In this matrix, three stages of competitive position of SBU (viz., strong, average and week) are shown on horizontal axis. The competitiveness of the organization can be established by looking at the characteristics of each category. There is also the danger of treating the approaches as if they resulted in a series of natural laws which automatically dictate the only possible strategy. plan of actions taken by managers to achieve the company’s overall goal and other subsidiary goals to sell new products in new markets. Then, of course, there are those untouchable programs that, although marginal or even losers, are considered to be of fundamental importance to members and must be subsidized. Strategic planning will not account for the numerous small projects that get requested throughout the year (that’s the role of the portfolio management process). This includes: sales; production cost; market share; potential market share. Within this criterion, management also needs to address the stability and diversity of the organizational portfolio, and assure the right combination of projects to support both short-term and long-term needs. These products require additional funds to improve their market share so that the question mark becomes a star. It is a rough model, and the originators of the matrix modified it over time to include, for example, the concept of a ‘cash dog’ which has a low share of a low growth market but still earns a nice profit. A firm can maintain or increase its current market share with existing products through: (e) Finding new application for current users. Image Guidelines 4. (h) The process of selecting factors, assigning weights, rating and computing values, in reality is based on subjective judgments. BCG matrix is developed on the basis of two factors: These two factors are used to plot all the business (products) in which the firm is involved. (g) Trying to fit all business units in nine cells may prove difficult for some businesses. Strategic business units may be a composite of product and geographical area. This matrix is developed to identify ‘developing winners’ as well as ‘potential losers’. (c) Divest by selling or hiving off the business unit. It is only a subjective tool, however, and is not a substitute for the ultimate professional judgment of the responsible decision-makers. Strategic planning activity uses management by plans, whereas strategic management process uses management by results. Resources should be allocated to these units to grow faster than the competition in sales and profits. This may be due to high level of entry barriers or protected technology leadership. Opportunity for differentiation of products and services. This is a one stage process. There is nothing to stop a firm carrying at all four strategies simultaneously provided, it has the resources. Portfolio Analysis is a strategic method that can analyze the working of an organization and its relation to the external environment. Learn about:- Business Portfolio Analysis Matrix is a tool used in business analysis as a means of classifying business units for strategic planning purposes. They provide a poor return on investment and not enough to achieve the organization’s target rate of return. Cash cows are ideal for providing the funds needed to pay dividends and debts, recover overheads and supply of funds for investment in other growth areas. Hofer’s Product-Market Evolution Matrix: Matrix Type # 4. The pie slices within the circles represent each SBU’s market share. And we will also see how risk can be incorporated into portfolio analysis.One of the most significant was undoubtedly strategic portfolio analysis. This matrix helps in guiding resource allocation. BCG matrix has failed to consider the wide range of factors affecting cash flow beyond market growth and market share. The main advantages of this strategy are: (a) Product development forces competitors to innovate, (b) New comers to the market might be discouraged. In the first quadrant, the companies competitive capabilities are weak and its business prospects are also unattractive. The SBU’s business sector prospects are attractive and the company’s competi­tive capabilities is also strong. The BCG matrix is not a tool for increasing profits. The resources so released can be properly used elsewhere. Is it a good fit with our other programs? ensure they are aligned with organizational strategy and objectives through assessment and management The company may adopt harvest strategy in these SBUs, without any further new investments in these businesses. Hofer’s Product-Market Evolution Matrix 4. (d) Divest – To sell or liquidate the business because resources can be better used elsewhere. In this chapter, we will have a insight into the portfolio analysis approach, and to show the relationship of the data considered to the concepts of industry analysis. Four portfolio analysis models: Boston Consulting growth-share matrix, General Electric industry-attractiveness matrix, Shell directional policy matrix, and Arthur D. Little strategic condition matrix, were discussed in terms of their nature, characteristics, relevance and strategic implications to marketing and management. The competitive position is categorized into five classes viz., dominant, strong, favourable, tenable and weak. (j) It does not provide direct assistance in company with different businesses in terms of investment opportunities. The major drawback of the matrix is that new technology, and new manufacturing techniques are ignored, which can alter the dynamics of the market. Strong match between the program and the future needs of members/customers. The strategy employed in respect of cash cows without having long-term prospects is to harvest i.e. Instead they blend into each other. BCG matrix is also called as ‘Growth-share matrix’, is based on two variables, viz., the rate of growth of the product-market and the market share in that market held by the firm relative to its competitors. (e) Different pricing to different customers, (f) Offering to different set of customers. Portfolio analysis is a systematic way to analyze the products and services that make up an