Analyzing the Current Business Portfolio

Analyzing the Current Business Portfolio
In order to analyze the current business portfolio, the company must conduct portfolio analysis (a
tool by which management identifies and evaluates the various businesses that make up the
company). Two steps are important in this analysis:
1). The first step is to identify the key businesses (SBUs). The strategic business unit
(SBU) is a unit of the company that has a separate mission and objectives and which can be
planned independently from other company businesses.
2). The SBU can be a company division, a product line within a division, or even a single
product or brand.
3). The second step is to assess the attractiveness of its various SBUs and decide how much
support each deserves. The best-known portfolio planning method is the Boston Consulting
Group (BCG) matrix:
1). Using the BCG approach, where a company classifies all its SBUs according to the
growth-share matrix.
a). The vertical axis, market growth rate, provides a measure of market attractiveness.
b). The horizontal axis, relative market share, serves as a measure of company strength
in the market.
2). Using the matrix, four types of SBUs can be identified:
a. Stars
b. Cash Cows
c. Question Marks
d. Dogs
a). Stars are high-growth, high-share businesses or products (they need heavy
investment to finance their rapid growth potential).
b). Cash Cows are low-growth, high-share businesses or products (they are established,
successful, and need less investment to hold share).
c). Question Marks are low-share business units in high-growth markets (they require
a lot of cash to hold their share).
d). Dogs are low-growth, low-share businesses and products (they may generate enough
cash to maintain themselves, but do not have much future). Once it has classified its SBUs, a
company must determine what role each will play in the future. The four strategies that can be
pursued for each SBU are:
1). The company can invest more in the business unit in order to build its share.
2). The company can invest enough just to hold at the current level.
3). The company can harvest the SBU.
4). The company can divest the SBU.
As time passes, SBUs change their positions in the growth-share matrix. Each has its own life
cycle. The growth-share matrix has done much to help strategic planning study; however, there are
problems and limitations with the method.
1). They can be difficult, time-consuming, and costly to implement.
2). Management may find it difficult to define SBUs and measure market share and growth.
3). They focus on classifying current businesses but provide little advice for future planning.
4). They can lead the company to placing too much emphasis on market-share growth or
growth through entry into attractive new markets. This can cause unwise expansion into hot, new,
risky ventures or giving up on established units too quickly. In spite of the drawbacks, most firms
are still committed to strategic planning.