Application of the Fuzzy Weighted Average in Strategic Portfolio Management*

Hence, the focus of this research is to incorporate fuzzy set theory into a portfolio analysis and 3Cs model (customer relations, capabilities, and competencies) to provide a quantitative method to identify the competitiveness of SBUs and the feasibility of strategic plans, respectively. Furthermore, with the results derived from portfolio analysis and 3Cs model together with proper estimations of potential profit and implementation cost for each strategic plan, one can construct and solve an integer linear programming model to determine the strategic plans that best utilize a firm's budget and maximize the net financial payoff generated from implementing these strategic plans. The study is organized as follows. The portfolio matrix concept, 3Cs model, fuzzy set theory, and integer linear programming are introduced. The characteristics of the decision-making problem in determining strategic plans are conveyed. A case study is employed as an example to illustrate the proposed integrated approach. In addition, the implementation procedure of the proposed integrated approach illustrated by using the case firm's data are described. Discussion and analysis are presented. Finally, further research and the conclusions of the research are provided.

LITERATURE REVIEW

The Portfolio Matrix Concept and 3Cs Model

The entire thrust of the competitive analysis concept is based on the underlying assumption that corporate strategy starts with an analysis of competitive position. During the 1970s and early 1980s, a number of leading consulting firms developed the portfolio matrix concept to help managers reach a better understanding of the competitive position of the overall portfolio of businesses (Hax & Majluf, 1983). The most popular three portfolio matrices are: growth-share matrix, GE multifactor portfolio matrix, and life-cycle matrix (Rowe, Mason, & Dickel, 1994). Table 1 briefly summarizes the characteristics of the internal and external dimensions used by each one of the portfolio matrices. The portfolio matrix has been proven to be a powerful tool for companies to analyze products or SBUs and to provide strategic directions (Rowe et al., 1994). In the proposed example, the top managers of the cooperating company chose the GE portfolio matrix as a tool to position the competitive situation of their four SBUs. The GE portfolio matrix is a nine-cell matrix that helps managers understand the competitive position of SBUs and develop an organizational strategy based primarily on Industry Attractiveness (IA) and Business Strength (BS). The former is a subjective assessment based on external factors that are intended to capture the industry and the competitive structure on which the business operates. The latter is a subjective assessment based on the critical success factors that define the competitive position of a business within its industry. Each of these two dimensions is actually a composite of various factors that will be illustrated in the proposed example.