Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.
Companies need to know how well they're doing: it helps them determine where to make changes and determine if they're doing a good job competing with others in the industry. In this lesson, we'll learn how a company determines their performance.
Setting the Scene
Gadgets and More Gadgets sells anything from novelty toys to fun innovative kitchen tools. Because they sell such a wide array of products, the company has decided to look deeper into how well each product is doing and decide its fate. Obviously, not every product can be equally successful, so Gadgets and More Gadgets has decided that maybe it could increase its profits more, by cutting poor producing products and recognizing where it should focus its investments. Gadgets and More Gadgets will essentially be performing a business portfolio analysis.
Before we dig too deep into this lesson, let's first start with defining more in-depth what a business portfolio analysis is. A business portfolio analysis is essentially a process of looking at a company's products and services and categorizing them based on how well they're performing and their competitiveness. The categorizing helps a company recognize where they should invest, reorganize, cut costs, and improve their overall business, so that it's more efficient and profitable.
In order to perform a business portfolio analysis, Gadgets and More Gadgets needs to first identify all of the contents of the business. This includes all products, services, and holdings from all of the departments within the company. Next, Gadgets and More Gadgets will take a look at how well they're performing. This is where they look at how well they're competing with others in the industry, as well as how their sales are doing. This step is essential to identifying where Gadgets and More Gadgets is excelling and where they might be performing poorly. Projections and suggestions follow in the next step. Knowing where a company is performing poorly allows the company to project what they'll need to do to either improve in that area or what they might do in the future if they discontinue the product altogether. Gadgets and More Gadgets will also be able to recognize where they should invest more money to increase performance and where they should decrease spending. The final step is where Gadgets and More Gadgets takes all of the gathered information and decides how they'll change the way they run their business. The changes could be made permanently, for a few months, or maybe just for the next business year.
Let's apply what we've learned using our example from earlier, and see what Gadgets and More Gadgets found out about their company.
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When they first started the process, they separated their products by function. This meant that those products that were used in the kitchen were grouped together, those that were used outdoors were placed together, and all of their novelty toys made up the final group. They next looked at how well each of their groups were performing and the sales numbers they produced.
Immediately, they found that their kitchen gadgets were doing very well and orders were continuously coming in. The outdoor gadgets were also doing well. However, the novelty toys seemed to be struggling a bit. Gadgets and More Gadgets realized that their sales numbers for novelty toys were low and still falling. Knowing where their weakness was, they needed to make a decision about how they would proceed. If they invested more money into the novelty toy department, would they see higher returns? Was there room to grow and could they still be competitive in the market? Should they consider cutting novelty toys from their company altogether?
After making some future projections, Gadgets and More Gadgets decided that the novelty toy department just could not compete with bigger competitor stores. They did not feel that it would be a good investment to increase more spending in that department. Thus, they decided to cut the department from their company.
Gadgets and More Gadgets learned a lot about their company and their business activities. They learned that a business portfolio analysis allowed them to categorize all of their products and services so that they could see how well they were performing. They were able to see where they should invest more money and where they needed to make cuts. Using the results from the analysis, Gadgets and More Gadgets will be able to make yearly changes and will re-evaluate their products yearly so that they can improve their company.
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