Portfolio models FM : Anis Gunawan,MM anisg@pmbs.ac.id

2.Portfolio model Topic Exam Suggested reading 1.The strategic planning process Intro to the Integrating case study Chapter 1-2 Case 1 :The ABC Cheese Factory 2.Portfolio model Page 202-209 Chapter 3 Case 2 :Abbotsleigh Citrus 3.The growth strategies Page 209-212 Chapter 4 Case 3 :Degrees South 4.Five forces model Page 212-217 Chapter 5 Case 4 : A retail meat market Question No 1 5.Competitive generic strategies Page 228-237 Chapter 6 Case 5 : A retail meat market Question no 2 6.Competitive market position and related strategies Chapter 8 Case 6 : A retail meat market Question No 3 7.Strategic alliance and network Chapter 9 Exam -

Portfolio models Portfolio models are a visual tool used to: Compare all SBUs within a company on specific criteria. Give an indication of the most logical strategic direction to take each SBU, and to what extent, i.e., the level of resources to commit. They provide some of the supporting evidence needed to validate strategic decisions.

Strategic business unit (SBU) A part of a larger business that operates as a small, separate business. Each SBU: operates in a different industry or market, each of which has different market conditions and potential; has its own set of customers; has its own set of competitors; has a range of product/service offerings; at different stages of the product/market life cycle; and each with different resource needs based on potential and growth direction.

Product-Line Strength Product Strategy Product-Mix Width Jet Product-Line Strength

Product-Line Strength Product Strategy Product-Mix Width Product-Line Strength Production closed in 1991 787 Production closed in 1984

Airbus Industrie Multinational Consortium of two-stated-owned enterprises: France Aerospatiale (37,9 %) and Spain’s CASA (4,2%) Deutsche Airbus (37,9%) and British Aerospace (20%)

Airbus Industrie Airbus A 380, Airbus’ latest product

The GE/McKinsey model GE Developed by McKinsey for General Electric in the 1970s to overcome some of the limits of the BCG Model. Uses several factors combined and compared to calculate business strength and market attractiveness. Is calculated using management assessment. Contains nine sectors with different strategy implications suggested for each sector.

The GE/McKinsey Model for Airbus Harvest or divest Manage selectively or for earnings Invest / Grow Business strength High Medium Low 5 4 3 2 1 5 High 4 Medium 3 Low 2 1 B A C..\Video\AirbusvsBoeing.flv D 380 Airbus380 Airbus 340 Market attractiveness Airbus 330-300 Airbus 319

The GE/McKinsey Model for Boeing Harvest or divest Manage selectively or for earnings Invest / Grow Business strength High Medium Low 5 4 3 2 1 5 High 4 Medium 3 Low 2 1 B A C D B787 B787-400 Market attractiveness B717-200 B727

Parts of the GE Model Market/industry attractiveness indicates how easy it is for the business to achieve its objectives given the opportunities within the particular market or industry. Business strength is a comparative factor indicating how successful the business is likely to be compared to its direct competitors. Circles represent the comparative size of the overall market. Shaded sectors indicate the market share of the particular business or SBU. Sectors indicate a range of strategy directions suggested for SBUs located in each sector. Arrows indicate the future position of the SBU over the next 3 to 5 years if current strategies remain in place.

Calculating market attractiveness and business strength Decide what factors are most relevant. Decide how many factors need to be included to create a balance between completeness and functionality. Decide the relative weighting to be attributed to each factor. Allocate a score for the company’s SBUs representing performance against each factor.

Market Attractiveness Analysis, 2009 Rating ( 1 – 5 ) Description Weight Value Overall market size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerable Energy requirement Environment impact Social/political/legal 0.20 0.15 0.05 Must be acceptable 4.00 5.00 2.00 3.00 0.80 1.00 0.60 0.30 0.15 0.10 3.70 1.00

Business Strength Analysis, 2000 Rating ( 1 – 5 ) Description Weight Value Market share Share growth Product quality Brand reputation Distribution network Promotional effectiveness Productive capacity Productive eficiency Unit costs Material supplies R & D performance Managerial personnel 0.10 0.15 0.05 4.00 2.00 5.00 3.00 0.40 0.30 0.50 0.20 0.15 0.10 0.45 0.25 1.00 3.40

Market attractiveness GE port folio strategy Strong Medium Weak 5.00 3. Build selectively 1.Protect position 2.Invest to build High 3.67 Market attractiveness 5. Selectively manage for earning 6. Limited Expansion Or divest 4. Build selectively Medium 2.33 7. Protect & refocus 8. Manage For earning 9.Divest Low 1.00 2.33 5.00 3.67 1.00 Business strength

G.E. Port Folio Strategy 3.Build selectively 1. Protect position 2. Invest to build Invest to growth at maximum digestible rate. Concentrate effort on maintaining strength Challenge for leadership Build selectively on strengths Reinforce vulnerable areas Specialize around limited strengths Seek way to overcome weaknesses Withdraw if indications of sustainable growth are lacking 4. Build selectively 5. Selectively/ Manage for earnings 6. Limited expansion Or Harvest Invest heavily in most attractive segments Build up ability to counter competition Emphasize profitable by raising productivity Protect existing program Concentrate investments in segments where profitable is good and risk are relatively low Look for way to expand without high risk, otherwise, minimize investment and rationalize operations 7.Protect and refocus 8. Manage for Earning 9. Divest Protect position in most profitable segments. Upgrade product line Minimize investment Sell at time that will maximize cash value Cut fixed costs avoid investment meanwhile Manage for current earnings Concentrate on attractive segments. Defend strengths

Market Attractiveness Cars G.E. Port Folio Strategy Weak Strong Medium 5.00 2014 High 3.67 Market Attractiveness Build Selectively Medium 2011 2.33 Low 1.00 5.00 3.67 2.33 1.00 Business Strength