Corporate portfolio analysis

Portfolio management is about finding a correlation among business divisions that complement each other. Some of the factors in portfolio management are as follows:

• Making a decision about the field of business you want to be in.
• Minimizing the risk factor through diversification of the resources and decreasing the result correlation.
• Generating a new strategic option by looking for new opportunities.
• Balancing the portfolio according to the market trends.

Corporate portfolio analysis is a set of techniques that help strategist in taking strategic decision regard to individual product or business in a firm’s portfolio. Each segment of a company’s product line is evaluated including sales, market share, cost of production and potential market strength.

Techniques

• BCG (Boston Consulting Group) Matrix
• GE(General Electric’s 9 cell) model
• Hofer’s Product Market Evolution
• Directional Policy & the strategic position

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 no 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

Small-Business Portfolios

It’s easy to find small-business portfolio examples in your area. A restaurant owner might offer dine-in, carryout, delivery and catering services. All four of these lines of business make up the portfolio of the company, and they can be examined separately so that the business owner can improve each one.

A house-painting company might offer pressure washing, exterior painting, deck cleaning and staining, interior painting and decorating services such as wallpaper, stenciling and cabinet painting. If the painting company offers a green option, such as low-VOC paints, that might be a product offering it can break out into a separate line of service.

When you differentiate your product and service offerings, you can examine how to sell each line better.

Creating Business Units

Using the restaurant example, the business owner might put four employees in charge of the four business lines as unit managers and create a different budget for each business unit. The owner might look at different marketing strategies for each of these four areas and recalculate overhead for each new unit to improve pricing accuracy.

These processes are known as business portfolio design and management, according to portfolio management consulting firm Planview.

Evaluating Business Line Profits

When a small business breaks down its products and services (its corporate portfolio) into stand-alone units, it can determine not only the gross profits of each unit but also the profit margins of the products and services it sells. This helps the company calculate the return on investment it’s getting. When you run the numbers, you might realize it’s time to drop some products and put more effort into others.

Building Net Worth

Many small-business owners manage their companies with an eye toward creating a saleable business. This allows them to sell the company when they retire or earlier.

Working with a business broker on a business portfolio analysis, an entrepreneur may be able to determine which parts of his company are the most attractive to potential buyers. Then, the entrepreneur focuses on building that part of the business before offering it for sale.

Don’t forget Intangible Assets

In addition to assets such as products or direct services that you sell to customers over and over, your business might have intangible assets. For example, if you have built a brand, created a logo, have a slogan, or run a website that others will pay for, you can sell those assets.

Include your business’s brand, reputation and goodwill as part of your portfolio, recommends Conduit Consulting. This not only identifies more value in your business, but it also helps you find ways to increase the worth of the assets. You create a business portfolio, as opposed to creating a product portfolio.