Definition: A Business Portfolio is a combination of various products, services and business units that make up a business. By observing this portfolio and each business unit individually, managers can take strategic business level decisions for the whole portfolio. Each unit within the portfolio can also be treated as an asset.
When you run a business, the conglomeration of different products, services, and associated units is understood as a business portfolio.
With the help of a business portfolio, a business can know about its strength and utilize the available opportunities together with its utmost potential in its favor. It plays a crucial role in deciding the growth strategy of a business and gauging if the business should continue with the same product or service or not. It also tells if the business should opt for a more or lesser investment.
In this post, we will dive deep into the world of business portfolio and understand what it is, its fundamental traits, and how you can plan it. So, without any further ado, let us get started right away-
Table of Contents
Introduction to Business Portfolios
Business as a whole comprises of a lot of factors, several intricate details and processes go in it. Multiple aspects collectively boost the statistics of business; solely, an idea is not enough to have an unbeaten run.
All the key factors must be paid attention to accomplish the desired goals. The business portfolio helps you do this in the most organized, efficient and result-oriented manner.
We all know that a business consists of a variety of elements; business units, producing products and providing services are the pillars of a company, so their balance is required and a decent enough management.
Here comes the role of a business portfolio that keeps all these significant facets combined to facilitate the growth of a business and increase its environment. It basically can be expressed as an array of assets that the company acquires to reach the planned vision.
In the simplest form, a business portfolio can be understood as the set of
- Investments
- Products
- Holdings
- Services
- Businesses
- Brands
Let us now understand business portfolio in a more in-depth fashion and unravel critical concepts associated with the portfolios created for any business model-
What is Business Portfolios
A business portfolio, apart from containing all the primary forms that build up a business, also draws an outlook of the company’s strengths and even helps the company to take advantage of beneficial opportunities.
It helps in making decisions about how the company should invest, how much needs to be spent.
Further, it determines how the growth of a company can be accelerated and all the strategies that would go into it, either by creating new products or acquiring new businesses.
A portfolio also recommends certain subjects, as if certain products should be retained or discarded. So, all in all, the business portfolio incorporates all the critical aspects of your business that can decide the sustainable existence of the business, also ensure the exponential growth of the business.
Now the time has come to understand how you can make a result-oriented business profile that can help you in achieving your business goals. So, let us go through that-
Steps to make an effective Business Portfolios
A lot of research work and working hours go into the process of planning a business portfolio. It is a draining process since it forms the foundation of a business, and that is why you need to pay heed to all the steps, so you can come out with a portfolio that can channelize your business on the path of success.
When you are making your business portfolio, all the business strategies, products, and services that are to be delivered, including the implementation techniques, investments, etc. need to be planned to establish a stabilized empire and ensure its growth.
This is an entirely systematic and strategic regime. The following factors need definite focus upon to plan a good portfolio;
1) You need to find out the Strategic Business Units (SBU) in your business portfolio
This step in planning a portfolio is crucial and requires identifying various Strategic Business Units (SBUs).
The perk of SBU is that it can be expected without affecting any business or getting interfered by one as its objective and mission are entirely separate.
As an SBU falls under a company only, it can be in the form of a company division, a product line or an utterly individual brand altogether. All it depends on is the company’s nature and organization.
2) Know about your marketing niche and how it can favor your business
The market plays a critical role at the time of planning a company’s portfolio. It provides information about what opportunities can be possessed that will help the business grow. It segregates those markets to which a company can be attracted. These factors that draw the attention of a company to a particular industry are stated below, and a company must carefully examine and analyze these factors.
- Market Size; how well the market is spread helps in increasing connectivity
- Market Growth; the growth rate determines how fast the company will become renowned
- Market Profitability; the kind of profit the company can make from a particular market and will it benefit it.
- Pricing trends, tell you about the right pricing strategy that your kind of business should have to penetrate the target market
- Competition; this is one of the fragile factors, it is mandatory to have an overview of the industry’s competition to evaluate chances of demolition
- Risk of return on investment
- Segmentation; if fragmenting the company into divisions would be an issue
- Distribution structure; and
- Division of products and services
All the factors need to be carefully looked upon to inhibit any source of failure that would jeopardize the company’s face value.
3) Evaluate your Competitive Strength in your target marketing
While making a business portfolio, you need to understand that each SBU has its competition which calls for a close review. Thus, analysing competitive strength extends to the company the dimension of assessing it.
Competitive strength is also estimated based on specific parameters, namely;
- Competencies of assets and their corresponding strengths along with the relative strength of brands
- Customer loyalty together with the comparison of cost structure with their competitor’s, i.e. relative cost bearings
- Effectiveness of distribution alongside the inclusion of innovations and new technologies Approach to financial as well as other investment resources
Having a vision of all these parameters while planning a business portfolio will boost the company’s value and support in administering the business goals. Let us now understand how you can manage your business portfolio-
How to Manage your Business Portfolio
A portfolio planning does not only depend upon the above-stated aspects but also relies on several teams and individuals of the concerned company.
