MGT680 Unit 3 Portfolio Analysis Matrices

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680

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Management

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Feb 20, 2024

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docx

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Portfolio Analysis Matrices Introduction When a company is deciding the route to take for a strategic management plan, the decision has to be made to either grow the company or to increase the profits. A couple of key questions must be asked to make this type of decision. Making the determination of how much time, effort, and money should be spent to grow the current product or service lines, or to develop new ones allows the choice to flourish. Analyzing the current portfolio allows the effectiveness and weaknesses to be identified and analyzed. Portfolio analysis matrices are used to examine the activities of the business individually and how they relate to each other as well as how the company relates to the industry. To fully understand the portfolio analysis matrices, it is important to first understand the factors that must be evaluated to create the matrix. The product (or service) life cycle, competitive stance within the industry, the industry life cycle, and the current operations, capabilities, and resources of the organization will all play a pivotal role in the creation of these matrices. Learning Materials The Product Life Cycle In the stage of the product life cycle, the achievement of the company’s product or service will determine the course of action for increasing production, streamlining cost to increase revenues, or investing in an advancement of technology or service offering. When a product or service is introduced, the sales volume will steadily increase through the growth stage and level off at maturity, where it will then decline. Barriers to Product Entry When a product or service is introduced into the market, the cost for entry is based on the level of competition and the barriers to entry that exist. Based on the market size and strength, sales may be slow to increase, so the cost of launch needs to be forecast with variables considered. The growth stage of the cycle will generally show steadily increasing sales and profits.
As competitors in the market introduce comparable products or services, sales will hit a plateau. If planned wisely, a shift in strategy can be implemented to sustain growth until the competition catches up. During the decline stage, the demand for the product or service will shrink as more advanced products or services enter the market. Alternative cost-cutting measures can be taken during this phase to maintain profits, but in the end the product or service will become obsolete. This process will differ based on many factors centered on consumer demand. When embarking on a strategic plan, it is important to understand the stage the product or service is in, along with the competitive advantage stage the company has attained. Examining the Competitive Position The competitive position of the organization will be put to the test with a strategic initiative, so this analysis must be a true picture of the current position of the company and the industry. Industries have the same type of life cycle as products or services, and can dissolve through the declining phase if change is not initiated. For example, if a company today decided to introduce a new mobile telephone that was a “flip phone” with no further technology past making telephone calls and sending text messages, chances are good it would not survive in the current marketplace. Another good example of a non-viable product would be if a company was to market movies on VHS tape. Both of these products have gone through the product life cycle and are now all but obsolete. Technology has surpassed the demand for these products and consumers are now demanding more advanced products. Some products have very long life cycles, such as a laptop computer. There are conflicting reports about who invented the first laptop computer, but an early laptop could be purchased in the 1980s for around $2,000. This wonderful new invention of the time weighed in at about 25–30 pounds. Today, advertisements for laptops, notebooks, netbooks, and tablets are given in ounces. Technology has progressed in the past decades to the point that the product that was first introduced would not at all compare to what is on the market today. Portfolio Analysis Matrices
Taking all factors into account, the product life cycle, industry life cycle, industry positioning, the current operations, capabilities, and resources; the portfolio analysis matrices can be created. Zic, Hadzic and Ikonic outline the major tools used by organizations for completing a portfolio analysis such as the Arthur D. Little (ADL) matrix for industry analysis and the directional policy matrix (DPM) to analyze the business strength. Another common matrix used is the BCG growth-share matrix that helps a corporation determine the best course of action for a strategic plan by analyzing the cash usage and generation of the company and the product life cycle to help determine where the priority should exist. These matrices have all been in use for many decades and have a central theme. A company must not only understand the products and services that it offers (internal environment), but also where it stands in the competitive mix of the industry (external environment). The internal and external environments have a direct impact on each other and should be studied to determine the impact each has on the future operations (Zic, Hadzic & Ikonic, 2009). Click on the icon below to learn more about portfolio analysis: Internal Environment Portfolio Analysis An internal environment portfolio analysis takes into consideration the tangible resources, intangible resources, and human resources of the organization. The department or divisions of the company are examined to determine the level to which each is operating as it relates to the company as a whole. A strategic initiative involves change which can disrupt the current operations, capabilities, and resources of an organization. This analysis shows the strengths and weaknesses that exist and what is in need of modification. Porter’s value chain analysis allows the internal environment to be further analyzed to determine the analysis matrices that will have the largest impact on the industry. Porter introduced the concept of evaluating inbound logistics, operations, outbound logistics, service, and marketing and sales to determine where competitive advantage can be gained by creating value that will exceed the cost. By evaluating each of these areas as they relate to the company, along with how the departments or divisions affect the value chain creates a portfolio analysis matrix that will assist in increasing competitive advantage (Porter, 1985). What are the four interconnected variables of a business model?
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