Ch.
5 Business Portfolio Analysis
Prof. Prashant B. Kalaskar
Meanings.
Business:Business:- An economic system in which goods & services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment & sufficient number of customers to whom its output can be sold at profit on a consistent basis.
Prof. Prashant B. Kalaskar
Meanings.
PortfolioPortfolio- A collection of investments all owned bybythe same individual or organization. Business Portfolio- The business portfolio is Portfoliothe collection of businesses and products that make up the company. AnalysisAnalysis- is the systematic way of resolution or examination of any object or happening.
External Analysis Opportunities Threats Identify the organizations current mission, goals, and strategies
SWOT Analysis
Internal Analysis Strengths Weaknesses
Formulate Strategies
Implement Strategies
Evaluate Results
Strategic Management Process
Prof. Prashant B. Kalaskar
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 Analysis
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 Evaluate relative strength of all businesses in the company.
Portfolio Analysis
Strategic Business Unit analysis. Evaluates strength of each independent business unit in company. Applying Growth-Share Matrix key analysis tool.
Prof. Prashant B. Kalaskar
Business Portfolio Analysis
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Following tools are used for Business Portfolio Analysis Growth Share Matrix (Boston Consulting Group or Product Portfolio Analysis) Industry Attractiveness/Business Position Matrix (General Electric/McKenzey Matrix) Hofers Product Market Evolution 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 Plan
A 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.
Prof. Prashant B. Kalaskar
Market Segmentation
Market segmentation involves aggregating prospective buyers into groups, or segments, thatthat(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 (revenue generated).
Prof. Prashant B. Kalaskar
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.
BCG Growth Share Matrix
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 a company, measured either in revenue terms or unit volume terms.
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RELATIVE MARKET SHARE (RMS)
ExampleExample- Market Share of the India's Electronics Companies COMPANY MARKET SHARE IN 2012 Sony 27% Samsung 17% LG 16% Videocon 14% Onida 10% Business unit sales this year 16 RMS = = 27 = 0.59% 59% Leading rival sales this year
Prof. Prashant B. Kalaskar
Market Growth
Market Growth (MGR) is used as a measure of a markets attractiveness.
Individual sales Current Year Individual sales Last Year
MGR =
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. money.
Prof. Prashant B. Kalaskar
Sales
Development
Introduction
Growth
Maturity
Saturation Decline
Time
Product Life Cycle
Product Life Cycle- Extended Strategies
Sales
Time
Sales/Profits
PLC and Profits
PLC
Profits Time Break Even
Losses
Product Life Cycles and the Profit
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
BCG Matrix
It is based on the combination of market growth and market share relative to the best competitor (Market Leader).
Prof. Prashant B. Kalaskar
BCG Matrix & PLC
20%20%18%18%16%16%14%14%12%12%10%10%8%8%6%6%4%4%2%2%0
Low
High
Market Growth Rate
Stars
Question marks
5
Cash cows
? 2?
Dogs
6
10x 4x 2x 1.5x 1x
7
.5x .4x .3x .2x .1x .4 .3 .2 .1
Low
High
Relative Market Share
The Boston Consulting Groups Growth-Share Matrix
Stars
Stars are the unit with a high market share in a fast growing industry. Star represent the best profits and growth opportunities in the market. Generates high revenues and also requires huge cash for sustaining the STAR position. Product is in growth stage.
Prof. Prashant B. Kalaskar
Stars
Strategic Implications: Huge potential May be expensive to develop Worth spending money to promote Consider the extent of their product life cycle in decision making
Stars
Strategic Decisions: Invest high & huge promotions to attract larger customer base to match with the industry growth rate. Competition will be increasing & hence, holding the customer base (MS) with concentration & product development strategy.
Cash Cows
A cash cow is a product or a business unit that generates unusually high profit margins. They are the business with low growth rate and high market share. Generating cash more than its requirement which can be used by other units (positive cash flows). Product in maturity Stage.
Cash Cows
Strategic Implications: Less Cost to promote Generate large amounts of cash can be used for further investment? Costs of developing and promoting have largely gone Need to monitor their performance the long term? At the maturity stage of the PLC?
Prof. Prashant B. Kalaskar
Cash Cows
Strategic Decisions:
Holding the position through Stability Strategy & through integration strategy Differentiation of products in stiff competitive environment is must, to encash as mush share in slow industry growth.
