Ch. 5- Ch. 5-

Business Portfolio Business Portfolio AnalysisAnalysis

Meanings….Meanings…. Business:- Business:- An economic system in An economic system in

which goods and services are exchanged for one which goods and services are exchanged for one another or money, on the basis of their another or money, on the basis of their perceived worth. Every perceived worth. Every business requires some form of investment and a business requires some form of investment and a sufficient number of customers to whom sufficient number of customers to whom its output can be sold at profit on a consistent basis.its output can be sold at profit on a consistent basis.

PortfolioPortfolio- A collection of investments all owned by - A collection of investments all owned by the same individual or organization.the same individual or organization.

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

Analysis-Analysis- is the systematic way of resolution or is the systematic way of resolution or examination of any object or happening.examination of any object or happening.

Strategic Management ProcessStrategic Management Process

Identify the organization’s

current mission, goals, and strategies

External Analysis

•Opportunities•Threats

Internal Analysis

•Strengths•Weaknesses

SWOT Analy

sis

Formulate Strategies

Implement Strategies

Evaluate Results

Business Portfolio AnalysisBusiness Portfolio Analysis Designing the business portfolio is a Designing the business portfolio is a

key step in the strategic planning key step in the strategic planning process.process.

The best business portfolio is the one The best business portfolio is the one that best fits the company’s that best fits the company’s strengthsstrengths and and weaknessesweaknesses and to the and to the opportunitiesopportunities in the environment. in the environment.

Business Portfolio AnalysisBusiness Portfolio Analysis

The business portfolio is the collection of The business portfolio is the collection of businesses and products that make up businesses and products that make up

the company.the company.The company must:

Analyze its Analyze its currentcurrent business portfolio or Strategic business portfolio or Strategic Business Units (SBUs).Business Units (SBUs).

Decide which SBUs should receive more, less or no Decide which SBUs should receive more, less or no investment.investment.

Develop growth strategies for growth or downsizingDevelop growth strategies for growth or downsizing

Portfolio Analysis.Portfolio Analysis. Evaluates relative strength of all businesses in the Evaluates relative strength of all businesses in the

company.company.

Strategic Business Unit analysis.Strategic Business Unit analysis. Evaluates strength of each independent business Evaluates strength of each independent business

unit in company.unit in company. Growth-Share Matrix key analysis tool.Growth-Share Matrix key analysis tool.

Business Portfolio AnalysisBusiness Portfolio Analysis

Following tools are used for Business Portfolio Following tools are used for Business Portfolio Analysis Analysis -Growth Share MatrixGrowth Share Matrix (Boston Consulting Group or (Boston Consulting Group or Product Portfolio Anaylsis)Product Portfolio Anaylsis)-Industry Attractiveness/Business Position Matrix Industry Attractiveness/Business Position Matrix ((General Electric/McKenzey MatrixGeneral Electric/McKenzey Matrix))-Hofer’s Product Market Evolution matrixHofer’s Product Market Evolution matrix-Strategic Position & Action Evaluation MatrixStrategic Position & Action Evaluation Matrix-PIMS (Profit Impact of Market Strategy)PIMS (Profit Impact of Market Strategy)

But commonly used techniques are BCG & GE9 cell But commonly used techniques are BCG & GE9 cell matrixmatrix

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

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

Market ShareMarket Share

A A marketing plan marketing plan is a road map for is a road map for the marketing activities of an the marketing activities of an organization for a specified future organization for a specified future period of time. It allocates the 4P’s of period of time. It allocates the 4P’s of a firm to reach the target market.a firm to reach the target market.

A A marketing plan marketing plan is a road map for is a road map for the marketing activities of an the marketing activities of an organization for a specified future organization for a specified future period of time. It allocates the 4P’s of period of time. It allocates the 4P’s of a firm to reach the target market.a firm to reach the target market.

Marketing Plan

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

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

Market Segmentation

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 firm’s total expenses are subtracted from its total sales.

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 firm’s total expenses are subtracted from its total sales.

BCG Growth Share MatrixBCG Growth Share Matrix-Developed by Boston Consulting Group in 1970Developed by Boston Consulting Group in 1970-Allocating resources amongst SBU’s is major issueAllocating resources amongst SBU’s is major issue-Provides a framework for allocating resources among Provides a framework for allocating resources among SBU’sSBU’s-Helps in managing & comparing a portfolio of different Helps in managing & comparing a portfolio of different business unitsbusiness units-Places the business units on a Places the business units on a Market GrowthMarket Growth rate vs. rate vs. Market Share grid.Market Share grid.-According to this technique, businesses or products are According to this technique, businesses or products are classified as low or high performers depending upon classified as low or high performers depending upon their market growth rate and relative market share.their market growth rate and relative market share.-Market share is the percentage of the total market that is the percentage of the total market that is being serviced by your company, measured either in is being serviced by your company, measured either in revenue terms or unit volume terms. revenue terms or unit volume terms. -

BCG MatrixBCG MatrixRELATIVE MARKET SHARE (RMS)RELATIVE MARKET SHARE (RMS)

Business unit sales this yearBusiness unit sales this year

Leading rival sales this yearLeading rival sales this yearRMSRMS ==

Example-Example- Market Share of the India's Largest Music Market Share of the India's Largest Music CompaniesCompanies

COMPANYCOMPANY MARKET SHARE IN 2010MARKET SHARE IN 2010Sony (BMG) 27%Tips 17%T-Series 16%HMV Music 14%Venus Music 10%

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

Market GrowthMarket Growth

Market growth (MGR) is used as a measure of a market’s attractiveness.