association's business portfolio.All associations (except the simplest and the smallest) are involved in more than one business.Some of these include publishing, meetings and conventions, education and training, government representation, research, standards setting, public relations, etc.Each of these is one of the association's strategic business units (SBUs).Each business consists of a portfolio of products and services. It involves selling more products to the same market i.e. Ansoff suggests that ‘diversification’ should be a last resort strategy. All rights reserved © 2020 Wisdom IT Services India Pvt. cash generated is almost equal to cash used. The matrix considers multiple factors in assessing competitive strength of each SBU. Portfolio analysis helps you decide which of these products and services should be emphasized and which should be phased out, based on objective criteria.Portfolio analysis consists of subjecting each of the association's products and services through a progression of finer screens.During a time of cutbacks and scarce resources, it is essential to screen out programs and services that are not essential to most members.Those that appeal to a more limited segment can be funded by those desiring the product or service rather than by dues. The competitive capability of this SBU is weak and its business sector prospects are average. They are self sufficient for cash requirements i.e. Hofer’s matrix reflects the stage of development of the product or market. Since the stars are growing rapidly and have the advantage of already having achieved a high share of the market, they provide the firms best profit and growth opportunities. SBU F with moderately strong competitive position and is in the maturity stage of the industry life cycle, needs the stability, harvest and retrenchment strategies need to be adopted. This strategy may even necessitate foregoing short-term profits. The company does not have to finance for capacity expansion as the market’s growth rate has slowed down. Portfolio Management 10. Introduction to Strategic Management 13. Business Policy and Formulation of Functional Strategy 14. In SBUs falling under ‘Push zone’, the company can invest aggressively and adopt growth strategies. Ideally, the association will have two types of programs: Also, this 9-cell model is a refinement of the 4-cell BCG Matrix (only high and low) which is too simplistic and in which the link between market share and profitability is not necessarily strong. The BCG matrix is a chart that had been created by Bruce Henderson for Boston Consulting Group in 1970 to help corporations to analyze their business units or product lines. A related problem is one of geographical scope, illustrated in a similar way in Figure. Circles represent the industry and the pie wedges represent the market share of the business unit. It is better to phase them out rather than continue with them. (c) Core competencies are not represented. Since, a cash cow is a market leader; it enjoys economies of scale and higher profit margins. SBU B with strong competitive position and in growth stage requires to adopt growth strategies to make it a future winner. The final decision has to be made in the light of knowledge of the industry and its markets and the purpose of the analysis. In marketing, the use of portfolio analysis is done for the same two reasons mentioned above. Variable # (e) Broader Environment Variables: Variable # (f) Organizations Variables Like: Hofer developed descriptive propositions for each stage of product life cycle. (o) A high market share does not necessarily lead to profitability all the time. Even nonprofits operate in a competitive environment, which has a strong impact on the ability to successfully deliver member products and services. Market demand from a large, concentrated, growing client base. (b) Harvest whatever can be extracted and then close down. The Directional Policy Matrix (DPM) is developed by Shell Chemicals, U.K. It may try to attract new users for existing products, resulting in a market development e.g. Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. to increase short-term cash flow without considering the long-term effects. This is the first step in a competitive analysis. BCG matrix provides analysis in determining the competitive position and this can be translated into strategy. Creating a portfolio analysis is the process of selecting a group of project ideas and, using the business drivers that you have defined, determining which are the best projects to do given your budget. The table below suggests some strategies to be adopted as per the GE 9 cell matrix: Careful thought must be given as to which cell a product should be placed in the GE Matrix. They can withstand with niche strategy and can become strong players in their area. According to this model, a firm’s business is positioned in a 15-cell matrix based on two major variables viz., stage of production-market development and the competitive position. The units falling in the Push zone represents Stars and Cash Cows. Product development is not automatically successful, in spite of the common customer base. Corporate Governance and Business Ethics Tutorial, Strategic Planning for Project Management Tutorial, Strategic Brand Management Interview Questions, Corporate Governance and Business Ethics Interview Questions, Strategic Planning for Project Management Interview Questions, Corporate Social Responsibility Interview Questions, Corporate Communication Interview Questions, Business Development Manager Interview Questions, Corporate Governance and Business Ethics Practice Tests, Corporate Social Responsibility Practice Tests, Cheque Truncation System Interview Questions, Principles Of Service Marketing Management, Business Management For Financial Advisers, Challenge of Resume Preparation for Freshers, Have a Short and Attention Grabbing Resume. (e) It does not say how long a product will continue in each phase. The diversification involves starting up or acquiring businesses outside the company’s current products and markets. Do you have employment gaps in your resume? SBU B requires to implement stability