portfolio analysis
TRANSCRIPT
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Multi-Business Strategy
Multi-regional strategy
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Lecture Outline
• What is Portfolio Management
• What is Portfolio Analysis
• Boston Box
• McKinsey/GE Matrix
• AD Little Life-Cycle Matrix
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Portfolio Management
• “enable strategic planners to select the optimal strategies for the individual products whilst achieving overall corporate objectives”
(Mcnamee, 1985)
• Multi-business
• And/or multi-location
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Portfolio Analysis
“ the strategic units that make up the company and the attempts to evaluate current effectiveness and vulnerabilities” (McDonald et al, 1992)
– How much of our time and money should we spend on our best products to ensure that they continue to be successful?
– How much of our time and money should we spend developing new costly products, most of which will never be successful?
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Examples of Portfolios
• Unilever: ice cream, tea, spreads,
• Proctor & Gamble: Detergents, nappies,
• Gillette: batteries, Shaving products
• Virgin; trains, planes, cola, music stores
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Hold Strategy
To enjoy continued strong cashflow. Relatively high market share / low market growth rate ‘Cash Cow’ opportunities should be able to maintain market share at or around existing levels
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Build Strategy
To grow the business. Relatively low relative market share / high market growth rate ‘Question Mark’ opportunities need investment in order to grow.
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Harvest Strategy
To develop short term cashflow irrespective of the long term damaging effect to the product or business. This strategy is appropriate for any weak products where disposal in the form of a sale is unavailable or not preferred due to high exit barriers
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Divest Strategy
To change the capital of the business and allow resources to be used elsewhere
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Boston Box - Uses
• Simplifies complex situations
• Target setting tool
• Encourages strategists to view their business as a collection of diversified cash flows and investments
• Success sequences
• Disaster Sequences
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Disadvantages
• Uses 2 factors only
• Many businesses are “Average”
• Dogs -10% mkt share –most fall into this category
• Can use dogs as a tactical tool- barrier to entry
• Cash flow? – Why not ROI?
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GE Business Screen
Long-term industry attractiveness
Business strength/competitive position
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General Electric’s Business Screen
AWinners Winners
B
C
Question Marks
D
F
Average Businesses
EWinners
Losers
GLosers H
LosersProfit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Indu
stry
Att
ract
ive
ness
Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.
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GE Matrix- uses
• More sophisticated than BCG – uses more variables
• Condenses much information into 2 variables?
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Limitations
• Complex and Weighty
• The numerical estimates can be “objective”
• What about new products or business units in growth industries.
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Uses
• The power of the Life-cycle matrix is the story it tells about the distribution of the firm’s businesses across the stages of the industry evolution
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Limitations
• Limited strategic prescription
• Once defined prescription is limited
• Some businesses “skip” cycles
• Go from Growth to Decline in a short time.
• Duration of “cycles”
• Eg. Mars (1930)
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International Portfolio Analysis
2 Factors:
• Country’s attractiveness• Market size, rate of growth, regulation
• Competitive strength• Market share, product fit, contribution
margin, market support
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Portfolio Matrix for Plotting Products by Country
Harvest/Divest Combine/License
Invest/Grow Dominate/Divest Joint Venture
Lo
wH
igh
High Low
Competitive Strengths
Co
un
try
Att
ract
iven
ess
Selective Strategies
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Portfolio Analysis
Advantages:– Top management evaluates each of
firm’s businesses individually– Use of externally-oriented data to
supplement management judgment– Raises issue of cash flow availability– Facilitates communication
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Portfolio Analysis
Disadvantages:– Difficult to define product/market
segments– Standard strategies can miss
opportunities– Illusion of scientific rigor– Value-laden terms