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Strategic Portfolio Analysis Models

Portfolio analysis techniques help organizations make strategic decisions about different businesses and products. Prominent models include the BCG growth-share matrix, GE nine-cell planning grid, Product/Market Evolution matrix, Directional Policy matrix, and Strategic Position and Action Evaluation (SPACE). The Product/Market Evolution matrix depicts positions of businesses entering growth stages. The Directional Policy matrix uses business prospects and competitive capabilities to choose strategies. SPACE considers competitive advantage, financial strength, industry strength, and environmental stability to determine aggressive, competitive, conservative, or defensive postures.

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78 views17 pages

Strategic Portfolio Analysis Models

Portfolio analysis techniques help organizations make strategic decisions about different businesses and products. Prominent models include the BCG growth-share matrix, GE nine-cell planning grid, Product/Market Evolution matrix, Directional Policy matrix, and Strategic Position and Action Evaluation (SPACE). The Product/Market Evolution matrix depicts positions of businesses entering growth stages. The Directional Policy matrix uses business prospects and competitive capabilities to choose strategies. SPACE considers competitive advantage, financial strength, industry strength, and environmental stability to determine aggressive, competitive, conservative, or defensive postures.

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Portfolio Models

(Product/Market Evolution Matrix, Directional Policy Matrix, Strategic Position and Action Evaluation)
Abhishek Jhanwar Roll No. 51

Portfolio Analysis
In a business, there may be many products with varying prospects. Portfolio analysis (also referred to as corporate portfolio, business portfolio, or product portfolio analysis), is a set of techniques that helps an organisation in making strategic decisions with regard to what to do with different businesses/products. Prominent portfolio analysis models are BCG growth-share matrix, GE nine-cell planning grid, Product/market evolution matrix, directional policy matrix, and strategic position and action evaluation.

Product/Market Evolution Matrix


This model was given by Hofer and Schendel to overcome the weakness identified by them in GE approach. GE approach does not depict the positions of businesses that are about to emerge as winners because the product is entering the take off stage. In order to overcome this problem, they constructed a fifteencell matrix taking competitive position and stages of product/market evolution dimensions.

Competitive Position Stage of Product/Market Evolution


Strong Average Weak Development Growth

Shakeout

Maturation, Saturation

Decline

Business falling in strong competitive position and in development and growth market may be future winners. Business falling in average competitive position and in development and growth market may be converted into future winners by increasing their competitive position. Business falling in weak competitive position in any market, particularly more so in mature and declining market are potential losers. Therefore can be considered for disinvestment. Business falling in strong competitive position and in mature shakeout market may be termed as cash cows because of their ample cash generating capacity. Business falling in average competitive position and in saturated and declining market can also be candidate for future disinvestment

Competitive Position Stage of Product/Market Evolution


Strong A Development B Growth D Shakeout C Average Weak

Maturation, Saturation

F Decline

Directional Policy Matrix


DPM, developed by shell chemicals, UK. It uses two dimensions- business sector prospects and companys competitive capabilities- to choose strategies. Each dimension is further divided into three degrees- business sector prospects into unattractive, average, and attractive and companys competitive capabilities into weak, average, and strong. The combination of two dimensions with three degrees of each gives nine cells as shown in figure:

Business Sector Prospects Competitive Capabilities


Unattractive Average Attractive

Divestment

Phased withdrawal

Double or quit

Weak Phased withdrawal Average Custodian Try harder

Cash generation
Strong

Growth

Market leadership

Type of Strategy
Divestment Phased withdrawal Double or quit Custodian Try harder Cash generation Growth Market leadership

Strategic Position and Action Evaluation


SPACE is an extension of two dimensional portfolio analysis. SPACE involves a consideration of four dimensions: organisations competitive advantage, organisational financial strength, industry strength, and environmental stability.

Factors
Competitive advantage: Market share Product quality Product life cycle Product replacement cycle Customer loyalty Capacity utilization Technical know-how Vertical integration

Cont..
Financial Strength Return on investment Leverage Capital required and available Cash flow Ease of exit from market Risk involved in the business

Cont..
Industry Strength Profit potential Growth potential Financial stability Resource utilization Capital intensity Ease of entry into market Productivity

Cont..
Environmental Stability Technological changes Rate of inflation Demand variability Price range of competing products Competitive pressure Price elasticity of demand Entry barriers

Types of Strategy
Aggressive Posture Competitive Posture Conservative Posture Defensive Posture

Thank You

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