Portfolio Analysis: All You Need Know

Date2January 13, 2019 categoryBusiness Strategy

The importance of business portfolio analysis is the categorization of the essential services provided according to their market competitiveness potential and the rate which sales are incremented and developed. It’s critical to help the growth of a business’s portfolio which is the sum of all the products and services they provide to the market.

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Moreover, when an association wants to execute a certain business strategy, they have to transform their target to a business oriented strategy including budget calculations. The resources of every business entity is its center to generate its main source of revenue.

So, one must put a specified business plan in motion to meet the needs of the associations members and targets, this plan is what business calls portfolio analysis.

Mainly, it helps in the connection of the process of devising a strategy and its execution, aiding the process of budget allocation on a business run. Portfolio analysis is the product of Dr. Ian MacMillan of the University of Pennsylvania’s Wharton School.

How Can You Execute Business Portfolio Analysis?

portfolio analysis-filter analysis

Most associations have more than one operational business, like publishing, research and development, these branches are called SBUs, short for Strategic Business Units.

Every business has its own products and services, that’s the overall portfolio. If one takes publishing as an example, analyzing the branches or the SBUs are: a journal, specific newsletters targeting different layers of audience segments, a social approach using the internet, etc.

The portfolio analysis makes it easy to know which strategic unit should have an emphasis by direction of resources. It helps to know which strategic unit the organization can place on a lower priority based on objective research methods.

Screening services through different layers and tests that gets fine-tuned progressively according to the association’s needs, tuning out the programs that are not of much value to the original business plan. If a more limited audience takes interest in a service, the company should allocate the budget according to those who want the services instead of automated dues.


Benefits of Portfolio Analysis

  • Prioritizes the assessment of the businesses of the organization separately and the funding plan for each one after setting a target.
  • Allows implementing a data-based backbone to the management’s initial plan.
  • Addresses budget allocation issues in terms of the associations goals for growth.

Portfolio analysis isn’t perfect though, there’re some drawbacks to this method, such as:

  • It becomes harder to highlight the market’s sections or layers.
  • The subjectivity of the judgment may end up providing a fake scientific impression.
  • Weighing the advantages and the disadvantages, one can consider portfolio analysis a systematic approach to the issues of budget and resources allocation

SEE ALSO: What is B2B Marketing?


Recognizing the Different Types of Businesses

The first step is recognizing the strategic business units that affect the association. To know which groups of business that could become independent. Typically, there are three different paths that you can take by the association. Core businesses, those are the lines of business that have a grand effect on the goals and plans of the association.

The second one is support functions that is vital to connect the rewards of the core business to its members , such as legal advice and administrative functions. Vital as they are they still are not the priority, rather, the cost of operation of these operations should be the minimum. That gives the core businesses some budget leeway.

The third one is the money making business that may not have a lot to provide to the members at the bottom of the hierarchy, but they are the source which provide the revenue to help the core businesses.

On paper that core businesses should support themselves financially while also helping with reserves. However, that’s usually different and it’s usually supported with other income that the money making businesses provide, such as insurance and discounts.

Aligning Core Businesses with Objectives

After identifying core business and contrasting them with the mission statement of the main body or the organization, a business should support of the identified objectives in the mission statement.

If a business doesn’t directly aid the strategic plan, it should stop and have its funding and resources go to other core businesses.

After measuring the value of the businesses against the mission statement, what should happen is the subdivision into main products and services, then the service would enter into the Program Evaluation Matrix.


What Is the Program Evaluation Matrix?

It’s a visual device that eases the analysis of the products and services in the main portfolio. While testing the products and services using the Program Evaluation Matrix, one can make a few assumptions:

  • The allocation of resources is usually competitive, so it’s a part of a competitive environment in the Program Evaluation Matrix.
  • The priority is providing optimum service to a small or focused market than bad one to a bigger market.
  • It’s only logical economically to leave the bad programs to strong competition and focus on getting the potentially good programs from easier competition.


Assessment of the Business Properties

Program Evaluation Matrix is a very helpful tool in portfolio analysis for providing answers to certain questions about some valid questions regarding the products and services in a portfolio:

  • Does it align well with the other services?
  • Is the implementation process complex or rather simple?
  • What is the status of the alternative coverage in the market?
  • Do you have a competitive advantage over the market?

The answer should be yes to all these questions for a program or a service to be a priority in the allocation of the resources. The best position is the position superior to all relative services in its section. If it doesn’t pass as the superior position then it has a weak position.

