Portfolio Planning is best advised for diversified companies than the more product coherent ones. Portfolio analysis plays a vital role in planning and implementation of various #strategic business units of the organization as a whole. Portfolio planning recognizes that diversified companies are a collection of businesses, each of which makes a distinct contribution to the overall corporate performance and which should be managed accordingly.
Companies dealing with a wide #product range and divisions are expected to redefine their strategies for each of the SBU’s or Strategic Business Units. Then they classify these units on a portfolio grid according to the competitive position and attractiveness of a particular product market.
What are strategic business units?
A strategic business unit is a fully functional and discrete unit of the business that builds its own strategic vision and direction. Within large companies there are smaller specialized divisions that work towards specific projects and #objectives. The strategic business unit, often referred to as an SBU, remains an important element of the company and is accountable to their head office about their operational status. Typically they will operate as an independent organization with a specific focus on target markets and are large enough to maintain internal divisions such as finance, HR, and so forth.
Types of Portfolio Planning:
Analytical Planning: Planning is only at the initial level where traditional administrative tools are used.
Process Planning: Here planning is a central part of the ongoing #management process and strategic mission is explicit in activities.
Advantages of Portfolio Planning:
Since the road to portfolio planning is a long one, companies often face difficulties trying to implement it and cannot realize the full potential of the approach. In implementing portfolio planning, there is a tendency for the focus to be shifted towards #capital investment rather than resource allocation.
#Resource Development is the key:
Implementing Corporate Level and Business Level Strategies:
Boston Consulting Group Matrix:
The business policy portfolio models are most popular and useful to understand the firm’s strategic concerns and choices. They define the firm’s scope or domain by highlighting the inter-relatedness of the diverse factors, such as:
– Star category represents high growth and high market share
– High investments are needed to maintain the share
– High cash flow outward movement in this category to maintain status
– Usually in the end of the ‘Growth’ #Product Life Cycle stage
– Represents emerging and good business for the company, though they need alot of attention and priority
– Represents low growth, high market share
– This is the best quadrant of the portfolio as the company basically enjoy the ‘milk’ of success
– This is where the revenue stream flows inwards
– Usually in the matured stage in Product Life Cycle
– Represents low growth, low market share
– No potential to be valuable to organization anymore
– Opportunity cost in the effort to maintain this business/products as they can channel effort to other place
– Usually in the declining stage in Product Life Cycle
– Line pruning or divested after awhile in real organizations
– Represents high growth, low market share
– They are usually new product category or new products/business for the organization
– They have the potential, but it is not clear which direction will the business go next
– Usually requires huge investments
– Usually in the introduction stage in Product Life Cycle
This matrix makes it very clear that the firm for its ultimate success needs a balanced porfolio of products or businesses.