Following steps should be followed while doing a business portfolio analysis:
Step 1: Identify Lines of Business
The first step in portfolio analysis is to identify the lines of businesses (SBUs) that make up the association's portfolio. The guideline to keep in mind is this: if we were a corporation instead of a professional society, which groups of programs would be logical candidates to be grouped together as independent businesses?
Step 2: Group Lines of Business
There are three lines of businesses an association typically engages in. The first is core businesses that are of vital importance to your broad membership. These are the businesses that directly support the objectives in the strategic plan and have a priority claim on resources.
The second line of business is support functions that make it possible to deliver the core business benefits to members. Examples of support functions are administrative, accounting, legal, governance support, etc. These do not have a priority claim on resources. Rather, the objective is to minimize the cost of these functions and transfer resources to support the core business.
The third line of business is money-makers that provide low-priority member benefits but are the source of revenues that support the association’s core businesses. Ideally, the association’s core businesses should be self-supporting and perhaps even contribute to reserves. Often, this is not the case and activities must be subsidized with other income. Money-makers provide this income. Examples of money-makers are rental car discounts, affinity cards, insurance programs.
Step 3: Compare Core Businesses with Mission Statement
Once you have separated out your core businesses, compare them with the association's mission statement. To pass this screen, a business must directly support the goals that are defined in the mission statement. Support should be direct and not peripheral. If a line of business does not support the strategic plan, it should be discontinued or phased out and its resources transferred to support the association's other core businesses.
Step 4: Define Products and Services in Each Line of Business
Once lines of business have been tested for relevance to the mission statement, the next step is to subdivide those that are relevant into their component products and services. For example, the publishing business would be subdivided into each of its products. Each product or service would then be compared to the Program Evaluation Matrix.
Step 5: Apply the Program Evaluation Matrix
The Program Evaluation Matrix is a graphic device that simplifies the process of analyzing all the products and services in the association's portfolio of products and services. In running its programs through the Program Evaluation Matrix, the association makes several assumptions.
Assumptions
1. Since the need for resources is competitive, the association must view the problem of securing resources in a competitive context.
2. It is preferable to provide good service to a focused market than to provide mediocre or poor service to too large a market.
3. It is pragmatic to surrender mediocre programs to better competitors and wrest away promising programs from weaker competitors.
Evaluating Program Characteristics
The Program Evaluation Matrix helps an association determine the answers to the following questions about each product or service in its portfolio:
1. Is it a good fit with our other programs?
2. Is it easy to implement?
3. Is there poor alternative coverage in the marketplace?
4. Is our competitive position strong?
For a program to survive the competition for the association's resources, there should be a positive response to all these questions. No program is in a strong position unless it is superior to all programs in that category. If it is not, it should be classified as being in a weak position.
The effect of these generic strategies is to serve the client base with a small number of strong, excellent providers rather than with a larger number of fragmented providers competing for limited dollars.
Step 6: Determine Product Fit
Using the Program Evaluation Matrix, the first step is to determine whether the product or service under review fits the association's mission and priorities. The screens for good product fit are:
1. Congruence with mission and purpose of the association.
2. Focus on core concerns that are of vital interest to the association's members/customers.
Step 7: Determine Ease of Funding and Implementation (Is this an easy business?)
The criteria for determining whether a program or service has the prospect of relatively easy funding and implementation are:
1. High appeal to groups capable of providing current and future support.
2. Stable source of funding.
3. Market demand from a large, concentrated, growing client base.
4. Appeals to volunteer leadership.
5. Measurable, reportable program results.
Step 8: Determine Availability of Alternative Coverage
This is the first step in a competitive analysis. Even nonprofits operate in a competitive environment, which has a strong impact on the ability to successfully deliver member products and services. Alternative coverage means is anyone else offering similar programs. Programs should be classified according to two alternatives:
1. Low coverage: If there are few comparable programs offered elsewhere.
2. High coverage: If many similar programs are offered elsewhere.
Step 9: Assess Competitive Position of Product or Service
The following criteria should be considered in determining whether an association product or service is in a strong competitive position. Competition is not limited to other nonprofits. For-profit companies can and do compete directly with the association in the delivery of many products and services. Publications are a good example of this. Criteria for a strong competitive position are:
1. Dominant market share or strong prospects for achieving market dominance.
2. Better quality/value/service than competitors.
3. Superior ability to produce and market this program.
4. Cost-effective program delivery.
5. Strong match between the program and the future needs of members/customers.
Step 10: Determine Program Fit
Ideally, the association will have two types of programs:
1. Well-fitting, easy programs where the association has a strong position and competes aggressively for a dominant position.
2. Well-fitting, difficult programs with low coverage that the association has the unique, strong capability to provide to important stakeholders.
Applying these steps will reveal the association's current portfolio situation. The ideal would be to have a portfolio that has primarily winners, and contains enough winners and profit producers to finance the growth of potential winners. In reality, however, there will probably be a few question marks and even perhaps a small loser. Then, of course, there are those untouchable
programs that, although marginal or even losers, are considered to be of fundamental importance to members and must be subsidized.
Summing Up
Portfolio analysis is an important aid in the association's quest to identify its specific competitive role. This role should be so well suited to the association's external and internal environments that other associations are unlikely to challenge or dislodge it. The association then has a distinctive competence that enables it to take advantage of specific environmental opportunities. To accomplish this, the association must be on the constant lookout for strategic windows or market opportunities.
In today’s competitive world, successful associations will have three characteristics in common, and portfolio analysis will have an important role to play in helping associations achieve them.
• They will innovate as a way of life.
• They will compete on value in meeting member needs, not on price.
• They will achieve leadership in related niche markets.
No comments:
Post a Comment