PORTFOLIO STRATEGY – WHAT BUSINESSES SHOULD YOU HAVE? 111
‘Business, more than any other occupation, is a continual calculation, an instinctive
exercise in foresight.’
HENRY R. LUCE
Portfolio strategy – what businesses should
you have?
Up to this point, I have talked mainly as if you had just one product or business area. I
touched on the subject of multiple product and businesses in Chapter 3. Now it is time to
return to this complication and look at how you might allocate priorities among a portfo-
lio of several business interests.
Analyse portfolio of businesses
Review central objective, vision, mission, core
competencies, competitive advantages and SWOT
Analyze portfolio of products
Analyse portfolio of products
Develop business strategy
Develop departmental strategies
Identify resource requirements
Set strategic objectives
Develop operating plan for business
Develop operating plan for departments
Document strategy and operating plan
Cost plans (next chapter)
The fast track to a strategy and operating plan
112 CHAPTER 6 THE CORE OF YOUR PLAN
We are discussing businesses right now. When you have run an analysis of your col-
lection of businesses, you should repeat the same thinking for the products within each
business area. In other words, work through this section once, then do it again replacing
the word ‘business’ with ‘product’.
There are some wonderfully complex ways to conduct portfolio analysis. Fortunately,
you do not have to worry about these. The technique described here is simple and effec-
tive. Essentially, you are investigating how your businesses (or products) square up
against each other. The following box indicates the required steps.
Figure 6.1 combines several famous approaches to assessing the attractiveness of a
business. It is highly oversimplified of course, but is still useful. It provides an easy way
to visualise the forces at play. For each business area, run through measures of industry
attractiveness and your competitive strength (some examples are below) and plot your
position on the chart.
For example, if the industry is unattractive but you have a strong competitive position,
your business belongs in the lower, right quadrant. In this case, you have a cash cow. You will
not want to invest heavily, but instead should milk the existing business for all it is worth.
Four steps to analysing your collection of businesses
1 Consider the attractiveness of each business area. You have already done
this on your way through Chapters 4 and 5. Figure 6.1 shows a way of pulling all
this together. Moreover, by drawing blobs over the diagram (as described in the
text), you will see a good visual representation of where you are today.
2 Review the synergy between the businesses. You are looking for areas where
you can exploit your core competencies and strategic advantages to maximum
effect. Some obvious areas of synergy are indicated in the box on page 114.
3 Weigh up risks and returns. Consider where risks offset each other and
where returns are complementary. For example, a company with a wide
and mature product line could support better the risks of introducing a new
product than a shiny new undertaking. A manufacturer of equipment that
does well during boom times would be well balanced by a service company
that maintained the equipment during hard times when customers delay
spending money on new equipment.
4 Look for supporting cash flow. Apparently successful and growing businesses
frequently suffer because of the costs of carrying inventory, processing orders
and collecting accounts receivable. New businesses need funds for the initial
investment. This is where a cash cow (Figure 6.1) can come in useful by providing
the cash flow needed to nurture and expand problem children and stars.
PORTFOLIO STRATEGY – WHAT BUSINESSES SHOULD YOU HAVE? 113
There is a whole range of possibilities between the four extremes. With a bit of intelligent
thought you can open up the middle area and plot various interim conclusions and strategies.
‘A race horse that can run a mile a few seconds faster is worth twice as much. That little
extra proves to be the greatest value.’
JOHN D. HESS
When comparing several businesses, draw blobs on the diagram – large ones for big busi-
nesses, small blobs for those that are less important to you. You will see instantly how
your business areas compare.
Industry attractiveness:
the market is large
the market is growing fast
competition is weak
there are barriers to entry, keeping
competitors out
the market is not prone to severe
cyclical downturns, etc.
Your competitive position:
you have good market share
your product is a success
you own brands, patents, etc.
you have low costs/high profits
you have spare capacity
you have access to key skills and
resources.
Problem child
Divest or build
Dog
Get out of the business
Star
Protect and support
Cash cow
Milk for all it's worth
Weak Strong
Weak Strong
Attractiveness of the industry
Your competitive position
Figure 6.1 How do you rate your businesses?
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