Good Example Of Essay On Portfolio Models
The portfolio models help managers to focus on attractive customer segments. These include segments that create opportunity for the company to operate at the lowest cost and hence attain the best price in the market. It may also include an area that competitors may not be very easy to copy, hence earning price premiums. Through such analysis, the portfolio models help the managers to know that such market segments are profitable and they ought to stay for their current and future revenue. As the time goes by, the segments may cease to be profitable due to increased costs of operation, entrant of new competitors among other reasons. This may force the managers to either look for new strategies to survive in such markets or leave if their strategies are costly or not yielding good results (Collins & Porras, 2002, p.5).
Secondly, the models may act as synergies for leveraging solutions, resource and process platforms in the business units. Through leveraging such platforms, the business is able to gain efficiencies and advantages that are not found in other competing businesses (Dess & Lumpkin, G, 2003, p.10). In addition, each business unit is able to contribute practices and ideas to these platforms at the centre, enabling the whole company to create further efficiencies and advantages in the market.
Thirdly, through diversifying portfolio, the managers are able to come up with good strategic plans to drive their businesses. Through these plans, they are able to generate a lot of revenue for the company, now and in the future. If the business is able innovate and manage portfolio models appropriately, it increases its profitability continually (Hamel & Prahalad, 1994, p.18). On the other hand, if the company is not able to manage and innovate them continuously, then it ought to exit that market segment for other better and growing segments. The portfolio models enable managers to distinguish between growing, mature and emerging businesses in order to make informed strategic decisions. Normally, growing businesses are smaller compared to mature businesses and showing a high level of growth. They also have a higher profit margin compared with the mature businesses. However, they do not generate more revenue as compared with mature businesses. They also require more nurturing and management attention in order to become successful in the future. Ability to know the level of business growth enables the managers to know the appropriate strategic decisions that are needed for the increased profitability of the businesses (Grant, 2010, p.15). The strategies for a growing business are different from those of a mature business. For example, the management of a growing business may choose strategies that are more focused on the expansion of its operations, while that of a mature business may focus on strategies for maintaining its profitability. For instance, a growing company may invest a lot of resources in opening new stores in the unreached market segments while a mature company may focus on forming a strategic alliance with another company in order to maintain its market share. On the other hand, emerging businesses are based on new market opportunities and innovations. They require net investment and generate little current revenue. They are important in retaining and expanding the market share of the company especially in the future.
Distinguishing the stage of the business and that of the entire industry enables the managers to assess their performances based on their level of growth (Whittington, 2001, p.30). For example, if the revenue of a mature company is small, then the management may decide to exit its current segments. However, the case may be different for the emerging and growing businesses.
Collins, J. C. and Porras, J. I., 2002. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness Essentials.
Dess, G. G., Lumpkin, G. T., 2003. Strategic Management: Creating Competitive Advantages. Boston, Mass: McGraw-Hill Irwin.
Grant, R., 2010. Contemporary Strategy Analysis. 7th Edition. Hoboken, N.J.: John Wiley & Sons.
Hamel, G. and Prahalad, C. K., 1994. Competing for the future. Boston, Mass: Harvard Business School Press.
Whittington, R., 2001. What is Strategy – and does it matter? 2nd Edition. London: Thomson Learning.