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Portfolio Models(Product/Market Evolution Matrix,Directional Policy Matrix, Strategic Position

and Action Evaluation)

Abhishek Jhanwar

Roll No. 51

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Portfolio Analysis

In a business, there may be many products with varying

prospects.

Portfolio analysis (also referred to as corporate portfolio,

business portfolio, or product portfolio analysis), is a set of

techniques that helps an organisation in making strategicdecisions with regard to what to do with different

businesses/products.

Prominent portfolio analysis models are BCG growth-share

matrix, GE nine-cell planning grid, Product/market evolution

matrix, directional policy matrix, and strategic position and

action evaluation.

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Product/Market Evolution

Matrix This model was given by Hofer and Schendel to overcome the

weakness identified by them in GE approach.

GE approach does not depict the positions of businesses that

are about to emerge as winners because the product is

entering the take off stage. In order to overcome this problem, they constructed a fifteen-

cell matrix taking competitive position and stages of

product/market evolution dimensions.

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Strong Average Weak

Development

Growth

Shakeout

Maturation,

Saturation

Decline

Competitive Position

S

tageofPr

oduct/Ma

rket

E

volution

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Business falling in strong competitive position and in development

and growth market may be future winners.

Business falling in average competitive position and in development

and growth market may be converted into future winners by

increasing their competitive position.

Business falling in weak competitive position in any market,particularly more so in mature and declining market are potential

losers. Therefore can be considered for disinvestment.

Business falling in strong competitive position and in mature

shakeout market may be termed as cash cows because of their

ample cash generating capacity.

Business falling in average competitive position and in saturated

and declining market can also be candidate for future disinvestment

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A

B C

D

E

F

Strong Average Weak

Development

Growth

Shakeout

Maturation,

Saturation

Decline

Competitive Position

S

tageofPr

oduct/Ma

rket

E

volution

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Directional Policy Matrix

DPM, developed by shell chemicals, UK.

It uses two dimensions- business sector prospects and companys

competitive capabilities- to choose strategies.

Each dimension is further divided into three degrees- business

sector prospects into unattractive, average, and attractive andcompanys competitive capabilities into weak, average, and strong.

The combination of two dimensions with three degrees of each

gives nine cells as shown in figure:

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Divestment Phased

withdrawal

Double or

quit

Phased

withdrawal

Custodian Try harder

Cash

generation

Growth Market

leadership

Unattractive Average Attractive

Weak

Average

Strong

Business Sector Prospects

CompetitiveCapabilities

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Type of Strategy

Divestment

Phased withdrawal

Double or quit

Custodian

Try harder

Cash generation

Growth

Market leadership

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Strategic Position and Action

Evaluation SPACE is an extension of two dimensional portfolio analysis.

SPACE involves a consideration of four dimensions:

organisations competitive advantage, organisational financial

strength, industry strength, and environmental stability.

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Factors

Competitive advantage:

Market share

Product quality

Product life cycle

Product replacement cycle

Customer loyalty

Capacity utilization

Technical know-how

Vertical integration

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Cont..

Financial Strength

Return on investment

Leverage

Capital required and available

Cash flow

Ease of exit from market

Risk involved in the business

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Cont..

Industry Strength

Profit potential

Growth potential

Financial stability

Resource utilization

Capital intensity

Ease of entry into market

Productivity

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Cont..

Environmental Stability

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Competitive pressure

Price elasticity of demand

Entry barriers

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Types of Strategy

Aggressive Posture

Competitive Posture

Conservative Posture

Defensive Posture

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Thank You