| Definition |
Portfolio Analysis provides a framework to assess the relative opportunities and optimise investments in a companys portfolio of businesses. Companies use portfolio models to guide investment tradeoffs among strong or weak products, brands and business units. Typically, companies have businesses in various stages of development. Some are in growth industries and need large investments to improve competitive positions. Others are in mature industries and generate more cash than is required to sustain their position. This tool recommends that businesses generating excess cash be used to fund the growth of high potential, cash-starved businesses. It also indicates when divestment is the most attractive option. |
| Implementation |
Portfolio Analysis evaluates a portfolio of businesses based on relative competitive capability and market attractiveness.
- Growth/share analysis:
Growth/share analysis is based on the premise that higher market growth corresponds to increased investment requirements, and higher market share corresponds to increased profitability. Once the businesses are defined, they are categorised based on their relative market share versus competition and other factors, such as capital intensity and the rate of industry growth. This allows the user to determine which businesses should receive or generate excess cash
- Market attractiveness/competitive position matrix:
In this multivariable analysis, the overall market attractiveness is based on the industrys growth rate, overall profitability, market size and capital requirements. The competitive capability of a business is based on the companys market share, share growth rate, product technology and quality, and cost position. By looking at each business along these dimensions, opportunities can be identified and prioritised
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| Purpose |
The tool can be used in the following strategic areas:
- Assess the positioning and balance of a companys portfolio of businesses
- Evaluate performance over time
- Determine future financial implications for the portfolio of businesses and its ability to enhance shareholder value
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