MGRMGR = Individual sales -- individual sales = Individual sales -- individual sales this year last yearthis year last year Individual sales last year Individual sales last year Markets experiencing high growth are ones Markets experiencing high growth are ones where the total market share available is where the total market share available is expanding, and there’s plenty of opportunity expanding, and there’s plenty of opportunity for everyone to make money.for everyone to make money.

Product Life CycleProduct Life Cycle

Time

SalesDevelopmentIntroduction Growth Maturity SaturationDecline

Product Life Cycle- Extended Product Life Cycle- Extended StrategiesStrategies

Sales

Time

Effects of ExtensionStrategies

Product Life Cycles and the Boston Product Life Cycles and the Boston MatrixMatrix

Sales/Profits

Time

PLC and Profits

PLC

Losses

Break Even

Profits

BCG MatrixBCG Matrix

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

Stars Stars Question marks Question marks Cash cowsCash cows DogsDogs

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

BCG Matrix & PLCBCG Matrix & PLC

The Boston Consulting Group’s The Boston Consulting Group’s Growth-Share MatrixGrowth-Share Matrix

20%-20%-18%-18%-16%-16%-14%-14%-12%-12%-10%-10%- 8%-8%- 6%-6%- 4%-4%- 2%-2%- 00

Mar

ket G

row

th R

ate

Mar

ket G

row

th R

ate

10x 4x 2x 1.5x 1x 10x 4x 2x 1.5x 1x Relative Market ShareRelative Market Share

.5x .4x .3x .2x .1x .5x .4x .3x .2x .1x

Dogs 87

3 ?Question marks

? ?2

1

Cash cows

6

Stars

5

4

High High

High High

Low Low

Low Low

StarsStars

Products in markets experiencing high Products in markets experiencing high growth rates with a high or increasing growth rates with a high or increasing

share of the marketshare of the market-Potential for high revenue growthPotential for high revenue growth

-Growth stage of PLCGrowth stage of PLC

StarsStars

Implications:Implications: Huge potentialHuge potential May have been expensive to developMay have been expensive to develop Worth spending money to promoteWorth spending money to promote Consider the extent of their product Consider the extent of their product

life cycle in decision makinglife cycle in decision making

Cash CowsCash Cows High market shareHigh market share Low growth markets – Low growth markets –

maturity stage of PLCmaturity stage of PLC Low cost supportLow cost support High cash revenue – positive High cash revenue – positive

cash flowscash flows

Cash CowsCash CowsImplications:Implications:

Cheap to promoteCheap to promote Generate large amounts of cash – Generate large amounts of cash –

use for further R&D?use for further R&D? Costs of developing and promoting Costs of developing and promoting

have largely gonehave largely gone Need to monitor their performance – Need to monitor their performance –

the long term?the long term? At the maturity stage of the PLC?At the maturity stage of the PLC?

Question MarksQuestion MarksProblem Child:Problem Child:

-Products having a low market Products having a low market share in a high growth marketshare in a high growth market-Need money spent to develop Need money spent to develop

themthem-May produce negative cash flowMay produce negative cash flow

-Potential for the future?Potential for the future?

Question MarksQuestion MarksImplications:Implications:

What are the chances of these What are the chances of these products securing a hold products securing a hold in the market?in the market?

How much will it cost to How much will it cost to promote them to a stronger promote them to a stronger position?position?

Is it worth it?Is it worth it?

DogsDogs Products in a low growth Products in a low growth

market market Have low or declining Have low or declining

market share (decline market share (decline stage of PLC)stage of PLC)

Associated with negative Associated with negative cash flowcash flow

May require large sums May require large sums of money to supportof money to support

Implications:Implications: Are they worth persevering with?Are they worth persevering with? How much are they costing?How much are they costing? Could they be revived in some way?Could they be revived in some way? How much would it cost to continue How much would it cost to continue

to support such products?to support such products? How much would it cost to remove How much would it cost to remove

from the market?from the market?

DogsDogs

BCG MATRIX of AmulBCG MATRIX of Amul

Amul – Product PortfolioAmul – Product PortfolioCategory Market Share Market Position

Chocolate Drink 90% 1

Butter, Ghee 85% 1

Cheese 50% 1

Sweets 50% 1

Milk 40% 1

Ice-cream 24.75% 2

Chocolate 10% 3

Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake

'Best Manufacturer of Cigarettes for the year 2007‘

FMCG-Cigarettes

BCG Matrix of ITCBCG Matrix of ITC

FMCG-Others

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

‘Superbrand 2006‘ - Superbrand Council.

