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Portfolio Analysis

Portfolio Analysis. ITSPLAN Sherwin E Ona. Purpose of Portfolio Analysis. Aid in developing corporate strategy View that a business is a series of investments with an expected profitable return Vertical Axis: Industry attractiveness Horizontal Axis: Unit’s capability or competitive position

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Portfolio Analysis

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  1. Portfolio Analysis ITSPLAN Sherwin E Ona

  2. Purpose of Portfolio Analysis • Aid in developing corporate strategy • View that a business is a series of investments with an expected profitable return • Vertical Axis: Industry attractiveness • Horizontal Axis: Unit’s capability or competitive position • Tools: • 4 cell BCG Growth-Share Matrix • Nine Cell GE Business Screen

  3. Portfolio Analysis • Based on the assumption that the best way to assess a firm’s current situation is to look at what the company does best & where the opportunities are greatest. • Recommends that each product, SBU, or division be considered separately for purposes of strategy formulation.

  4. BCG Growth-share Matrix • Steps: • Determine relative competitive position • Market share divided by that of the largest other competitor • Business growth rate: % by which sales of the particular line of products have increased • Plot product line/business unit position

  5. Portfolio Analysis G r o w t h R a t e H Stars Question Mark Cash Cows Dogs L H L Relative Competitive Position

  6. Matrix dynamics • Stars • Considered as market leaders • Peak of product life cycle • Question Marks • New products with lots of potential but need cash investment • Cash Cows • High return but there is possibility of decline • Dogs • Low market share and potential

  7. Disadvantage • Too simplistic • Growth is only one aspect of industry attractiveness • Misses all competitors • Market share one aspect of competitive position

  8. 9-Cell GE Business Screen • Select criteria to rate industry for each product line or business unit on a scale of 1 to 5 • Select key factors needed for success in each product line. Assess competitive position • Plot position in 9-cell matrix • Plot portfolio

  9. Model of Corporate Strategies I N D U S T R Y A T T R A C T I V E N E S S High Medium Low Strong Ave Weak BUSINESS STRENGTH/COMPETITIVE POSITION

  10. Advantages • Force managers to evaluate business • Graphical representation • Raises issue of cash flow availability for expansion and growth

  11. Disadvantage • Difficult to define market/product segments • Using of standardized strategies may be impractical • May lead to self-fulfilling prophecies • May provide illusion of scientific rigor

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