How to analyze your company’s portfolio well?

How to analyze your company’s portfolio well?
It takes approx. 4 minutes to read this article

Well conducted analysis of the company’s portfolio can help us eliminate unprofitable products from the business plan and support those branches that have the greatest potential. We suggest the main methods of analysis.

Corporate portfolio analysis – the pillar of strategic planning

Business strategy is a complex project, which consists of a number of interacting elements. It is a necessity, without it we do not have a clearly defined objective, the direction in which the future of our company is heading is not entirely clear. There are many steps to be taken in order to achieve it: market analysis, competition analysis, creating personas and marketing funnels, tracking customer purchase paths, searching for insights, designing advertising creations. Among them there is also the analysis of our company’s portfolio, which allows us to assess the current position and development possibilities of the company. What are the methods of carrying it out?

What is it really about?

Kobieta i mężczyzna przy tablicy
(photo: Kaleidico, source: unsplash.com)

A corporate, or company portfolio, is nothing more than a collection of products and services offered by a given company. Although this type of tool is often used to describe assets of large companies, owners of those smaller ones but having more than one product or service can also benefit from a well conducted analysis. Thanks to it, it will be possible to find out in which products or services it is worth investing and which ones are rather poorly promising and should be withdrawn.

Over the years, a number of methods and models have been developed to help managers design strategies for a wide variety of business units operating in different industry environments. The portfolio analysis methods outlined below help determine the balance between the company’s strategic business units and guide the deployment of resources among them.

1. BCG Matrix

Wykres na kartce
(Photo by Isaac Smith, source: unsplash.com)

Because of its simplicity, it is the most popularized model for analyzing strategic units. The matrix is constructed from two variables: the growth rate of the market and the relative market share of the product or service in question. The result is a matrix divided into 4 boxes that correspond to each category of business units:

  • Stars: products that have the largest market share and are the most profitable. Growing companies should invest in them;
  • Milk cows: transformed stars, i.e. products with a strong position on the market, bringing very high profits. They allow the company to experiment and take risks, e.g. by launching new products;
  • Question marks: products with high growth rates but low market share. They remain in an upward trend, so depending on their potential they should be subsidized or cut;
  • Dogs: products that are not profitable, not growing, and have low market share.

2. McKinsey matrix

It is also called the product attractiveness matrix and is used to determine the divisions in which the company should invest and those it should get rid of. The matrix is constructed based on two dimensions – the first, defining market attractiveness, and the second, assessing whether the business unit has a strong and sustainable advantage. The attractiveness of a market is defined by its capacity, competition, product demand, material situation of customers, among others. Competitiveness of operations, on the other hand, depends on market share, product quality, technology or marketing

Wykres rozpisany na tablicy
(Photo: Kaleidico, source: unsplash.com)

On the matrix, both axes are divided into 3 parts. We get 9 fields, each of which is divided into 3 zones. Products from zone I have the greatest potential and you should invest in them. Zone II consists of products which are moderately attractive, but the aim is to maintain and improve their position in the market. Zone III contains loss-making products that should be removed from the market.

3. ADL matrix

A matrix created based on two determinants: the degree of competitiveness of a product and the phase of its life cycle. A product can be competitive at one of five levels, from dominant to marginal, while the life cycle is represented by four stages – start, expansion, maturity and decline. Applying this strategy, 4 strategic areas can be distinguished in turn, such as natural development, selective development, attempted revival, abandonment. As suggested by the creators, only innovative products can provide companies with market success.

Main photo of the article: photo by Startaê Team, source: unsplash.com

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