Designing the Business Portfolio

                              Designing the Business Portfolio

a. The third step in the strategic planning process is designing the
business portfolio.

o The business portfolio is a collection of businesses and products
that make up the company.

o The best business portfolio is the one that best fits the company’s
strengths and weaknesses to opportunities in the environment.
business portfolio is the one that best fits the company’s
strengths and weaknesses to opportunities in the environment.

b. In order to design the business portfolio, the business must:
o Analyze its current business portfolio and decide which business
should receive more, less, or no investment.

o Develop growth strategies for adding new products or businesses
to the portfolio.

Analyzing the Current Business Portfolio

c. 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:

o 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.\

o The SBU can be a company division, a product line within a
division, or even a single product or brand.

o The second step is to assess the attractiveness of its various SBUs
and decide how much support each deserves.

d. The best known portfolio planning method is the Boston Consulting Group
(BCG) matrix:
o Using the BCG approach, where a company classifies all its SBUs
according to the growth-share matrix.

1.  The vertical axis, market growth rate, provides a measure of
2. market attractiveness.
3. The horizontal axis, relative market share, serves as a
4. measure of company strength in the market.
5. Using the matrix, four types of SBUs can be identified:
6.  Stars are high-growth, high-share businesses or products
7. (they need heavy investment to finance their rapid growth
8. potential).
9.  Cash Cows are low-growth, high-share businesses or

products (they are established, successful, and need less
investment to hold share).

􀂃 Question Marks are low-share business units in highgrowth
markets (they require a lot of cash to hold their
share).

􀂃 Dogs are low-growth, low-share businesses and products
(they may generate enough cash to maintain themselves,
but do not have much future).

e. 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:

o The company can invest more in the business unit in order to build
its share.
o The company can invest enough just to hold at the current level.

o The company can harvest the SBU.
o The company can divest the SBU.

f. As time passes, SBUs change their positions in the growth-share matrix.
Each has its own life-cycle.

g. The growth-share matrix has done much to help strategic planning study;
however, there are problems and limitations with the method.

o They can be difficult, time-consuming, and costly to implement.

o Management may find it difficult to define SBUs and measure
market share and growth.

o They focus on classifying current businesses but provide little
advice for future planning.

o 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.

h. In spite of the drawbacks, most firms are still committed to strategic
planning.