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The portfolio of activities is decisive for the company's performance, its management must be the subject of a careful strategy. As the investor strategically manages his portfolio of financial investments, the company continuously ensures the balance of its portfolio of activities. Most companies, all sectors combined and regardless of their size, have a portfolio of activities, which is intended to evolve over time.
Internal factors, such as the company's ability to take market share in a competitive business, and external factors, such as the growth rate of the business in light of the economic and social context, dictate portfolio management. Why and how to manage a portfolio of business activities?
What is a portfolio of activities?
A company's portfolio of activities is all of its strategic business areas (DAS). A company often has several types of activities, which can be grouped by DAS. A SAR is a homogeneous product/market couple.
Examples: the restaurant has 1 SAR "on-site service" and 1 SAR "takeaway", the products are identical but the markets are different; the interior decoration shop has 1 SAR "furniture" and 1 SAR "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. On this basis, the company is able to isolate each strategic area of activity in order to:
- Refine your customer target and establish an effective communication strategy for each DAS.
- Identify competitors on each DAS, to make a competitive watch in order to innovate. If the company is planning to divest a business, in addition, the identification of the competition makes it possible to identify the companies that are candidates for merger and absorption.
- Recruit business profiles adapted to each DAS.
- Find the right suppliers.
Establishing the portfolio of activities thus aims to develop the company's overall activity.
Another major challenge of the portfolio of activities: its global and correlated analysis makes it possible to refine the company's business model. With an overview of the portfolio, the company easily identifies opportunities to be seized over time: diversification opportunities in other DAS, balancing resource allocations to existing DAS, or the opportunity to sell a business. The goal: to have a portfolio of activities that is always balanced, to ensure the sustainability of the company.
The analysis of the company's portfolio of activities is particularly useful on the occasion of a sudden break in consumer habits: economic crisis and digital boom, for example. In this context, the upheaval occurs 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.
How to analyze a company's portfolio of activities?
The company starts by clearly identifying each strategic business area, to develop its portfolio. From there, the use of a matrix is recommended. This decision support tool offers a graphical representation of the portfolio, to assess the balanced distribution of DAS. This balance is assessed in particular in view of the degree of maturity, growth potential, risks, profitability or the financing need of DAS. Illustration: the portfolio is balanced if it includes a risky DAS with high growth potential, and a very profitable but soon obsolete DAS. 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 requires 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, bringing out risk and a need for financing.
- The portfolio is senile: the imbalance is marked by the predominance of profitable activities, but not very forward-looking. Without investments in activities with high growth potential, the company risks stagnating or even disappearing.
- The balanced portfolio consists of enough mature businesses to fund the growing business.
3 matrices make it possible to analyze the company's portfolio of activities.
The BCG matrix
The BCG matrix categorizes SARs into 4 types of products:
- Star products or star products include DAS for which the company is the market leader, and whose growth potential is strong.
- Cash cows are the profitable but mature DAS.
- Dead weights include SARs on which the company does not have the majority of market share, and whose growth potential is zero.
- The dilemmas are DAS with high growth potential, but on which the company's market shares are low.
The ADL matrix
The ADL matrix maps SARs in three areas:
- natural development,
- selective development,
The company makes its strategic choices according to the position of each DAS in its area.
For example the DAS in natural development areas can continue to receive investment 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 makes it possible to analyze the company's portfolio of activities more precisely.
Examples of business activity portfolios
The Bic Group
The Bic Group develops and markets pens, razors, boats, and lighters. That's 4 strategic business areas in its portfolio. The Bic Group has diversified widely over time, depending on the opportunities highlighted through the contextual analysis of its business portfolio. For example, Bic is abandoning the marketing of perfumes because of its too weak competitive position on this DAS.
McDonald's has a very diverse portfolio of activities:
- Several categories of food products: a category connoted junk food and a dietary category. The salad and fruit offer 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 Uber Eats and Deliveroo models. The company sees that delivery services are future-oriented DAS to be integrated into its business portfolio.
- Several business models: McDonald's is positioned in the food sector and the land sector. McDonald's also achieves its largest turnover in real estate.
The LVMH group distinguishes 5 DAS in its portfolio: alcohol and spirits, fashion and jewelry, distribution, media, hospitality. 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 tile services has 2 DAS in his portfolio, he allocates more or less investment in time and money according to his market share and growth potential; the surf course provider also carries out a board rental activity and a derivatives sales activity, it has 3 DAS in its portfolio. Smaller companies also have an interest in establishing their portfolio of activities, to invest at the right time and in the right place, with a view to growth.
The portfolio of corporate activities in times of crisis
The crisis illustrates the major interest in analyzing its portfolio of activities. It is by analyzing their portfolio, for example, that gyms have diversified with online coaching to compensate for the loss of revenue on indoor subscriptions. In the same way, the escape game provider has developed a remote gaming activity to balance its portfolio in danger during the lockdowns.
The portfolio of business activities in full digital transformation
The matrices quickly highlight the obsolescence of sectors of activity. In this way, companies identify their opportunities to diversify. The rise of digital technology has marked a turning point for many sectors.
Photomaton, for example, has suffered from the advent of the camera integrated into the phone: in response, the brand has diversified its portfolio of activities on DAS with higher growth potential.
Photomaton now offers automated photo development terminals, but also children's rides and laundromats. Video clubs have also suffered from digital, with the arrival of streaming: in response, some have managed to diversify their portfolio of activities into more innovative sectors.