The portfolio of activities is a determining factor in the performance of the company; its management must be the subject of a meticulous strategy. As the investor strategically manages his portfolio of financial investments, the company continuously monitors the balance of its portfolio of activities. Most companies, all sectors combined and whatever their size, have a portfolio of activities, which is intended to evolve over time.
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Internal factors, such as the company’s ability to gain market share in a competitive activity, and external factors, such as the rate of growth of the activity with regard to the economic and social context, dictate the management of the business. wallet. Why and how to manage a portfolio of business activities?
What is a portfolio of activities?
A company’s business portfolio is all of its strategic business areas (DAS). A company in fact often has several types of activities, which can be grouped together by DAS. A DAS constitutes a homogeneous product / market couple.
Examples: the restaurant has 1 DAS “on-site service” and 1 DAS “take-out”, the products are identical but the markets are different; the interior decoration store has 1 DAS “furniture” and 1 DAS “decorative accessories”, the markets are the same but the products are of different categories.
Why analyze a company’s portfolio of activities?
It is important to know your portfolio of activities well. The company is in fact able, on this basis, to isolate each area of strategic activity for:
- Refine your target customers and establish an effective communication strategy for each DAS.
- Identify the competitors on each DAS, to monitor the competition in order to innovate. If the company plans to sell an activity, in addition, the identification of the competition makes it possible to identify the companies which are candidates for the merger-absorption.
- Recruit business profiles adapted to each DAS.
- Find suitable suppliers.
Establishing the portfolio of activities thus aims to develop the overall activity of the company.
Another major challenge for the business portfolio: its global and correlated analysis makes it possible torefine the company’s business model. With an overview of the portfolio, the company easily identifies the opportunities to be seized over time: diversification opportunities in other DAS, balancing of resource allocations to existing DAS or even the opportunity to sell. an activity. The goal: to have a portfolio of activities that is always balanced, to ensure the sustainability of the company.
The analysis of the business portfolio of the company is particularly useful during a sudden change in consumer habits: economic crisis and digital boom, for example. In this context, in fact, the upheaval comes in a very short time. The company, by analyzing its portfolio of activities, reacts quickly and makes strategic choices: the activities to be interrupted or the investments to be made, in particular.
To facilitate the analysis of the business portfolio of the company, matrices exist.
How to analyze the portfolio of activities of a company?
The company begins by clearly identifying each area of strategic activity, in order to develop its portfolio. From there, the use of a matrix is recommended. This decision support tool provides a graphical representation of the portfolio, to assess the balanced distribution of SARs. This balance is assessed in particular with regard to the degree of maturity, growth potential, risks, profitability or even the need for DAS financing. Illustration: the portfolio is balanced if it includes a risky DAS with high growth potential, and a very profitable DAS that will soon become obsolete. 2 variables are used by the matrix: the attractiveness of the field of activity, which requires an external analysis, and the competitive position of the company, which supposes an internal analysis.
The interpretation of the matrix can give rise to 3 results:
- The portfolio is juvenile: there is an imbalance because start-up or growth activities predominate, giving rise to a risk and a need for financing.
- The portfolio is senile: the imbalance is marked by the predominance of profitable activities, but little turned towards the future. Without investments in activities with strong growth potential, the company risks stagnating or even disappearing.
- The balanced portfolio consists of sufficient mature businesses to fund growing businesses.
3 matrices are used to analyze the business portfolio of the company.
The BCG matrix
The BCG matrix categorizes SAR into 4 types of products:
- Star products or featured products include DAS for which the company is the market leader, and whose growth potential is strong.
- Cash cows are profitable but mature DAS.
- Deadweight includes DAS in which the company does not have the majority of market share, and whose growth potential is zero.
- The dilemmas are the DAS with high growth potential, but in which the company’s market shares are low.
The ADL matrix
The ADL matrix maps the SARs in three areas:
- natural development,
- selective development,
The company makes its strategic choices based on the position of each DAS in its area.
Example: the DAS in a natural development zone can continue to receive investments, because its development potential is strong.
The McKinsey Matrix
The McKinsey Matrix is also a relatively complex multi-criteria analytical approach. With nine boxes and three zones, this matrix allows a more detailed analysis of the company’s portfolio of activities.
Examples of business activity portfolios
The Bic group
The Bic group develops and markets pens, razors, boats and lighters. That is 4 areas of strategic activity in its portfolio. The Bic group has diversified widely over time, according to the opportunities highlighted through the contextual analysis of its portfolio of activities. For example, Bic is abandoning the marketing of perfumes in view of its too weak competitive position on this DAS.
McDonald’s has a very diversified portfolio of activities:
- Several categories of food products: a category connoted junk food and a dietetic category. The range of salads and fruits is recent: the company has identified this DAS as a growth driver, on which to position itself.
- Several categories of services: on-site catering, take-out and delivery with the new models such as Uber Eats and Deliveroo. The company notes that delivery services are forward-looking DAS, to be integrated into its portfolio of activities.
- Several economic models: McDonald’s is positioned on the food sector and on the land sector. McDonald’s, moreover, achieves its largest turnover in real estate.
The LVMH group distinguishes 5 DAS in its portfolio: alcohol and spirits, fashion and jewelry, distribution, media, hotels. With a portfolio of activities provided, the use of a matrix is all the more useful, in order to arbitrate strategic choices.
VSEs and SMEs
Small businesses also have a portfolio of activities.
Examples: the plumber who offers tiling services has 2 DAS in his portfolio, he allocates more or less investment in time and money depending on his market share and growth potential; the surf lessons provider also carries out a board rental activity and a derivative product sales activity, he has 3 DAS in his portfolio. Smaller companies also have an interest in establishing their portfolio of activities, to invest at the right time and the right place, with a view to growth.
The portfolio of business activities in times of crisis
The crisis illustrates the major interest in analyzing its business portfolio. It is by analyzing their portfolio, for example, that gyms have diversified with online coaching to compensate for the loss of income on indoor subscriptions. Likewise, the escape game service provider has developed a remote gaming activity to balance its endangered portfolio during confinement.
The portfolio of business activities undergoing digital transformation
The matrices quickly highlight the obsolescence of the sectors of activity. In this way, companies identify their opportunities to diversify. The digital boom has marked a turning point for many sectors.
Photomaton, for example, suffered from the advent of the camera integrated into the telephone: in reaction, the brand diversified its portfolio of activities into DAS with higher growth potential.
Photomaton now offers automated photo development kiosks, as well as children’s rides and laundromats. Video clubs have also suffered from digital, with the arrival of streaming: in reaction, some have managed to diversify their portfolio of activities into more innovative sectors.
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