BUSINESS PORTFOLIO ANALYSIS
BUSINESS PORTFOLIO
ANALYSIS
Portfolio analysis is an analysis of the corporation as a
portfolio of different business with the objective of managing it for returns
on its resources. The business may be in the forms of organizational units,
such as different subsidiaries or divisions of a parent company or Strategic
Business Units (SBUs).
Thus, portfolio analysis looks at the corporate investments in
different products or industries under the common corporate jurisdiction. The
corporate manager analyses the future implications of their present resource
allocations and continuously evaluates which operations or products to expand
or add, and which ones to be curtailed or disposed off, so that the overall
portfolio balance is maintained or improved. The focus is on the present as
well as the future.
The activities of a company and its effectiveness in the market
place also depends on what the other competing companies are doing. Therefore,
the portfolio analysis takes into consideration such aspects as the company’s
competitive strengths, resource allocation pattern and the industry
characteristics.
Portfolio analysis is primarily concerned with the balancing of
the company’s investments in different products or industries and is useful for
highly diversified multi-product companies operating in a limited market. The
different subsidiaries or strategic business units have to be balanced with
respect to the three basic aspects of running the business:
- Net Cash Flow
- State of Development
- Risk
Portfolio analysis is one of the methods to assist managers in evaluating
the strategy. Let us now discuss different types of Business Portfolio
Analyses.
Display Matrices
The purpose of analysis is to optimally allocate resources for
the best total return, with focus on the corporate strategies. Many different
approaches involving different display matrices have evolved over the years,
with the common objective of successful diversification. Some of the common
display matrices are:
- Strategic Planning Institute’s Matrix
- Arthur D. Little Company’s Matrix
- Hofer’s Product/Market Evolution Matrix
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