When making decisions about their business, many companies must consider the different components of their business portfolio. This article will focus on how a company’s business portfolio can be described, including strategic business units and product-market combinations.
It will also discuss how different industries may look at a company’s portfolio differently. Finally, this article will explain why understanding and utilizing the proper perspective regarding a company’s business portfolio is vital for its success.
Which of the following best describes a company’s business portfolio?
A company’s business portfolio refers to the collection of businesses and products that a company operates. It is a way for a company to diversify its revenue streams and manage risk by spreading its investments across different industries or product lines. The composition of a company’s business portfolio can significantly impact its overall performance and strategic direction.
A company’s business portfolio can be analyzed using the Boston Consulting Group (BCG) matrix, which categorizes its business units into four quadrants based on their market growth rate and relative market share. The quadrants are as follows:
- Stars: business units with a high market growth rate and high close market share
- Cash Cows: business units with a low market growth rate but a high relative market share
- Question Marks: business units with a high market growth rate but a common relative market share
- Dogs: business units with a low market growth rate and low, close market share
A sample BCG matrix for a company’s business portfolio may look like this:
| Business Unit | Market Growth Rate | Relative Market Share | Quadrant |
| Division 1 | High | High | Star |
| Division 2 | Low | High | Cash Cow |
| Division 3 | High | Low | Question Mark |
| Division 4 | Low | Low | Dog |
It’s worth noting that this is just an example, and different companies will have various business portfolios depending on their strategy and industry. Also, it’s important to mention that the BCG matrix is just one of the tools to analyze the business portfolio; different companies and industries may use different approaches or models.
Strategic Groups
Companies within a strategic group tend to have similar resources, capabilities, and competitive pressures, which allows them to be analyzed together as a group. By identifying and analyzing strategic groups within an industry, companies can better understand the competitive landscape and identify opportunities for differentiation. Strategic groups can be placed through a combination of product or service offerings, target market segments, distribution channels, pricing strategies, and marketing strategies.
For example, within the automotive industry, strategic groups may include luxury, mass-market, and electric car manufacturers. Companies within a strategic group may also have different performance metrics; for example, one company might be more profitable than the other, one company might be more innovative, and the other might be more cost-efficient.
It’s important to note that strategic groups are not necessarily fixed and can change over time as companies enter or exit the market or market conditions change. Therefore, companies need to regularly monitor and analyze the strategic groups within their industry to stay aware of changes and adapt their strategies accordingly.
Core Competencies
Core competencies are a company’s unique capabilities and resources that allow it to create and deliver value to its customers. They are a company’s fundamental strengths that give it a competitive advantage in the marketplace. Core competencies include many factors, such as technology, brand reputation, distribution channels, manufacturing capabilities, proprietary knowledge, and human resources.
These capabilities are built over time and are difficult for competitors to imitate or replicate. Core competencies can be used to identify new business opportunities, develop new products or services, and improve existing products or services. Companies can also leverage their core competencies to enter or expand existing markets.
Some common ways to identify core competencies are:
- Identifying the activities that a company performs better than its competitors
- Identifying the activities that are critical to the company’s success
- Identifying the activities that are difficult for competitors to replicate
It’s important to note that core competencies can evolve. Companies need to regularly review and update their core competencies to stay competitive in the marketplace.
Diversification Strategies
Diversification is a strategy that companies use to spread their investments and operations across different industries, products, or markets to manage risk and increase their growth potential. There are several types of diversification strategies that companies can use, including:
- Related Diversification: This strategy involves expanding into new businesses or markets related to the company’s current operations. This diversification allows a company to leverage its existing resources, capabilities, and expertise to enter new markets.
- Unrelated Diversification: This strategy involves expanding into new businesses or markets unrelated to the company’s current operations. This type of diversification allows a company to enter new markets and industries with higher growth potential.
- Horizontal Diversification: This strategy involves expanding into new products or markets at the same value chain level as the company’s current operations.
- Vertical Diversification: This strategy involves expanding into new products or markets at a different level of the value chain than the company’s current operations.
- Conglomerate Diversification: This strategy involves expanding into new businesses or markets utterly unrelated to the company’s current operations. This type of diversification allows a company to enter new markets and industries with higher growth potential.
It’s important to note that diversification can be a double-edged sword. While it can help reduce risk and increase growth potential, it can also be challenging to manage and lead to a lack of focus or a loss of competitive advantage. Therefore, it’s essential for companies to carefully evaluate the potential benefits and drawbacks of diversification before implementing a diversification strategy.
Management & Governance
Management and governance refer to the processes and systems used to direct and control an organization. There are several critical components of management and administration, including:
- Leadership: The process of guiding and directing the organization to achieve its goals and objectives.
- Decision-making: The process of making decisions that are in the organization’s best interest.
- Planning: Setting goals and objectives and developing strategies to achieve them.
- Organizing: Allocating resources and creating structures to achieve goals and objectives.
- Controlling: The process of monitoring and measuring progress and taking corrective action as needed.
- Accountability: The process of being answerable to stakeholders for the organization’s activities and decisions.
- Transparency: The process of providing accurate and timely information to stakeholders.
- Ethical behavior: The process of acting in an honest, fair, and responsible manner.
It’s important to note that management and governance practices vary depending on the type and size of the organization and on the laws and regulations that apply to it. The rules constantly evolve, so the management and governance teams should stay informed and adapt the practices accordingly.
Analyzing Performance
Analyzing performance refers to evaluating how well an organization is achieving its goals and objectives. This can be done by measuring various key performance indicators (KPIs) relevant to the organization. Some common KPIs include:
- Financial performance
- Customer performance
- Internal process performance
- Learning and growth performance
- Social performance
Once the relevant KPIs have been identified, they should be regularly tracked and analyzed to determine how well the organization performs. This analysis can be done using various financial statements, surveys, and data analytics tools.
Conclusion
Understanding a company’s business portfolio is key to understanding its overall strategy. A company’s business portfolio is a collection of products and services, along with the associated objectives, procedures, and risks. It allows companies to assess their ability to compete in different markets and identify growth opportunities. By analyzing the current portfolio and future trends, companies can make informed decisions on how best to move forward in an ever-changing business landscape.
FAQs:
What is business portfolio analysis?
Business portfolio analysis evaluates a company’s different businesses or products to make strategic decisions about their future development and management. It involves assessing each business or product’s potential growth, profitability, and risk and deciding which businesses or products to invest in, divest or maintain.
Which of the following provides a measure of market attractiveness?
A market attractiveness measure assesses how desirable a particular market is to enter or invest in based on factors such as size, growth potential, competition, and profitability. This measure is used in Business Portfolio Analysis to determine which markets are most attractive to the company and should be prioritized for growth and investment.