The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.
Therefore the company must:
(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.
(1) Evaluating Current Portfolio
The major task in strategic planning is the business portfolio analysis. This is a tool by which managers identify and evaluate the various businesses of the company.
Management’s first step is to identify the key business making up the company. These may be referred to as strategic business units An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.
The second step is to assess the attractiveness of its various SBU’s and decide how much support each deserves. This can be done;
1) Informally: Management takes a look at the company’s portfolio of business and products and decides how much an SBU should contribution and receive
2) Formally: These methods evaluate SBU's on 2 dimensions; attractiveness and strengths. Two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the General Electric Matrix
The BCG Matrix
Using this approach a company must classify its SBU’s according to the Growth share matrix.
This is a portfolio planning tool which evaluated a company’s SBU in terms of their market growth rate (attractiveness) in relation to its market share (strength) By dividing the matrix into... [continues]
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