In this article, we tried to compile the answer to the question “What is Portfolio Analysis” for you. Businesses try to create value by offering products or services that will satisfy customer needs. They develop different products and/or services in order to distribute the risk and respond to different expectations and needs. Each product or service developed requires investment and resources to produce, market, and manage it. The performance of each product or service affects the performance of the business at the end of the day and contributes to the achievement of the long-term goals of the enterprises. For this reason, it is necessary to manage the product and service portfolio correctly and to use resources effectively.
Portfolio analysis is an analysis in which businesses can evaluate the performance of the products and services in their portfolios within the framework of factors such as market potential, sales volume, market share, or turnover.
Why is Portfolio Analysis Done?
One of the most essential elements of today’s competition is resource use. According to the definition of classical economics, businesses try to meet endless needs with scarce resources. Today, resources continue to run out rapidly, and the needs are getting closer to infinity. Therefore, resource management is inevitable. As we have mentioned before, the use of resources is inevitable in order to produce each product or service in the business portfolio.
However, the products or services in the portfolio do not always show the same performance. In their life cycle, every crop is born, grows, matures, and eventually goes into decline. When the performances of products or services are not evaluated in certain periods, products whose performance declines in periods when a customer’s needs and demands begin to change may begin to become a burden on businesses. At this stage, the development of new products and services that meet new needs and expectations, thus new investments and the need for resources to meet these investments will arise. Using the resources of an enterprise in the production of new products and services that have the potential to meet new needs and expectations, rather than less profitable products and services, will increase the profitability and efficiency of the enterprise.
With portfolio analysis, businesses can evaluate the performance of their products and services and decide which product or service they can allocate resources to invest in, and which ones they can create extra resources by withdrawing from the activities carried out.
How To Do Portfolio Analysis?
There are several tools developed to perform portfolio analysis. The most well-known of these is the BCG Matrix developed by Boston Consulting Group. In the BCG Matrix, the product and service portfolio is evaluated based on the growth rate of the market and the relative market share of the products or services within the market relative to their competitors. Here it is possible to obtain four different results. The aim is to increase profitability by investing in products in the group with a high market growth rate and relative market share.
Another analysis method is the Guiding Policy Matrix developed by MC Kinsey. The Guiding Policy Matrix is also considered biaxially, as in the BCG Matrix. Unlike the BCG Matrix, businesses evaluate the performance of their products and services depending on the attractiveness of the market and the competitiveness of the business. In light of the results of the Guiding Policy Matrix, the aim is to increase profitability by investing in products and services with high market attractiveness and competitive power.
Apart from these two most used methods, methods such as Hoffer Matrix and ROWE Model can also be used to achieve similar results.
Portfolio Analysis at STRATEJİ360
A portfolio analysis application in STRATEJİ360 has been developed for you to perform portfolio analysis easily. It is aimed to perform the analysis in a simple way without confusion as much as possible by allowing you to choose among the ready-made options instead of data entry. You need to compare the market shares (sales volumes) of your products or services with your competitors in light of the information among the options and mark the estimated growth rate of the market among the options.
In this way, as a result of the analysis you have carried out, you will get a report that includes which category each of your products is in and what strategic alternative you should apply for each category.