The value of such a procedure is to offer the clients with a few yet potent and strong service providers instead of a competition for a few dollars.

With the Program Evaluation Matrix help, and for better portfolio analysis, determining if the service reviewed is in alignment with the association’s objective. The criteria for the best service is dependent on it being relevant to the objectives of the association and highlighting the main concerns that are of high interest to the members and customers.

Portfolio analysis


Funding and Integration

There are some conditions for deciding if the service allows funding relatively smoother than other services in portfolio analysis, those are:

  • Creating a base of customers that can provide potential support on the short term and long term.
  • A constant stream of income.
  • Demand from a big customer base.
  • Attracting a willing and capable leadership.
  • Results are quantifiable and measurable.

In competitive portfolio analysis, even organizations that are nonprofit must operate in a highly competitive setting, affecting the success of the delivery of core products and services. The definition of alternative coverage is the availability of a similar product or service with other competitors. The products and services have two different categories:

Low coverage: Competitors provide fewer similar products and services.

High coverage: Competitors provide a lot of similar products.

SEE ALSO: Product Management: What It Is and How It’s Done


Program Competitiveness Test

In portfolio analysis, organsations apply some conditions in the determination if the program has a formidable competitive standing. Non-profits undergo competition between each others, but non-profits aren’t the only organizations that have competition between them.

Profits as well usually have direct competition in relation to the delivery of services. People view publications as such. The conditions are as following:

  • A bigger slice of market share to make sure the market is full of the association’s products and services
  • Higher caliber, value and quality than the competing associations
  • Better productions and marketing for the program
  • Maintaining a low cost delivery of products and services
  • Synchronization of products and services with the potential requirements of the association’s members and customers

Assessment of a Program’s Compatibility

They have two types:

  • Compatible simple programs: where a formidable position is maintained and an aggressive competition occurs to achieve dominance over the market
  • Compatible complex programs: low coverage with a potential of having better capabilities to offer to essential stakeholders.

Using the previous procedures in portfolio analysis will help in the assessment of the portfolio’s positions. On paper it’s best if the portfolio has mostly winners than losers. With enough winners and revenue-based producers to help support the increment of the potential winning programs.

That’s only on paper though, in a more realistic sense, one finds out that some questions remain unanswered and possibly a loser included.

Some programs, though, are so vital that they are untouched even though they could be a bit insignificant. They are essential and of great importance to the members of the association and they usually support and fund them.


Science in Portfolio Analysis

Portfolio analysis is one of the core activities for every stakeholder, the entities that fun start distributing resources among different paths. Administrators select portfolio analysis researchers, as well as the projects that are going to be supported from the inside.

Usually, researchers can pick the topic they would like to work on. In the past portfolio analysis used to be limited to the space of the corporate Research and Development areas. Now, people study them being in different academic and agency environments.

Choices based on portfolios are not that easy to make in a scientific system, due to the ill-definition and understanding of the actual choices.

The assessment of supply and demand are in control of portfolio options. Supply and demand can actually be of value to the research of portfolio analysis scientifically. Precise definition of the used terms is of high importance because it is easy to for them to be defined in different manners.

SEE ALSO: Corporate Strategy: How to Do It Like the Giants


An Overview on Portfolio Analysis

Portfolio analysis basically is the breakdown of processes in the portfolio of products and services in businesses. It helps in the assessment and analysis of risk and return. If it’s used at regular time intervals, it can aid the investing bodies to change some points in the portfolio allocation.

It’ll base them in relation to a morphing market and different situations. It’s essential in the process of resource allocation to different component elements in the portfolio. Portfolio analysis play a very important role in the objective of identification of a certain competitive position that an association takes.

The organization tailors such a position to the different external and internal atmospheres that the other entities or association are not going to negatively affect it. Therefore, the unique capacity of the association to compete is what actually allows for it to use some environmental opportunities to its gain. Making it important to continuously keep an eye on strategic/market opportunities.

In the present world, where competition is the highest it has been than any other time before, all successful associations will be sharing three characteristics or properties. Finally, portfolio analysis will be the key to aiding the successful associations achieve those characteristics.

  • They will change the way of life by introducing new methods, ideas and products into the markets
  • Price will not be the priority of the competition, it will be the value and worth in achieving the needs of the members
  • They will be leading when it comes to a focused, targeted part of the market

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