

BCG Matrix

It is a portfolio planning model which is based on the observation that a companys business units can be classified in to four categories:

Stars Question marks Cash cows Dogs

It is based on the combination of market growth and market share relative to the next

best competitor.

BCG Matrix & PLC

The Boston Consulting Groups Growth-Share MatrixHigh

Stars 20%18%16%14%12%10%8%6%4%2%0 Low Market Growth Rate

4

Question marks

3

5Cash cows

?2

?

1

Dogs

8

6

7

10x 4x 2x 1.5x 1x .5x .4x .3x .2x .1x High Relative Market Share Low

StarsProducts in markets experiencing high growth rates with a high or increasing share of the market - Potential for high revenue growth - Growth stage of PLC

StarsImplications:

Huge potential May have been expensive to develop Worth spending money to promote Consider the extent of their product life cycle in decision making

Cash Cows

High market share Low growth markets maturity stage of PLC Low cost support High cash revenue positive cash flows

Cash Cows

Implications: Cheap to promote Generate large amounts of cash use for further R&D? Costs of developing and promoting have largely gone Need to monitor their performance the long term? At the maturity stage of the PLC?

Question MarksProblem Child: -Products having a low market share in a high growth market -Need money spent to develop them -May produce negative cash flow -Potential for the future?

Question MarksImplications:

What are the chances of these products securing a hold in the market? How much will it cost to promote them to a stronger position? Is it worth it?

Dogs

Products in a low growth market Have low or declining market share (decline stage of PLC) Associated with negative cash flow May require large sums of money to support

Dogs

Implications: 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

Amul Product PortfolioCategoryChocolate Drink Butter, Ghee Cheese Sweets Milk Ice-cream Chocolate

Market Share90% 85% 50% 50% 40% 24.75% 10%

Market Position1 1 1 1 1 2 3

BCG Matrix of ITCFMCG-CigarettesInsignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake

'Best Manufacturer of Cigarettes for the year 2007

FMCG-OthersAshirvad Atta, Kitchens Of India, Mint-o, Sunfeast, Candyman, Bingo, Superia, Wills LifeStyle, Fiama Di Wills, Expressions, Classmate

Superbrand 2006 - Superbrand Council.

HotelsITC Maurya (Delhi), ITC Maratha (Mumbai), ITC Grand Central (Mumbai), ITC Sonar (Kolkatta), ITC Windsor (Bengaluru), ITC Kakatiya (Hyderabad), ITC Mughal (Agra).

Bukhara Restaurant named as Best Indian Restaurant in the World.

Agri BusinesseChoupal, Agri Exports, Leaf Tobacco

Innovation for India Award 2006 for ITC e-Choupal in the Social Innovations category for business organizations

Packaging & PaperboardsPackaging & Paperboards and Specialty Paper

Indian Manufacturing Excellence Gold Award 2007 and 2006 to Unit Bollaram by Frost & Sullivan

InfotechITC Infotech Ltd.

Featured amongst Top 100 Global Outsourcing Companies in the Leaders category - International Association of Outsourcing Professionals

ITC Ltd on BCG Matrix (Conclusion)

Star Agri Business Hotels Paperboards & Packaging

Question mark FMCG-Foods

G R O W T H

Cash Cow FMCG-Cigarettes

Dog ITC Infotech

MARKET SHARE

GE9 Multifactor Portfolio MatrixIndustry Attractiveness High Medium Invest to Build Low

High

Protect Position

Build selectively

Medium

Build selectively

Selectively manage for earnings

Limited expansion/ harvest

Harvest/Divest Selectivity /earnings

Low

Protect & refocus

Manage for earnings

Divest

Build/Grow

GE9 Multifactor Portfolio Matrix- GE9 Cell Matrix is also known as Stop Light Strategy Matrix, as these are like the Traffic Signals Lights.

Harvest/Divest- Businesses or products which are in red zone, signals to stop indicating Retrenchment Strategy of divestment & liquidation or a rebuilding approach for adopting Turnaround StrategiesSelectivity/earnings- Business or Products which are in yellow zone signals, Wait, See & Proceed, indicating Hold & Maintain type of Strategies, aiming at Stability & Consolidation. Build/Grow- Business in the Green Zone, attract major investment & adaption of Growth Strategies

General Electrics Industry AttractivenessBusiness Strength MatrixBusiness StrengthIndustry Attractiveness Relative Market Share Relative Costs Reputation/ Image Profit Margins Bargaining Leverage Fit with KSFs Ability to Match Quality/Service10.0

Market Size Growth Rate High Profit Margin Intensity of Competition 6.7 Seasonality Resource Medium Social Impact Regulation 3.3 Environment Opportunities & Threats Low Technology1.0

Strong

6.7

Average

3.3

Weak

1.0

Rating Scale: 1 = Weak ; 10 = Strong

Strategy Implications of Attractiveness/Strength Matrix

Businesses in upper left corner

Businesses in three diagonal cells

Accorded top investment priority Strategic prescription is grow and build 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

SynergySynergy is the energy or force created by the working together of various parts or processes. Synergy in business is the benefit derived from combining two or more elements (or businesses) so that the performance of the combination is higher than that of the sum of the individual elements (or businesses). The interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects. Cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a corporation, that creates an enhanced combined effectEx.-Leadership-Management Synergy Leaders: Provide vision. Managers: Provide resources. Resulting synergy: Employee empowerment

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DysergyDysergy is the negative energy or force or impact produced due to the inability of working together of various parts or processes. - Dysergy in business is the losses derived from combining two or more elements (or businesses) so that the performance of the combination is lower than that of the sum of the individual elements (or businesses). - The interaction of two or more agents or forces so that their combined effect is poor than the sum of their individual effects.

Concept of Stretch, Leverage, & FitStretch 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 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-