Business portfolio analysis
Business portfolio analysis - is the type of corporate process that defines in which industries the corporation will operate and how it will allocate its resources [1]. Business portfolio analysis is also known as portfolio analysis or product portfolio analysis[2].
At the beginning of the portfolio analysis, it was used in investment management. Directly into strategic management, it was introduced during the 1960s. Several portfolio analysis techniques have been developed since then. One of the best known is the BCG growth-share matrix [3].
It is important to clarify an additional two concepts: business portfolio and portfolio analysis. Kotler P. and Armstrong G. write that business portfolio is "the collection of businesses and products that make up the company" [4] and that portfolio analysis is "the process by which management evaluates the products and businesses that make up the company" [5].
The aim and advantages of a portfolio analysis
In contrast to small businesses, huge companies in its offer have a lot of diversified products to their clients. To make the work of managers easier they need a method that will allow them to determine which products deserve greater funding and which should not be invested anymore because they do not bring the intended results. And thanks to portfolio analysis, they can identify the strengths and weaknesses of the company [6].
The advantages of portfolio analysis[7]:
- It involves many products.
- It applies capital in a variety of business firms.
- It minimizes the risk and maximizes the return on investment in various projects.
- It helps us decide which business should receive more or less capital or not receive it at all.
The strategic business unit
The strategic business unit, popularly known as SBU, is a unit of a business that has its own perspective and aim. The SBU is an important part of the company, but usually, it operates as a separate unit. This can be a single product, brand, company division or product line [8].
Examples of Business portfolio analysis
- Market analysis: This involves analyzing the industry and markets in which the company operates, including understanding the competitive landscape, market trends, customer needs, and potential opportunities.
- Product portfolio analysis: Companies often analyze their current product portfolio to identify which products are most successful and which are underperforming. This can help the company make decisions about which products to invest in and which to discontinue.
- Resource allocation analysis: This involves analyzing how resources such as time, money, and personnel are being used and assessing whether they are being used in the most effective and efficient way.
- Strategic planning: Companies use portfolio analysis to help inform their strategic planning process. This includes evaluating current strategies and determining which ones should be kept, changed, or discarded.
- Risk assessment: Companies can use portfolio analysis to identify and assess the risks associated with a particular portfolio. This can help the company better manage risk and make more informed decisions.
Limitations of Business portfolio analysis
Business portfolio analysis is a useful tool for corporations to identify which industries they will operate in and how they will allocate their resources. However, it also has certain limitations that must be considered:
- The analysis relies on past performance and trends to predict the future, which may not always accurately reflect reality.
- It cannot factor in changes in the market that may affect the success of the business, such as new competitors or regulations.
- It is difficult to accurately measure the benefits of different industries, which can lead to an incorrect allocation of resources.
- The analysis does not take into account external factors such as the political or economic environment, which can also affect the success of the business.
- Lastly, the analysis can be time-consuming and costly, depending on the size and complexity of the corporation.
Business portfolio analysis is a corporate process that defines in which industries the corporation will operate and how it will allocate its resources. Other approaches related to this type of analysis include:
- Strategic management - is the process of developing a strategic plan for the direction of the business, implementing strategies and evaluating their success.
- Business intelligence - is the use of data and information to make informed decisions and identify opportunities for growth.
- Market research - is the process of gathering, analyzing and interpreting information about the target market and its competitors.
- Financial analysis - is the process of evaluating the financial performance of a business to determine its financial health and identify potential risks and opportunities.
- Risk management - is the process of identifying, assessing and managing potential risks to the business.
In summary, business portfolio analysis is an important corporate process that provides a framework for decision-making and resource allocation. Other approaches related to this analysis include strategic management, business intelligence, market research, financial analysis, and risk management.
Footnotes
| Business portfolio analysis — recommended articles |
| Functions of portfolio — ASTRA analysis — Simulation scenarios — Integrated measuring system — Potential profitability — Technological portfolio — Strategic portfolio analysis — Strategic decision — Business segment |
References
- Boone L.E., Kurtz D.L., MacKenzie H.F. , Snow K. (2009), Contemporary Marketing, Nelson Education Ltd, Toronto, pp. 65-66
- Gupta C.B. (2014), Strategic Management (Text and Cases), S. Chand Publishing, p. 202
- Hiriyappa B. (2018), Strategic Analysis, PublishDrive
- Kotler P., Armstrong G. (2010), Principles of Marketing, Pearson Education, New Jersey, pp. 65-70
- Lussier R.N. (2009), Management Fundamentals: Concepts, Applications, Skill Development, South-Western Cengage Learning, Mason, pp. 136-138
Author: Justyna Siudy