Prof. Prashant B. Kalaskar
Question Marks
Question Marks are the units with low market share in a fast growing industry. They required large amount of cash to grow their market share. for e.g.: Promotional expenses. They have the potential to generate profits and achieve a dominant position in market. Product is in introduction stage, in a fast growing market.
Prof. Prashant B. Kalaskar
Question Marks
Strategic Implications: 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?
Prof. Prashant B. Kalaskar
Question Marks
Strategic Decisions: Aggressive investment & expansion to capitalise on Industrys Growth rate with Focus Differentiation or Low cost Strategy or Divestiture, if the cost of expansion & building MS is outweigh the potential payoff & financial risk
Prof. Prashant B. Kalaskar
Dogs
Dogs often have little future and are big cash drainer on the company. Generating cash just to BREAK-EVEN. It is a self sustaining unit (Negative Cash Flow). They do not generate any profit for the overall business and hence can be sold off and hired off. Product is in decline stage, with no chance of revival.
Prof. Prashant B. Kalaskar
Dogs
Strategic 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
Prof. Prashant B. Kalaskar
BCG Matrix of M & M Introduction:
Mahindra Group is one of the largest corporate groups of India. It is a US $6.3 billion conglomerate with employee strength of over 50,000. It is ranked amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies.
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
SBUs of M & M Tractors Two Wheelers Utility Vehicles
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
Place of Tractor:
AMGR of Tractor industry = 18% Market share of M&M = 29% (Market Leader) 2nd largest player is Tafe group (messy tractor) Market share of Tafe group = 23% RMS of M&M Tractor = 1.26x
Prof. Prashant B. Kalaskar
20% 18% 16%
Market growth Rate
14% 12% 10% 8% 6% 4% 2% 10x 0%
4x
2x
1x
0.5 x 0.4 x 0.3
Relative Market share
x 0.2 x 0.1 x
TRADITIONAL BCG MATRIX
BCG Matrix of M&M Tractor
BCG Matrix of M & M
Place of Two Wheelers AMGR of two wheelers industry = 12% Market Share of M&M two Wheelers = 1% Market Share of Hero Honda = 47% RMS of M&M two wheelers = 0.02x
Prof. Prashant B. Kalaskar
BCG Matrix of M & M (2 Wheelers)
20%
HIGH
18% 16%
Business growth Rate
14% 12% 10% 8% 6% 4% 2%
4x
2x
10x
1x
0%
0.5x
0.4x
0.3x
LOW
0.2x 0.1x
HIGH
Relative Market share
LOW
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
Place of Utility Vehicles
AMGR of Utility vehicle industry = 8.7% Market Share of M&M Utility Vehicle = 42% (Market Leader) Market Share of Tata Motors in UV = 21% RMS of M&M Utility Vehicle = 2x
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0.5x 0.4x 10x 4x 0.3x 0.2x 0.1x 0% 2x 1x
Business growth Rate
Relative Market share
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
SBU AMGR M&M Market Share (a) Largest Competitor Market Share (b)
X = a/b
18%
TRACTORS
29%
23% (TAFE) 52% (HERO HONDA) 21% (TATA MOTORS)
1.26
TWO WHEELERS
12%
1%
0.02
UTILITY VEHICLES
8.7%
42%
2.00
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
HIGH 20% 18%
Business growth Rate
16% 14% 12% 10% 8% 6% 4% 2%
LOW 0.4x 0.3x 0.5x 0.2x 0.1x 1x HIGH 10 x 4x 0% LOW
Relative Market share
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
Appropriate Strategies: TRACTORS (STAR)
HOLD STRATEGY (Invest to protect) Build capacity expansion Increase investment Increase advertisement and promotion Increase market reach
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
Appropriate Strategies:
TWO WHEELERS (QUESTION MARK ?)
