Page 168 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes (c) Relative volumes
(d) Performance of the industry in recent years
(e) Forces that determine competition in the industry.
5. It focuses attention on the firm’s competitors.

6. It helps to determine key success factors.
7. A thorough understanding of the industry provides a basis for thinking about appropriate
strategies that are open to the firm.

9.4 Corporate Portfolio Analysis

Many companies offer more than one product, and serve more than one customer. They have a
portfolio (i.e. a basket) of products. This is a good strategy because a firm which is dependent on
one product or customer runs immense risk. Decisions on strategy, therefore, generally involve
a range of products in a range of markets.

Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of
products or business units to be managed for the best possible returns, and help a corporate to
build a multi-business strategy.

When an organisation has a number of products in its portfolio, it is quite likely that they will
be in different stages of development. Some will be relatively new and some much older. Many
organisations will not wish to risk having all their products at the same stage of development.
It is useful to have some products with limited growth but producing profits steadily, and some
products with real growth potential but may still be in the introductory stage. Indeed, the
products that are earning steadily may be used to fund the development of those that will
provide the growth and profits in the future.
So, the key strategy is to produce a balanced portfolio of products, some with low risk but dull
growth and some with high-risk but great potential for growth and profits. This is what we call
portfolio analysis.
The aim of portfolio analysis is:

1. To analyse its current business portfolio and decide which business should receive more
or less investment.
2. To develop growth strategies for adding new businesses to the portfolio.

3. To decide which business should no longer be retained.

Did u know? Several leading consulting firms developed a number of “portfolio matrices”
during the 1970s and 1980s to achieve a better understanding of the competitive position
of overall portfolio of businesses, to suggest strategic alternatives of each of the businesses
and to identify priorities for allocation of resources. The basis for many of these matrices
grew out of the BCG matrix developed by the Boston Consulting Group in the 1970s.

9.4.1 Display Matrices

“Display matrices” are simple frameworks in which products or business units are displayed as
a series of investments from which top management expects a profitable return. It charts and
characterises different products or businesses in the organisation’s portfolio of investments in
such a way that top management constantly juggles to ensure the best returns from them.

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