Corporate Portfolio Analysis

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When the company is in more than one business, it can select more than one strategic alternative depending upon demand of the situation prevailing in the different portfolios. It is necessary to analyze the position of different business of the business house which is done by corporate portfolio analysis.

Portfolio analysis is an analytical tool which views a corporation as a basket or portfolio of products or business units to be managed for thebest possible returns.

When an organization has a number of products in its portfolio, it is quite likely that they will be in different stages of development. Some will be relatively new and some much older. Many organizations will not wish to risk having all their products at the same stage of development. It is useful to have some products with limited growth but producing profits steadily, and some products with real growth potential but may still be in the introductory stage. Indeed, the products that are earning steadily may be used to fund the development of those that will provide the growth and profits in the future.

So the key strategy is to produce a balanced portfolio of products, some with low risk but dull growth and some with high risk but great potential for growth and profits. This is what we call as portfolio analysis.

The aim of portfolio analysis is

1)   to analyze its current business portfolio and decide which businesses should receive more or less investment

2)   to develop growth strategies, for adding new businesses to the portfolio

3)   to decide which business should not longer be retained

 

Balancing the portfolio –

Balancing the portfolio means that the different products or businesses in the portfolio have to be balanced with respect to four basic aspects –

  • Profitability
  • Cash flow
  • Growth
  • Risk

 

This analysis can be done by any of the following technologies –

BCG matix

GE nine cell matrix

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