Portfolio Analysis Decision Support

The STRATPORT model by Larreche and Srinivasan (1981, 1982) is a decision support system for the allocation of a firm's financial resources across its Strategic Business Units (portfolio analysis). The approach models the impact of general marketing expenditures on both market share and on the firm's cost structure. Given a specific portfolio strategy, the system can evaluate the profit and cash flow implications of following that strategy over time. Alternately, the approach can determine the optimal allocation of marketing expenditures across Strategic Business Units in order to maximize net present value over a specified time horizon.

In the Boston Consulting Group approach (BCG Matrix), relative market share and the market growth are used to classify business units as Question Marks, Stars, Cash Cows, or Dogs. In the General Electric/McKinsey approach, the business units are classified into nine groups according to company strength and industry attractiveness. The position of a given business unit on each of these dimensions is determined qualitatively from a number of market, competitive. environmental, and internal factors. The Royal Dutch Shell approach is somewhat similar although the two dimensions are called company's competitive capabilities and prospects for sector profitability, and the set of factors and their integration into these composite dimensions are also different. The philosophy underlying these approaches is, however, similar. At a given point in time, each business unit has a specific role in the portfolio according to its short-term and long-term economic potential. This role determines the allocation of financial resources among elements of the portfolio. Minimum or maintenance investments will be made in a group of business units so that they generate a maximum cash flow in the short term.

The STRATPORT model (for STRATegic PORTfolio planning) decision support system, is an on-line computerized mathematical model utilizing empirical and (managerial) judgment-based data. This system was designed to assist top managers and corporate planners in the evaluation and formulation of business portfolio strategies, and it represents both an operationalization and extension of the business portfolio analysis approaches previously mentioned.

Compare: Brand Asset Valuator  |  BCG Matrix  |  GE / McKinsey Matrix |  Core Competence  |  Reputation Quotient  |  Brand Personality Dimensions  |  Product Life Cycle  |  Bass Diffusion model  |  Positioning

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