Do they support the market position and/or the profitability of the strategic
businesses? Or do they only absorb management capacity?
• In markets with high competitive intensity, positive synergies can be an important
competitive advantage, and negative synergies can be a decisive competitive
disadvantage. Therefore, an assessment of synergies should complement the
business portfolio analysis.
• The financial figures of the businesses are also included in the assessment. For
the business units, we look at contribution margins, whereas for the business
fields, the financial performance is evaluated by EBITDA and free cash flow.
The authors know a case of a capital goods producer, which transfers financial
results to its portfolio using a color code for the circles of the businesses.
As is the case in the analysis of the global environment and the relevant
industries (see Chaps. 10 and 11), portfolio analysis is not limited to the current
situation. In Step C, the strategy planning group should therefore look at future
changes in the market growth or the market attractiveness of the served markets.
Based on this, the consequences of the identified changes in the relative market
share or the competitive strength of the businesses should be discussed.
12.4.5 Example of Applying the Process
Inset 12.6 presents a portfolio analysis in a retail group based in the East of
Switzerland.
Inset 12.6.
Portfolio Analysis in a Retail Group
Baer is a large department store in downtown St Gallen which has belonged to
the family of the same name for three generations. Thanks to its full range of
goods, it has been able to defend its dominant position in the region. The following
figure presents the range of goods and the turnovers of the previous year. The
store’s competitors are retail chains on the one hand, and small specialized stores
on the other. With an estimated total market volume of 800 million Swiss francs in
the St. Gallen urban area, the Baer department store has a market share of 24 %. In
contrast, its largest competitor only has a market share of 19 %. The average real
market growth across all product groups is estimated to be approximately 1 %,
while the growth rate of the Swiss economy is about 2 %.
With an eye on the increasing ecological awareness among consumers, the
owners of the store accepted an offer of franchising rights three years ago from
The Body Shop for the cantons of St. Gallen, Appenzell and Thurgau. The Body
Shop stores sell products, which are based on natural ingredients and have been
developed without animal testing. Body Shops have been opened in Rohrschach,
132 12 Portfolio Analysis
Grünig, R., & Kühn, R. (2015). Strategieplanungsprozess : Analysen, optionen, projekte : analyses, options, projects. Springer.
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Wil and St. Gallen. The turnovers for the three shops confirm the positive
assessment of the market. With a real market growth of 4 % for natural
cosmetics, the Body Shops this year had turnover figures of 1.0 million Swiss
francs in Rohrschach, 1.5 million Swiss francs in Wil and 2.5 million Swiss
francs in St. Gallen.
Textiles, clothing and shoes
Personal-care products
Food
Household goods
Sports goods
Home electronics
Fashion jewelry and accessories
Books and magazines
Flowers
Miscellaneous
Product groups
Turnover in millions
of CHF
70
10
20
40
25
20
2
2
1
2
Total turnover 192
Turnover of the product groups of the department store
Some years ago, the owner of the store at the time, Fritz Baer, decided to
make his advertising department independent of the store, hoping to widen its
horizons and foster a more entrepreneurial mode of thinking among employees.
The agency which was set up, Kreativ, at first only accepted very little outside
work in order to use temporary overcapacity. The number of external contracts
has steadily increased and they now constitute 60 % of its turnover of 2.4 million
Swiss francs. With overall spending on advertising stagnating in the region,
there is now a bitter struggle for business. With a market share of 7 % for the
region, Kreativ is more than three times smaller than its strongest competitor, a
national agency based in Zurich.
The following figure shows how the activities within the Baer Group can be
grouped into strategic business fields and strategic business units. As the figure
shows, “fashion jewelry and accessories”, “books and magazines” and “flowers”
have not been included as business units due to their minor importance.
12.4 Process of Portfolio Analysis 133
Grünig, R., & Kühn, R. (2015). Strategieplanungsprozess : Analysen, optionen, projekte : analyses, options, projects. Springer.
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Copyright©2015.Springer.Allrightsreserved.
Department store
Body Shops
Advertising agency Kreativ
Strategic business fields Strategic business units
Textiles, clothing and shoes
Personal-care products
Food
Household goods
Sports goods
Home electronics
-
Strategic
businesses of the group
Department store
Textiles etc.
Personal-care products
Food etc.
Household goods
Sports goods
Home electronics
Body Shops
Advertising agency
Relevant
area
Unconso-
lidated
turnover
in mio.
CHF
Business fields and
business units
Turnover
of the
strongest
competitor
in
mio. CHF
Average
real
growth
rate for
the last
three
years
Relative
market
share
St. Gallen
urban
area
-
-
-
Eastern
Switzerland
Eastern
Switzerland
1%
-2%
1%
0%
1%
4%
5%
4%
0%
192.0
70.0
10.0
20.0
40.0
25.0
20.0
5.0
4.0
150.0
85.0
13.0
100.0
24.0
16.0
20.0
1.7
13.3
1.28
0.82
0.77
0.20
1.67
1.56
1.00
2.94
0.30
Data for the current portfolio
In Step A, the Boston Consulting Group approach is selected as the portfolio
method. It is also decided to incorporate the business fields and the business units
into a single portfolio.
In Step B, the current portfolio is established based on a compilation of the
relevant data on the businesses. The previous figure and the following figure
show the underlying data and the portfolio.
134 12 Portfolio Analysis
Grünig, R., & Kühn, R. (2015). Strategieplanungsprozess : Analysen, optionen, projekte : analyses, options, projects. Springer.
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Copyright©2015.Springer.Allrightsreserved.
Real
market
growth
Relative market share
6%
4%
0%
-2%
-4%
0.125 0.25 1 2 4
SBU
Sports goods
SBU
Household
goods
SBU
Food
80.5
2%
8%
SBU
Home
electro-
nics
SBF
Body
Shops
SBF
Department
store
SBF
Adverting
agency
SBU
Personal care
pro -
ducts
SBU
Textile
etc.
= current position SBF = strategic
business field
SBU = strategic
business unit
Current portfolio of the group
The assessment of the current portfolio in Step C is based on the assumption
that real growth will, at best, remain at the current level. Managers even expect a
slowdown by one to two percentage points.
With its department store, the Baer Group has a strong position in the cash
cow area. Thanks to the Body Shops, the sports goods and the home electronics,
it has three businesses with future potential. Therefore, the portfolio as a whole is
considered to be balanced.
There is a need for action in the department store’s range of products. In
addition to the weak position of the “food” business unit, there are product
groups representing one percent or less of turnover. It is also decided to have a
closer look at the “advertising agency” business field. The financial future, as
well as the advantages and disadvantages of an in-house agency, will be
analyzed. Finally, the creation of positive synergies between the “department
store” and “Body Shops” business fields will be investigated.
12.4 Process of Portfolio Analysis 135
Grünig, R., & Kühn, R. (2015). Strategieplanungsprozess : Analysen, optionen, projekte : analyses, options, projects. Springer.
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Copyright©2015.Springer.Allrightsreserved.