Designing the Business Portfolio- marketing 6

Designing the Business Portfolio

 A business portfolio is the collection of businesses and products that make up the company. The best portfolio is the one that best fits the company’s strengths and weaknesses to opportunities in the environment.

Analyzing the Current Business Portfolio: The major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses making up the company. A strategic business unit (SBU) is a unit of the company which has a separate mission and objectives and that can be planned independently from other company businesses. The next step in business portfolio analysis calls for management to assess the attractiveness of its various SBUs and decide how much support each deserves. Most standard portfolio-analysis methods evaluate SBUs on two important dimensions—the attractiveness of the SBU’s market or industry and the strength of the SBU’s position in that market or industry. The Boston Consulting Group Approach. The best-known portfolio-planning method was developed by the Boston Consulting Group.
This matrix defines four types of SBUs:
• Stars: high-growth market, high-share product
• Cash cows: low-growth market, high-share product
• Question marks: low-share product, high-growth market
• Dogs: low-share product, low-growth market

Once it has classified its SBUs, the company must determine what role each will play in the future. The company can invest more in the business unit in order to grow its share. It can invest just enough to hold the SBU’s share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Or it can divest the SBU by selling it or phasing it out.

Problems with Matrix Approaches
Portfolio-analysis approaches have limitations.
• They can be difficult, time-consuming, and costly to implement.
• Management may find it difficult to define SBUs and measure market share and growth.
• These approaches focus on classifying current businesses but provide little advice for future planning.
Because of such problems, many companies have dropped formal matrix methods in favor of more customized approaches that are better suited to their specific situations.

Developing Strategies for Growth and Downsizing
Designing the business portfolio involves finding businesses and products the company should consider in the future. Marketing has the main responsibility for achieving profitable growth for the company.  Marketing must identify, evaluate, and select market opportunities and lay down strategies for capturing them. The product/market expansion grid:
• Market penetration involves making more sales to current customers without changing its products.
• Market development involves identifying and developing new markets for its current products.
• Product development is offering modified or new products to current markets.
• Diversification is where a company starts up or buys businesses outside of its current products and markets.
Companies must also develop strategies for downsizing their businesses.