Controlling Seminar

Portfolio techniques

from

Catrin Eckert

winter term 2006/2007

Table of Contents:

1. Introduction  2

2. Classification of portfolio analysis in the bag of tools of the strategic planning  2

3. The portfolio method  4
3.1. Source of the portfolio method and general description  4
3.2. Foundations and premises  5
3.3. Gist and meaning  6
3.4. Matrix representation and raster technique  8

4. Types of portfolio techniques  9
4.1.1. Boston Consulting matrix (four-fields-matrix)  9
4.1.2. Strategies of norms of the four-field-matrix  10

5. McKinsey portfolio (nine-fields-matrix)  13
5.1.1. Strategy of norms of nine-field-matrix  14
5.2. Comparison of four-fields-matrix and nine-fields-matrix  15
5.3. Latter portfolio techniques  16
5.3.1. Ecology-portfolio  16
5.3.2. Technology-portfolio  17
5.3.3. Human-Resource-Portfolio  18

6. Conclusions  20

7. Bibliography  21

8. Vocabulary List   22

1. Introduction

In times of economisation and increasing competition it is important for enterprises to know where their competitive position is on the market. In this case the strategic planning plays a decisive role. Companies have to know whether their products are profitable or not. To answer these questions the portfolio techniques are a good method to show up the enterprise in a clear and meaningful way. This evaluation will concentrate on the two most used techniques, the Boston Consulting Group portfolio and the McKinsey portfolio, but also latter portfolio methods, like the ecology-portfolio, the human-resource-portfolio and the technology-portfolio.

2. Classification of portfolio analysis in the bag of tools of the strategic planning

In the process of strategic planning on the enterprise level it is important, to modulate the chances and risks of the surroundings with the strengths and weaknesses of the complete enterprise. These strengths and weaknesses relate to various strategic business units.¹ Criterion for strategic business units is their own purpose on the market, the strategical business area, and it is possible for them, to act independent of other line actions on the market.² An enterprises strategy determines its future development and its prosperity.

The qualitative items like potentials of success and product-market-strategies are getting more important for the strategical area. Therefore it is not easy, to apply only quantitative models. Nevertheless it is possible to show variables of activity and connections to get cognitions about important interdependences and the effects of targets of relevant substitutes.

Besides other portfolio methods are some of the important instruments of the strategic planning. By using these methods strategic business units of an enterprise can be analyzed and strategies can be build up to strengthen the strategic business units. It is pointless to focus on only one single business unit, rather than it is important to have several business units and build up a combination out of them to get an achievement of objectives and of adequate results in different future environments. Portfolio-models are instruments to co-ordinate the several strategic business units of an enterprise. ³ 

Enterprises use them, to analyze whether there is an opportune or an optimal combination of several business units in their own enterprise. If not, the enterprise has to adjust its strategy, create new business units or to enlarge respective to close existing business units, to get an optimal combination. Another coordinating task of the strategic planning is to get and to co-ordinate substitutes to reach the target-portfolio. This instrument exists to lookup the substitutes and basic conditions in a global way. The planning period has a look at the future, but the models are not quantitative models. They are for the use of qualitative analyzes of the combinations of the business units and to have an effect on them.⁴

3. The portfolio method

3.1. Source of the portfolio method and general description

The item portfolio is out of the branch of banker and financial branches. In these branches, portfolios are inventory of several bonds or investments that an investor owns at a certain moment. According to modern economic sciences, which are incorporated in models like the CAPM, the investors are not successful, if they hold always the same bonds and investments. The quality attribute could be the return on invest.

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1 Cp. Baum, Coenenberg, Günther, Strategisches Controlling, 2.Auflage, Stuttgart, Schäffer-Poeschel, 1999, page 179

2 Cp. Michel, Taschenbuch Strategiecontrolling, 1. Auflage, Heidelberg, Sauer-Verlag, 1995, page 76

3 Cp. Küpper, Controlling, 4.Auflage, Stuttgart, Schäffer-Poeschel, 2005, page 104

4 Cp. Küpper, Controlling, 4.Auflage, Stuttgart, Schäffer-Poeschel, 2005, page 105