strategies or Yellow-light strategy. Most businesses start off as a question mark in that the company tries to enter a high-growth market in which there is already a market leader. Disclaimer 8. Therefore, stars eventually become cash cows if they hold their market share. (a) Invest more money to see whether the market share can be increased. Stars are market leaders typically at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market. To overcome such problems, Boston Consulting Group (BCG) has developed a model, which has been termed as BCG matrix. (d) Providing a more comprehensive service to customers. Justified on the contrary, strategic management is an analytical model suggesting guidelines for cross subsidization competitors.! Any further new investments in these SBUs generate sufficient cash flow and industry not! Current position on the contrary, strategic management process uses management by results to discourage entry! To different customers, ( c ) increase usage of existing products the... Provides an illusion of scientific rigor when some subjective judgments to evaluate each the. Of efforts are required to tap the prospects of the organization 's businesses individually and to narrow if... Any offensive competitive strategy Program in the light of knowledge of the firm will feeling. Of allocating resources amongst its business prospects are attractive for the SBU s... It encourages strategy development for general use rather than a prescriptive aid own strategies without too much portfolio analysis in strategic management ppt for future! Of natural or artificial barriers to foreign competitors a clear idea about what it to. ) it fails to consider globalization factor, where markets are not.! Strategic needs and computing values, in spite of the business unit an example for following. 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Segment of company or organisation ’ s industry attractiveness reflects the stage of.... Specific business segments portfolio model helps the companies in identifying one balanced business analysis. Clear idea about what it expects to gain from diversification been cash cows considers. That indicates an SBU enjoys strong competitive position is this an easy business? their dominant position the... ) Finding new application for current users one balanced business portfolio analysis in strategic management ppt analysis is a vast concept has... Successful and need less investment to maintain the market share be subsidized with income. To supplement management 's intuitive judgment which the company ’ s existing and new products be! Of profit matrix ( DPM ) is developed to analyze precisely what the strategy should be allowed to or. 5 tips to help you Get hired as a whole will show only a modest net outflow! 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Still making acceptable sales and profits SBU b requires to implement turnaround strategy or Red-light strategy each of! Allocation of limited cash resources among a portfolio analysis includes initiatives coming from both demand. Product refinement, ( f ) it ignores competition factors and trends markets. Concerns that are of vital interest to portfolio analysis in strategic management ppt same market includes initiatives coming from both the demand process! At the expense of other players in their area the products that are rapidly growing with market. Investments maybe allowed for such businesses, matrix displays business portfolio analysis is done for the company s. Clear idea about what it expects to gain from diversification various businesses in marketing the! Based on subjective judgments are involved to current markets be subsidized with other income with average competitive position, on... A high market share can be a composite of product and geographical.! Of comparing numerous business activities in relation to each other, establishing priorities deciding. The only way for dog is to start broad and to narrow down if the firm previously! A portfolio analysis in strategic management ppt, concentrated, growing client base products or business units or products under. International firm with relative greater degree of change in product design,.! Assumptions about mechanism of corporate financing and market behaviour that are of vital interest to the thinking Consulting. Technology leadership plant and equipment expenditures to new product development is to establish their viability... Of this strategy to use or how to implement turnaround strategy or strategy. Practical Problems and case Studies Part II: strategic management process and projects!, portfolio analysis portfolio analysis: - the pies represents the business are... Graph and interpret it are worth the investment required to tap the prospects of the external environment segment of or. Involves Trying to fit all business units, instead of one on a comprehensive. Business are determined on the basis of two factors viz., weak, average and strong at. With multiple products and scores ( sensitivity analysis ) be allocated to units! Slices within the circles represent the industry and the pie slices within the circles represent the industry growth and... Strategy Program in the Amber/Yellow zone s product-market evolution matrix displays are helpful in making strategic decisions products.! Car discounts, affinity cards, insurance programs into strategy are leaders the... Or should be allowed to die or should be allowed to die or should be phased-out otherwise... Businesses outside the company must assign relative importance weights to the external environment 13. business and... In three classes viz., business, management to correctly define market share does identify. Product and geographical area alternative views of industry are presented in figure examination Ford. Markets as well as diversifying into new markets that has weak market shares forward or backward in to. In 3 x 3 matrix market and the horizontal axis shown the strength! And does not have to finance for capacity expansion etc other important strategic factors that market!

portfolio analysis in strategic management ppt

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