In the case of a huge company, these teams and individuals are assigned separate agendas to work on for a more orderly and hassle-free working environment.
To have proper management of the business’ portfolio; adequate knowledge, goals, and decisions need to be coordinated with the short-term financial requirements of the company.
A lot of business portfolio management related software has been developed that mainly track and report the internal operations and its measures, while the market is unsupported.
It has several levels to detangle the process of planning a portfolio.
These levels are Project level Market Portfolio Management, Corporate Portfolio Management and Industry and Competitor Portfolio Management (ICPM). The teams assigned to each level are allotted a separate agenda to reduce the complexity of planning.
Difference between Product and Business Portfolios Management
While a business portfolio is a company’s class of its products and services, finances, individual brands and businesses, a product portfolio is a mix of market segments of a product.
These segments are nothing but a specific group of people, who are targeted by marketing managers to appeal their products to these groups. Layers can be anybody like college graduates or perhaps blue-collar workers. Sometimes, people get confused between product portfolio and business portfolio, so, let us understand that as well.
Both of these portfolios lift companies to grow financially. However, product Portfolio and Business Portfolio can be distinguished based on:
a) Growth-Share Matrix of Product Portfolios & Business Portfolios
Though the growth-share matrix is applied to both the portfolios, still they differ in the methodology of application.
It consists of four categories: star, cash cow, question mark and dog and places markets in either of these. These categories further depend on two variables that are the size or the share of the segments (groups of people) and growth in sales of a business or product.
The former is used in Business Portfolio and the latter in Product Portfolio.
b) Strategic Business Units (SBU) in Product’s Portfolios and Business Portfolios
In a Business Portfolio, the commodities are referred to as SBUs. Business managers analyze SBUs and not the market at the time of using a growth-share matrix to analyze SBUs.
In a Product Portfolio, the markets, as well as the units, are analyzed.
Both portfolios are different from one another in various aspects, including product type, risk management.
Benefits of Business Portfolios Management
The process of management of business portfolio helps in reducing investment failures or risks significantly and enhances the value as well as the return of investments.
Planning strategically and properly improves communication between IT and business leaders.
Planning that is done systematically and adequately encourages the leaders to look after their teams; this increases team spirit to a certain extent and boosts the efficiency of doing a project.
It lays down a clear vision of what the company aspires for and helps in eliminating redundant projects.
Besides, do different upsides of the business portfolio, there are some notable downsides of business portfolio management as well, so let us go through them as well0
Drawbacks of Business Portfolios Management
- Even though planning a business portfolio proves to be in favor of a company’s development, its management can sometimes face issues.
- Although a lot of software systems have been developed, single solution software remains to be just a topic of discussion that hasn’t seen any development as far as its implementation is concerned.
- Another hurdle is the absence of a proper document management system which results in difficulty to obtain useful information on a specified subject. Adequate knowledge and database are mandatory to generate an opinion of a market.
- Despite proper planning, at times, it gets challenging to filter products for the final portfolio.
Portfolio planning is a hectic and time-consuming process.
A business’ management and planning have time constraints as one of the significant hurdles. It is, indeed, a critical part of any developmental process of a business.
Critical Tips for effective Business Portfolios
Planning is not the only cause to be worked on, and credibility is equally important to attract clients.
A portfolio must have a company’s profile containing all the necessary and adequate information.
Stating the objectives and missions of the company creates a definite view and draws the attention of only those interested, specific to the goal and listing the achievements gains enough consideration of sponsors. Contact information is a must to allow other businesses to connect easily.
All in all, apart from planning, all these aspects must be diligently viewed.
Business Portfolio Wrap Up!
So, that was all about the significance of a business portfolio in running a successful business.
A business portfolio is thus, essential for a company’s growth and its position in the market.
All the determinants mentioned above, when combined, produce an effective and standardized business portfolio.
A portfolio contains all the essentials of a company, hence, making it a crucial growth-promoting factor. The analysis of a portfolio is reasonably vital to understand the company’s products and subsequently to assort them based on their performance and level of competition.
Thus, having a business portfolio for a company creates a drastic change in how tasks and objectives are seen and their implementation procedures and the entire outlook of the company.
So, what are your thoughts about the inclusion of a business portfolio for planning and running a successful business? Did we miss any of the critical points that you consider essential for the business portfolio? Share your views with us in the comments below.
Thank you for reading our article about product portfolios.
Liked this post? Check out the complete series on Business
What are the decisions taken after the analysis of business portfolio