Business Models & Strategy

Business Models & Strategy

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Models to Analyze your Product Portfolio 2

Following my previous blog about Boston Matrix, today I will provide basic guidelines to analyze your product portfolio by employing the Directional Policy Matrix (DPM). Compare to Boston Matrix, DPM allows for a number of factors such as market attractiveness & relative strength.

This matrix measures the health of the market and your strength to pursue it. The results indicate the direction for future investment. The recommendation may be to invest, grow, harvest or divest

Brief description of the model dimensions:

·  Invest in growth: high market attractiveness which relate to high business strengths. This position is ideal and you should invest your best business resources here.

·  Invest in capabilities: high market attractiveness but low relative business strengths. The market potential is attractive but you do not have the business strengths necessary for being really successful. The options facing you are either to take what you can while it is still possible or to invest in building a better competitive position. You must be selective in your efforts here, as this segment will cost you to invest in every aspect of the business.

·  Manage for Cash: Low Market Attractiveness but High Business Strengths. In this quadrant you have high strengths in a market that has lost its attractiveness in terms of future potential. It is still good for near term profits, so maintain the position for as long as possible.

·  Divest: Low Market Attractiveness but Low Business Strengths. Think carefully about what you are doing to be in this quadrant. The market is not particularly attractive and your business strengths are below average here. Keep in this segment only if it supports a more profitable part of your business (for instance, if this segment completes a product line range) or if it absorbs some of the overhead costs of a more profitable segment.

Take into consideration the following examples of Attractiveness Factors to your business when analyzing your product portfolio:

·  Volume of sales

·  value of sales

·  profitability of sales

·  future growth potential

·  stage in Product Life Cycle

·  Portfolio fit (does it fit with others)

·  Is it valued to customers?

·  Any competitive advantage?

·  degree of competition (high, low)

·  is any investment required?

·  any specific customer demands?

I also provide some examples of Relative factors, that is, how customers perceive the products?

·  Brand name and awareness

·  innovation

·  price

·  costs in using the product

·   service levels

·   quality

·   value in use

·    long term sustainability

To measure the Attractiveness Factors use the following template. Here are the instructions:

1. Enter your products across the top of the grid

2. We advice until and 6 factors to focus the analysis

3. Enter a SCORE from 1 to 10 for each product against each attractiveness factror.  The HIGHER the score, the better the FIT of the product

4.Calculate the average score.  This will be used to place the product on the DPM Matrix, higher or lower than the average

Now, do the same to calculate the Relevant Strength. Instructions:

1.For EACH PRODUCT fill in a form

2.For each product identify 6 relative strength factors that represent the customer's criteria for choosing a product (determine success against competition)

3.Enter a SCORE from 1 to 10 for each company against each factor.

4.REMEMBER!! The score reflects the market perception and not yours