A company's portfolio is the sum of its business, assets and products. A perfect portfolio analysis is shaped to meet and suit the company's potency and also enable it to exploit the best opportunities available to it. Analysis of a portfolio involves deciding on the relative importance of available business and investment opportunities. This analysis also involves formulating strategies that would add to the portfolio in terms of new business opportunities and products.
The best portfolio analysis takes into account the locations of the different Strategic Business Units (SBU) present in the portfolio. These SBU's have business objectives and missions independent of the other business objectives of the company. SBU's can be:
- Individual brands
- Product lines
- Company divisions
The basic postulates that are involved in portfolio analysis are common to all companies. Determining market attractiveness may be the most important part of portfolio analysis. The following are the ways to determine market attractiveness:
- Market growth
- Market size
- Market profitability
- Intensity of competition in the market
- Pricing trends
- Segmentation
- The risks involved in returns in industry
- The distribution structure; that is, wholesale, retail or direct
- Available opportunities for differentiating between products and services
Accessing competitive strength of the company is also another important strategy of portfolio analysis. The following points must be considered while analyzing a portfolio:
- Market share
- Relative brand strength
- Distribution strength
- Loyalties of customers
- The extent of the company's access to investment and financial opportunities
- Relative cost position
- Records of technological innovations
When it comes to portfolio planning methods, the two most popular are:
- Boston Consulting Group Portfolio Matrix
- McKinsey / General Electric Matrix
A portfolio analysis helps optimize investments and locates relatively productive business opportunities. The tools of portfolio analysis help to maintain a balance in the portfolio. Through the analysis, performance of the company over a period of time can be evaluated; thus, plans for the future can be formulated.