Lecture 05 - Portfolio Analysis.pptx

7/28/2019 Lecture 05 - Portfolio Analysis.pptx

1/17

Lecture Session

5

Portfolio Analysis

Dr K. Sankaran

Director

Justice KS Hegde Management Institute

Nitte, Karnataka


2/17

- Each business has different financial characteristics

- They offer different strategic options

- Examine them separately

- The only extent of tie-up between businesses would be

for Cash flow from one to another

- The transfer depends upon whether the recipientdesigned for market share expansion

PORTFOLIO ANALYSIS


3/17

Two Considerations

- Growth of the business (prospects of the industry)

What is the rate of growth of the industry

- Relative Market share (strength of the SBU)Relative Market Position (Share of the SBU/ Share of the

largest other competitor


4/17

Business

Growth

Rate

Relative Competitive Position

High Low

High

Low

StarsQuestion

Marks

Cash Cows Dogs

BCG GROWTH -SHARE MATRIX

vv


5/17

Business Strategy

Cash Cows: Insist on high profitability, least capital spending,tight financial control for cost leadership

Stars: Plough back returns towards capital spending to

maintain share, build for future

Question Marks: Identify which would become stars (and

invest in market share) and which dogs (insist on minimum

returns and divest opportunistically)

Dogs: No capital spending, be aware of any cross subsidy,

insist on minimum returns, divest away ASAP


6/17

Corporate Strategy- Evolve separate business strategies for each business

-Try evolving the mix towards having big cash cows and having

the stars who will in turn become cash cows in future.

-Similarly have some question marks that will turn out to be

Stars at some later date.

-Divest selected question marks and dogs when opportunity

arises

-Keep a healthy mix with the eye on the future


7/17

BCG-Type Matrix Models - Advantages

Tells what to do with different businesses

Allows for tracking changes. Can be used a control mechanism

Sends the message that differential performance of Businesses canonly be expected.

Allows for balance in terms of cash flow management


8/17

BCG-Type Matrix Models - Disadvantages

It tells you what to do with existing businesses. It does

not tell what to acquire.

It ignore synergy. Assumes no tie-ins between businesses

It does not take into account the need for balancing the portfolio and

diversifying risk


9/17

Modifications to BCG-Type Matrix Models

Map potential companies that could be acquired.

Develop a separate matrix that shows how the businesses are

dependent upon each other. Be aware of these connections before

suggesting any change in the portfolio/ divestment

Ask whether balancing is one of the objectives. If yes, connect up

these businesses like above.


10/17

Engineering

Engineering +Supervision

Engineering

Procurement

Construction

Maintenance services

Audits & Certifications

Safety, Energy, Env. etc.

Other services1

Domestic

Govt.

Domestic

Private

South

AsiaMiddle

East

Developed

Currently Served Product Market Segments

Products Markets

K. Sankaran, IMI


11/17

Profitability

= say billing per

Actual hours

Innovative Learning Opportunities/ Future billing

Circle

represents product-

market segments

Size of circle represents

annual profit from the

respective segment

EXIT

MAINTAIN

IMPROVE

PROFITABILITY

K. Sankaran, IMI

Portfolio Spread of projects


12/17

Standardization of

engineering inputs/

reusable code

Spreading of fixed costs

Higher hourly realization

Increase ProfitabilityIncrease Volumes

Marketing Effort -

Focus on profitable

Product-Market Segments

Increase Profits in Existing Product Markets served

K. Sankaran, IMI


13/17

Increase Profits in

Existing Product

Markets served

Attractive markets with

no presence today hasexpertise

New markets

Develop expertise

Extent of commitment to innovations required

TimeFrame

K. Sankaran, IMI

Existing Markets

New expertise


14/17

Engineering

Engineering +Supervision

Engineering

Procurement

Construction

Maintenance services

Audits & Certifications

Safety, Energy, Env. etc.

Other services1

Domestic

Govt.

Domestic

Private

South

AsiaMiddle

East

Developed

Has Expertise But Attractive Markets Not served

Products Markets

K. Sankaran, IMI


15/17

Expertise 1

Expertise 2

Etc.

Etc.

Domestic

Govt.

Domestic

Private

South

AsiaMiddle

East

Developed

Existing Markets No Expertise

Products Markets

K. Sankaran, IMI


16/17

Innovative IT solutions for

engineering

Smart Buildings

Alternative Energy

Energy Efficient Transport

Infrastructure

Infrastructure projects

(BOT, BOOT)

Others

DomesticSouth

Asia

Middle

EastDeveloped

New Expertise New Markets

Products Markets

K. Sankaran, IMI


17/17

Markets Demand SideFiction Non

Fiction

Study

Material

Reference

Industries-Supply

Side

(Usually

Product

Based)

Books

Software

Magazines

Another Firm - Book Publisher

Documents

Lecture 05 - Portfolio Analysis.pptx