Hotels

ITC 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 Business

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

eChoupal, Agri Exports, Leaf Tobacco

Packaging & Paperboards

Packaging & Paperboards and Specialty Paper

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

Infotech

ITC Infotech Ltd.

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

Outsourcing Professionals

ITC Ltd on BCG Matrix (Conclusion)

MARKET SHARE

GROWTH

Star Question mark

DogCash Cow

•FMCG-Cigarettes •ITC Infotech

•FMCG-Foods•Agri Business•Hotels•Paperboards & Packaging

GE9 Multifactor Portfolio MatrixGE9 Multifactor Portfolio MatrixIndustry AttractivenessIndustry Attractiveness

Bu

sin

ess S

tren

gth

s

HighHigh

HighHigh

MediumMedium

MediumMedium

LowLow

LowLow

Harvest/DivestHarvest/Divest

SelectivitySelectivity/earnings/earnings

Build/GrowBuild/Grow

Protect Position

Invest to Build

Build selectively

Build selectively

Selectively manage for earnings

Limited expansion/ harvest

Protect & refocus Divest

Manage for earnings

GE9 Multifactor Portfolio MatrixGE9 Multifactor Portfolio Matrix

Harvest/Divest-Harvest/Divest- Businesses or products which are in red zone, Businesses or products which are in red zone, signals to stop indicating Retrenchment Strategy of divestment signals to stop indicating Retrenchment Strategy of divestment & liquidation or a rebuilding approach for adopting Turnaround & liquidation or a rebuilding approach for adopting Turnaround StrategiesStrategies

Selectivity/earningsSelectivity/earnings- - Business or Products which are in Business or Products which are in yellow zone signals, Wait, See & Proceed, indicating Hold yellow zone signals, Wait, See & Proceed, indicating Hold & Maintain type of Strategies, aiming at Stability & & Maintain type of Strategies, aiming at Stability & Consolidation.Consolidation.

Build/GrowBuild/Grow- Business in the Green Zone, attract major - Business in the Green Zone, attract major investment & adaption of Growth Strategiesinvestment & adaption of Growth Strategies

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

General Electric’s Industry Attractiveness-General Electric’s Industry Attractiveness-Business Strength MatrixBusiness Strength Matrix

Low

High

Medium

AverageStrong Weak• Market Size• Growth Rate• Profit Margin• Intensity of Competition• Seasonality•Resource• Social Impact• Regulation• Environment• Opportunities & Threats•Technology

• Relative Market Share• Reputation/ Image• Bargaining Leverage• Ability to Match Quality/Service

• Relative Costs• Profit Margins• Fit with KSFsIndustry

Attractiveness

Business Strength

Rating Scale: 1 = Weak ; 10 = Strong

6.7

3.3

10.0

1.0

1.03.36.7

Strategy Implications of Strategy Implications of Attractiveness/Strength MatrixAttractiveness/Strength Matrix

• Businesses in upper left corner– Accorded top investment priority– Strategic prescription is grow and build

• Businesses in three diagonal cells– 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 “ “Synergy is the energy or force created by the Synergy is the energy or force created by the working working together of various parts or processes.”together of various parts or processes.”-Synergy in business is the benefit derived from Synergy in business is the benefit derived from combining two or more elements (or businesses) so that combining two or more elements (or businesses) so that the performance of the combination is higher than that the performance of the combination is higher than that of the sum of the individual elements (or businesses).of the sum of the individual elements (or businesses).-The interaction of two or more agents or forces so that The interaction of two or more agents or forces so that their combined effect is greater than the sum of their their combined effect is greater than the sum of their individual effects.individual effects.-Cooperative interaction among groups, especially Cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a among the acquired subsidiaries or merged parts of a corporation, that creates an enhanced combined effectcorporation, that creates an enhanced combined effect

Ex.-Leadership-Management SynergyLeadership-Management Synergy

Leaders:Leaders: Provide vision Provide vision. . Managers:Managers: Provide resources Provide resources..

► ►  Resulting synergy: Employee empowerment

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

Concept of Stretch, Leverage, & FitConcept of Stretch, Leverage, & Fit- Stretch is the misfit between the resources & Stretch is the misfit between the resources &

aspirations.aspirations.- Leverage refers to concentrating, Leverage refers to concentrating,

accumulating, complementing, conserving & accumulating, complementing, conserving & recovering the resources in such a way that recovering the resources in such a way that the available resource are stretched so as to the available resource are stretched so as to meet the aspirations that organization wants meet the aspirations that organization wants to achieve.to achieve.

- Concept of fit is opposite to the concept of Concept of fit is opposite to the concept of stretch, it means- positioning the firm with stretch, it means- positioning the firm with available resources so as to match with the available resources so as to match with the requirements of environmentrequirements of environment