HOFER’S PRODUCT MARKET EVOLUTION

HOFER’S PRODUCT MARKET EVOLUTION

Done by: Athira Soman

BUSINESS PORTFOLIO ANALYSIS

The business portfolio is the collection of businesses and products that make up the company.

The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

Business portfolio analysis as an organizational strategy formulation technique is based on the philosophy that organizations should develop strategy much as they handle investment portfolios. Just as sound financial investments should be supported and unsound ones discarded, sound organizational activities should be emphasized and unsound ones deemphasized.

Hofer’s Product Market Matrix

Product Market Evolution Matrix displays the

matrix where strategic business units are

graphically represented according to two

basic indicators: Competitive position on the market stage corresponding to the product/market

evolution.

Charles W. Hofer described seven stages of the life cycle, each with certain characteristics by which the position of the market can be identified.

DEVELOPMENT GROWTH SHAKE-OUT MATURITY DECLINE PETRIFICATION

Business unit A It would to be a developing winner. Its relatively large share of the market combined with its being at the development stage of product- market evolution and its potential for being in a strong competitive position make it a good candidate for receiving more corporate resources. Business unit B It is somewhat similar to A. However, it has a relatively small share of the market given its strong competitive position. A strategy would have to be developed to overcome this low market share in order to justify more investments.

Business unit CIt might be classified as a potential loser. A strategy must be developed to overcome the low market share and weak competitive position in order to justify future investments.

Business unit D It is in a shakeout period, has a relatively large share of the market, and is in a relatively strong position. Investment should be made to maintain that position.

Business units E and F They have relatively large market share and has strong competitive position. It should be used for cash generation.

Business unit G It has low market share and weak competitive position. It should be managed to generate cash in the short run, if possible; however, the long-run strategy will more the likely be divestment or liquidation.

STRENGHTS

o Set objective and allocate resourceso Use of externally oriented datao Cash flow availabilityo Graphical communication of business mixo Identify developing winnerso Illustrates distribution of business in an industryo Encourages promotion of competitive analysiso Selective earmarking of financial resourceso Reduce risks, increases concentration and

involvement in competitive world.

WEAKNESS

o Difficulty in defining product/market segment.

o Suggests impractical standard strategies.o Naively following portfolio prescriptions

may reduce profit.o Provides an illusion of scientific rigor.o No clear idea what makes an industry

attractive .

The power of the Hofer matrix resides in the fact that it may outline the distribution of strategic businessunits during stages specific to life cycle of the market.Similar to the McKinsey matrix, the present matrixoffers the company the possibility to make a diagnosisregarding the portfolio, in order to establish if it exhibitsa balanced or unbalanced structure.

A balanced portfolio should be composed ofstrategic business units of the type corresponding to ”Stars” and to ”Cash Cows” and to a few ”QuestionMarks”, which have recently penetrated the market or which are about to become ”Stars”.