Advantages
• Portfolio analysis simplifies complex situations and provides a valuable overview of the strengths and weaknesses of a company’s mix of businesses and products.
• The technique is forward-looking and can play an important role in delivering improved returns for stockholders over the medium to long term.
• Portfolio analysis can help understanding of diversification and identify risks in a company’s portfolio, for example by drawing attention to an overemphasis on particular areas.
• The technique underlines the need to understand business and product lifecycles and emphasizes the importance of achieving the breakthrough to profitability early, long before an industry or a product begins to mature.
• The analysis can help to overcome the danger that managers favor their pet projects and industries with extra resources, particularly if some inputs to analysis, such as industry growth projections, can be sourced independently.
• Portfolio analysis also encourages a view of businesses as collections of diversified cash flows and investments and so shows how corporate strategy integrates with individual business strategy at the business unit level.