FM : Anis Gunawan,MM [email protected] Portfolio models.

FM : Anis Gunawan,[email protected]

Portfolio models

Topic Suggested reading

1.The strategic planning processIntro to the Integrating case study

Chapter 1-2

Case 1 :The ABC Cheese Factory

2.Portfolio modelPage 202-209Chapter 3

Case 2 :Abbotsleigh Citrus3.The growth strategies

Page 209-212Chapter 4

Case 3 :Degrees South4.Five forces model

Page 212-217Chapter 5

Case 4 : A retail meat market Question No 15.Competitive generic strategies

Page 228-237Chapter 6

Case 5 : A retail meat market Question no 26.Competitive market position and related strategies

Page 228-237Chapter 8

Case 6 : A retail meat market Question No 37.Strategic alliance and network

Page 228-237Chapter 9

Exam -

3

Portfolio models

Portfolio models are a visual tool used to:1. Compare all SBUs within a company on specific

criteria. 2. Give an indication of the most logical strategic

direction to take each SBU, and to what extent, i.e., the level of resources to commit.

3. They provide some of the supporting evidence needed to validate strategic decisions.

Strategic business unit (SBU)

1. operates in a different industry or market, each of which has

different market conditions and potential;2. has its own set of customers; 3. has its own set of competitors; 4. has a range of product/service offerings;

1. at different stages of the product/market life cycle; and 2. each with different resource needs based on potential and

growth direction.

4

A part of a larger business that operates as a small, separate business. Each SBU:

Product Strategy

Product-Mix Width

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Product Strategy

Product-Mix Width

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1991

Production closed in 1984

787

Airbus Industrie

Multinational Consortium of two-stated-owned enterprises:

• France Aerospatiale (37,9 %) and Spain’s CASA (4,2%)

• Deutsche Airbus (37,9%) and British Aerospace (20%)

Airbus IndustrieA 380, Airbus’ latest product

Airbus

9

The GE/McKinsey model

1. Developed by McKinsey for General Electric in the 1970s to overcome some of the limits of the BCG Model.

2. Uses several factors combined and compared to calculate business strength and market attractiveness.

3. Is calculated using management assessment.

4. Contains nine sectors with different strategy implications suggested for each sector.

GE

Harvest or divest

Manage selectively or for earnings

Invest / Grow

Business strength

High Medium Low

5 4 3 2 1

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4

Medium 3

Low 2

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The GE/McKinsey Model for Airbus

Airbus380

Airbus 319

Airbus 340

Airbus 330-300

380

Harvest or divest

Manage selectively or for earnings

Invest / Grow

Business strength

High Medium Low

5 4 3 2 1

5High

4

Medium 3

Low 2

1

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The GE/McKinsey Model for Boeing

B727

B787-400

B717-200

B787

12

Parts of the GE Model

1. Market/industry attractiveness indicates how easy it is for the business to achieve its objectives given the opportunities within the particular market or industry.

2. Business strength is a comparative factor indicating how successful the business is likely to be compared to its direct competitors.

3. Circles represent the comparative size of the overall market.

4. Shaded sectors indicate the market share of the particular business or SBU.

5. Sectors indicate a range of strategy directions suggested for SBUs located in each sector.

6. Arrows indicate the future position of the SBU over the next 3 to 5 years if current strategies remain in place.

13

Calculating market attractiveness and business strength

1. Decide what factors are most relevant.

2. Decide how many factors need to be included to create a balance between completeness and functionality.

3. Decide the relative weighting to be attributed to each factor.

4. Allocate a score for the company’s SBUs representing performance against each factor.

Market Attractiveness Analysis, 2009

Weight Rating( 1 – 5 )

ValueDescription

1. Overall market size

2. Annual market growth rate

3. Historical profit margin

4. Competitive intensity

5. Technological requirements

6. Inflationary vulnerable

7. Energy requirement

8. Environment impact

9. Social/political/legal

0.20

0.20

0.15

0.15

0.15

0.05

0.05

0.05

Must be

acceptable

1.00

4.00

5.00

4.00

2.00

4.00

3.00

2.00

3.00

0.80

1.00

0.60

0.30

0.60

0.15

0.10

0.15

3.70

Business Strength Analysis, 2000

Weight Rating( 1 – 5 )

ValueDescription

1. Market share

2. Share growth

3. Product quality

4. Brand reputation

5. Distribution network

6. Promotional effectiveness

7. Productive capacity

8. Productive eficiency

9. Unit costs

10. Material supplies

11. R & D performance

12. Managerial personnel

0.100.150.100.100.050.050.050.050.150.050.100.05

1.00

4.002.004.005.004.003.003.002.003.005.003.004.00

0.400.300.400.500.200.150.150.100.450.250.300.20

3.40

GE port folio strategy

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Business strength5.00 1.003.67

2.33

5.00

3.67

2.33

1.00

1.Protectposition

2.Invest tobuild

3. Build selectively

4. Build selectively

5. Selectively manage

for earning

6. LimitedExpansionOr divest

7. Protect& refocus

8. ManageFor earning 9.Divest

Strong Medium Weak

High

Medium

Low

G.E. Port Folio Strategy

1. Protect position Invest to growth at maximum digestible rate. Concentrate effort on maintaining strength

2. Invest to build

Challenge for leadership Build selectively on strengths Reinforce vulnerable areas

3.Build selectively

Specialize around limited strengths Seek way to overcome weaknesses Withdraw if indications of sustainable growth are lacking

4. Build selectively

Invest heavily in most attractive segments Build up ability to counter competition Emphasize profitable by raising productivity

5. Selectively/Manage for earnings

Protect existing program Concentrate investments in segments where profitable is good and risk are relatively low

6. Limited expansionOr Harvest

Look for way to expand without high risk, otherwise, minimize investment and rationalize operations

7.Protect andrefocus

Manage for current earnings Concentrate on attractive segments. Defend strengths

8. Manage for Earning

Protect position in most profitable segments. Upgrade product line Minimize investment

9. Divest

Sell at time that will maximize cash value Cut fixed costs avoid investment meanwhile

G.E. Port Folio Strategy

Business Strength

Mar

ket

Attr

activ

enes

s

1.00

2.33

3.67

5.00

1.003.67 2.335.00

Low

Medium

High

Strong Medium Weak

2014

2011

BuildSelectively

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