Exceptional case (Money hogger) Product is in early stage Try to build it and turn in to STAR Invest intensively
Prof. Prashant B. Kalaskar
BCG Matrix of M & M
Appropriate Strategies: Utility Vehicles (Cash Cows)
HOLD STRATEGY (INVEST TO PROTECT)
Increase advertisement & promotion Increase market reach Increase Investment
Prof. Prashant B. Kalaskar
GE9 Cell-McKensey Matrix
GE Matrix or McKinsey Matrix is a strategic tool for portfolio analysis. Developed by GE & McKensey & Co. of USA in 1971 It is similar to the BCG Matrix and actually the GE / McKinsey Matrix is an extension of the BCG Matrix - Multifactor Portfolio Analysis Tool. This tool compares different businesses on "Business Strength" and "Market Attractiveness" Strength" "Market Attractiveness" as two variables
GE9 Cell-McKensey Matrix
The GE / McKinsey Matrix is divided into nine cells - nine alternatives (3x3) for positioning of any SBU or product offering. Based on the strength of the business and its market attractiveness each SBU will have a different position in the matrix. Further, the market size and the current sales will distinguish each SBU. Based on clear understanding of all of these factors decision makers are able to develop effective strategies.
Objective of GE9 Cell-McKensey Matrix
Thus, the objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. Each axis is divided into Low, Medium and High, giving the nine-cell matrix as shown nineahead.
GE9 Cell-McKensey Matrix
SBUs are portrayed as a circle plotted on the GE/McKinsey Matrix, where the size of the circle represents a factor such as Market Size.
The GE/McKinsey Matrix differs from other tools, like the Boston Consulting Group Matrix, in that multiple factors are used to define Industry Attractiveness and Business Unit Strength.
General Electrics Industry Attractiveness-Business Strength Matrix
Industry Attractiveness
Business Strength
Relative Market Share Reputation/ Image Bargaining Leverage Ability to Match Quality/Service
Market Size Growth Rate Profit Margin Intensity of Competition Seasonality Resource Social Impact Regulation Environment Opportunities & Threats Technology
Industry Attractiveness High High Protect Position Medium Invest to Build Low Build selectively
Medium
Build selectively
Selectively manage for earnings
Limited expansion/ harvest
Harvest/Divest
Low
Protect & refocus
Manage for earnings
Divest
Selectivity /earnings
Build/Grow
GE9 Multifactor Portfolio Matrix
GE9 Cell-McKensey Matrix
Protect Position Invest to grow Effort on maintaining strength Invest to Build Challenge for leadership Build selectively on strength Build Selectively Invest in most attractive segment Build up ability to counter competition Emphasize profitability by raising productivity
GE9 Cell-McKensey Matrix
Protect & Refocus Manage for current earning Defend strength Selectivity for Earning Protect existing program Investments in profitable segments Build Selectively Specialize around limited strength Seek ways to overcome weaknesses Withdraw if indication of sustainable growth are lacking
GE9 Cell-McKensey Matrix
Limited Expansion for Harvest Look for ways to expand without high risk Manage for Earnings Protect position in profitable segment Upgrade product line Minimize investment Harvest Sell at time that will maximize cash value Cut fixed costs and avoid investment meanwhile
GE9 Multifactor Portfolio Matrix
- GE9 Cell Matrix is also known as Stop Light Strategy GE9 Matrix, as these are like the Traffic Signals Lights Lights. Harvest/DivestHarvest/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 Strategies Selectivity/earningsSelectivity/earnings- Business or Products which are in yellow zone signals, Wait, See & Proceed, indicating Hold & Maintain type of Strategies, Strategies, aiming at Stability & Consolidation. Consolidation. Build/GrowBuild/Grow- Business in the Green Zone, attract major investment & adaption of Growth Strategies
Strategy Implications of Attractiveness/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
Example
TATA IT (Information Technology) : TCS Consumer Durable : Automobiles, Titan etc. Textiles : Tata Fabrics, West Sides etc
Example
High High
Business Strengths
IT Consumer Durables
Low
Market Attractiveness
Low
Textiles
Synergy
Synergy 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).
Synergy
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The interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects. Ex.-Leadership-Management Synergy LeadershipLeaders: Provide vision. vision.
Managers: Provide resources. resources.
Resulting synergy: Employee empowerment
Dysergy
Dysergy is the negative energy or force or impact produced due to the inability of working together of various parts or processes.
Prof. Prashant B. Kalaskar
Dysergy
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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.
Prof. Prashant B. Kalaskar
Concept of Stretch, Leverage, & Fit
Stretch 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
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If Any Query....??
Prof. Prashant B. Kalaskar
