Portfolio

Term Definition

Portfolio refers to the collection of businesses and products that make up a company. Ideally a portfolio should fit the company’s strengths and exploit their best opportunities. The portfolio management concept is widely used in the investment community. An investment portfolio would seek to diversify investment and risk and produce a high rate of return. In that same way, a business portfolio recognizes that companies have limited resources (capital, human) and must find a way to select, prioritize, authorize and manage the totality of work.

Utilizing the portfolio management concept in business helps an organization to assess work in-progress, future work and completed work. Baselines can be identified and used to measure how well the portfolio is being managed to meet the company’s objectives or desired business results.

Two of the best-known portfolio planning methods were developed by the Boston Consulting Group and General Electric/Shell. Both methods require the identification of Strategic Business Units (SBUs). A SBU can be an individual company, brand or division depending on how the company is organized. SBUs are then grouped into four areas:

Stars – high growth businesses or products competing in markets where they are relatively strong in comparison to the competition. These businesses often require heavy investment to sustain growth but if market share is maintained and growth slows down they become cash cows.

Cash cows – low growth businesses or products with a high market share. Mature, with little need for investment. They need to be managed for continued profit.

Question marks – low market share businesses or products, which operate in higher growth markets. They have potential but require investment to grow market share at the expense of more powerful competitors.

Dogs – low relative share in unattractive low-growth markets. May generate enough cash to break even, but rarely worth further investment.

Once the SBUs have been grouped, a strategy can then be determined. Possible strategies include build share (invest to increase market share), hold (invest enough to maintain present position), harvest (reduce investment to maximize short term cash flow), or divest (phase out or sell and utilize resources elsewhere).

Area of Application 
Knowledge Management
Project Portfolio