Evaluation of portfolio planning tools on the example of the Polish banking industry


Term Paper, 2002

9 Pages, Grade: 2,0 (B)


Excerpt

Inhalt

1 INTRODUCTION

2 ANALYSIS
2.1 Portfolio planning tools
2.1.1 The Boston Consulting Group Growth-Share matrix
2.1.2 The GE Market Attractiveness-Business Position matrix
2.2 Analysis
2.2.1 The Polish banking sector and LG Petro Bank S.A
2.2.2 Effectiveness of the BCG matrix in the Polish banking industry
2.3 Critical evaluation of portfolio planning tools

3 CONCLUSION

4 APPENDICES

5 BIBLIOGRAPHY

1 INTRODUCTION

The following report concentrates on the in-depth analysis of the Polish banking industry in general and LG Petro Bank S.A. in particular with the aid of accepted portfolio planning tools identified in contemporary relevant textbooks.

Two widely accepted tools are presented and their limits and constraints shown in a critical evaluation in the light of new perspectives and opinions found in journal articles and textbooks and also in the context of the situation of the Polish banking sector.

2. ANALYSIS

2.1 Portfolio planning tools

“The increasing rate of change in economic, political and social environments of business today has lead to growing competitiveness, uncertainties and risks and thus to a dramatic increase in attention given to strategic planning of all kinds. Marketing planning has itself received a good deal of attention.”[1]

According to Grant[2] portfolio planning models pursue two major purposes:

1 to assess the position of a business in its industry together with the prospects for that

industry over the medium to long-term.

2 to analyse the portfolio balance and suggest strategies for individual businesses in terms of cash flow, future prospects and risks.

2.1.1 The Boston Consulting Group Growth-Share matrix

Perhaps the best-known among portfolio-planning tools[3] is the Boston Consulting Group (BCG) matrix which defines two dimensions, market growth rate and share, to measure the attractiveness of a product (or business) portfolio.[4]

The market growth-dimension (vertical axis) is used as a proxy for market attractiveness[5] and can be related to the product life-cycle. As every PLC stage suggests a different strategic objective, i.e. build, hold, harvest or divest[6], this dimension serves as an indicator for ‘cash use’[7].

In turn, market share (horizontal axis) has been found to be related to ‘cash generation’.[8] This is indirectly related to the experience curve concept[9] which suggests that as production increases cost saving effects will emerge. Another aspect is the Profit on Impact of Marketing Strategy (PIMS) study, which among other things suggests a strong relationship between high market share and return on investment.[10]

Combining cash requirements of market growth and cash-generation potential of market share in a two-dimensional grid four types of SBU and their appropriate strategies can be distinguished: Question marks, Stars, Cash Cows and Dogs[11].

a See appendix 1 for illustration.

2.1.2 The GE Market Attractiveness-Business Position matrix

The BCG matrix has been frequently criticised for its restriction to market share and growth rate as the sole guidelines for strategic decisions.[12] [13]

In fact, business strategy is influenced by a multitude of factors. A more fundamental and comprehensive model for portfolio analysis was advanced by McKinsey in conjunction with General Electric, called the Market Attractiveness-Business Position Matrix.[14]

The first set of factors addresses the favourability of the market, the second refers to the business position in a market. All criteria are plotted on a 3x3 matrix depicting the relative investment opportunity for a business.[15]

Management has to decide which factors are applicable for the company’s products[16], i.e. what makes a market strong and what makes it attractive[17]. Scores and weightings are assigned to each factor and multiplied to receive a rating in respect of the two variables market attractiveness and business position.[18]

Johnson and Scholes[19] provide a grid with strategic guidelines for each of the nine squares of what they call a directional policy matrix; investment will be in the businesses with the highest growth potential and the greatest strength whereas the weakest and least attractive markets should be divested or harvested. The middle range section businesses need to be further evaluated on their position in the market and selective investment will be for those businesses with the highest pay-off.[20]

a See appendix 2 for illustration.

2.2 Analysis

2.2.1 The Polish banking sector and LG Petro Bank S.A.

The Polish banking sector:

- highly fragmented and undeveloped
- undifferentiated range of banking products
- low diffusion of services across the country
- low acceptance among the population

LG Petro Bank S.A.:

- young bank à presumably low national market share
- strong regional position à possibly high growth potential in rural regions
- focussed strategy to serve mainly energy and fuel establishments
- possibly too narrow focus, limited growth potential
- danger of market liberalisation and strong foreign direct investors, i.e. international banking consortia to take market leadership in Poland
- need for differentiation/establishing a competitive advantage

Following Hooley’s[21] four stage portfolio planning process, we attempt to analyse the Polish banking sector and LG Petro Bank’s operations, using the growth-share matrix. It is assumed that LG Petro Bank offers the same services as all other banks in the market, therefore the matrix can be also related to the whole sector.

[...]


[1] Turnbull (1989), p. 7

[2] Grant (1995) found in Hooley [et al.] (1998), p. 54

[3] Kotler [et al.] (1999), p. 97

[4] Hooley [et al.] (1998), p. 55

[5] Jobber (2001), p. 254

[6] Jobber (2001), p. 255

[7] Hooley [et al.] (1998), p. 57

[8] Hooley [et al.] (1998), p. 57

[9] Hedley (1976) found in Wensley (1981), p. 175

[10] Hooley [et al.] (1998), p. 57

[11] Kotler [et al.] (1999)

[12] Turnbull (1989), p. 13

[13] Jobber (2000), p. 257

[14] Turnbull (1989), p. 13

[15] Hooley [et al.] (1998), p. 64

[16] Jobber (2000), p. 258

[17] Hooley [et al.] (1998), p. 65

[18] Hooley [et al.] (1998), p. 67

[19] Johnson & Scholes (2002), p. 289

[20] Johnson & Scholes (2002), pp. 288, 290

[21] Hooley [et al.] (1998), pp. 69-73

Excerpt out of 9 pages

Details

Title
Evaluation of portfolio planning tools on the example of the Polish banking industry
College
Oxford Brookes University  (Business School)
Course
Strategic Marketing
Grade
2,0 (B)
Author
Year
2002
Pages
9
Catalog Number
V24174
ISBN (eBook)
9783638271059
File size
490 KB
Language
English
Notes
This report concentrates on the analysis of the Polish banking industry in general and LG Petro Bank S.A. in particular with the aid of accepted portfolio planning tools. Two widely accepted tools, the Boston Consulting Grwoth-Share Matrix and the GE Market Attractiveness-Business Position Matrix, are presented and their limits and constraints shown in a critical evaluation in the light of new perspectives and opinions and in the context of the situation of the Polish banking sector.
Keywords
Evaluation, Polish, Strategic, Marketing
Quote paper
Florian Langhammer (Author), 2002, Evaluation of portfolio planning tools on the example of the Polish banking industry, Munich, GRIN Verlag, https://www.grin.com/document/24174

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