Robinson, C. G.
A icle
Pa e o analysis: Diagnosing in es men s in manage ial
ego
Sou h A ican Jou nal o Business Managemen
P o ided in Coope a ion wi h:
Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica
Sugges ed Ci a ion: Robinson, C. G. (1983) : Pa e o analysis: Diagnosing in es men s in manage ial
ego, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online Scien i ic
In o ma ion Sys ems (AOSIS), Cape Town, Vol. 14, Iss. 3, pp. 109-112,
h ps://doi.o g/10.4102/sajbm. 14i3.1154
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/217835
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Pa e o
analysis:
diagnosing
in es men s
in
manage ial
ego
C.G.
Robinson
School
o Business Leade ship, Uni e si y o Sou h A ica, P e o ia
Manage s
equen ly s a e ha 80%
o
p o i s o sales
a e
de i ed
om 20%
o
he p oduc ange. Though lip se ice is
paid,
he concep o en is no applied
as
a ool o esou ce
alloca ion and disc imina ion be ween a po olio o p oduc s
o
business uni s. This a icle explains how manage s
can
use
he
echnique o Pa e o analysis o iden i y di e en s a egic
ca ego ies as a guide
o
he alloca ion
o
esou ces
and
managemen a en ion.
S.
A .
J.
Bus. Mgm . 1983, 14:
109-112
Bes uu de s
s~
dikwels da 80%
an
wins e
o
e kope
an
20%
an
die p oduk eeks e deel wo d. Hoewel di! dikwels
ges~
wo d, wo d hie die konsep selde oegepas
as
'n me ode
i
hulpb on oewysing
en
onde skeiding ussen
'n
po olio
an
p oduk e o bed y seenhede. Hie die a ikel e duidelik hoe
bes uu de s die egniek
an
Pa e o-analise
kan
geb uik
om
e -
skillende s a egieka ego ie~ e iden i isee
as
'n gids i die
oewysing
an
hulpb onne
en
bes uu saandag.
S.-A .
J.
Bed y sl. 1983,
14:
109-
112
C.G. Robinson
School
o
Business Leade ship, Uni e si y
o
Sou h A ica,
P.O.
Box
392, P e o ia 0001, Republic
o
Sou h A ica.
Accep ed Ap il
1983
In oduc ion
The economis Vil edo Pa e o p oposed a law on dis ibu-
ion
o
income which
is
gene ally ai ly accu a e o abo e
subsis ence incomes. Pa e o's law s a es ha he numbe
o
indi iduals, N, om a gi en popula ion
o
size,
o,
whose
income exceeds x
is
gi en by a powe unc ion
o
he o m
N=~
whe e b
is
a popula ion pa ame e and di e s om popula-
ion o popula ion, a alue
o
app oxima ely
1,5
being com-
mon. (Figu e
1).
In managemen li e a u e he law has been es a ed as he
amilia eigh y/ wen y ule and p o ides a ool o diagno-
sing he co po a e po olio, whe he a he p oduc le el
o
he s a egic business le el. In gene al co po a e plan-
ne s eschew ma hema ics and he b oad concep s behind he
eigh y- wen y ule a e usually applied
in
a non-ma hema ical
o m o segmen p oduc s,
o
SBU's in o s a egic ca ego-
ies. The echnique depends on s a i ying he po olio and
in using he s a i ica ion analysis o pinpoin unp o i able
membe s
o
he po olio. Co ec ly applied he Pa e o,
o
s a i ica ion, analysis can help diagnose in es men s in
manage ial ego ha ough o be phased ou
o
he po olio.
The analysis can be ca ied ou on a single a iable such
as p o i
o
con ibu ion ma gin bu
is
bes ca ied
ou
in
wo dimensions using mo e han one indica o
o
business
success. The po en ial use
o
he echnique
is
bes illus a ed
by conside ing one- and wo-way s a i ica ion analyses.
One-way
Pa e o
analysis
A se
o
sales alues
is
gi en in Table I. Wi h a sho p o-
duc lis as in Table I i
is
ela i ely easy o assess op ically
whe e he majo sales emphasis happens o be. Howe e
wi h la ge p oduc lis s
i
is
no so easy
o
see whe e he
majo sales emphasis happens o be. Managemen uns he
isk
o
spending an ino dina e amoun
o
ime on he less
Table
1 Raw sales
da a
o
one-way Pa e o analysis
P oduc Sales alue S
I
2
3
4
.5
2.5
000
60
000
.5
000
10000
100 000
110
impo an p oduc s p ecisely because he ela i e impo ance
o
he p oduc s on he lis ha e ne e been quan i ied.
One way
o
assessing
he
ela i e emphasis
o
be placed
on p oduc s
is
by compa ing he cumula i e pe cen age
o
p oduc s wi h he cumula i e pe cen age
o
sales.
Table
2 One-way Pa e o analysis on sales da a
1
O,,o
o
Cumula i e
P oduc
Sales
p oduc Cumula i e Cumula i e
P oduc
lis
alue
S
lis
07o
sales sales
"lo
5
200,,o
100
<XX>
20°'8
100
<XX>
50°'8
2
2()079
(i()
<XX>
40%
l(i()
<XX>
80%
20070
25
<XX>
<i0%
185
<XX>
92,5%
4
20070
10
<XX>
80%
195
<XX>
97,5%
3
208lo
5
<XX>
1000/o
200
<XX>
100%
Table 2 gi es
he
one-way
Pa e o
analysis. 1 Fi s ly
he
p oduc s a e anked in o de
o
sales. As he e a e i e p o-
duc s, each p oduc
is
one i h
o
he
p oduc
lis
o
200'/o.
The cumula i e p oduc sales a e he e o e
200'/o,
400'/o
and
so on. The sales a e cumula ed
and
a cumula i e sales pe -
cen age
is
wo ked ou . A
Pa e o
cu e
is
plo ed ela ing
cumula i e sales
o
cumula i e p oduc lis .
The
esul
is
he
amilia (eigh y/ wen y) cu e gi en in Figu e
I.
100%
90
80
"'
70
...
-'
C
60
"'
...
Cl
C
50
...
z
...
..,
a::
40
...
....
...
~
30
...
C
-'
::,
20
lC
::,
..,
10
0%
O:
10
20
30
40
50
60
70
80
90
CUMULATIVE
PERCENTAGE
PRODUCT
LIST
Flp e 1 Pa e o cu e o
sales
da a
100
In gene al cos s, expenses, sales by a ea, sales by cus ome
and
so
on
will esul in a
Pa e o
cu e such as
ha
gi en
in Figu e I. App oxima ely
200Jo
o
he p oduc lis will
gene a e
800'/o
o
he
sales.
The objec i e
o
he exe cise
is
o
ind
ou
whe e manage-
men should be ocussing i s a en ion.
Fo
example i may
be a mo e meaning ul
o
p ess o a
100'/o
inc ease in sales
olume wi h a p oduc ha gene a es
500'/o
o
he sales
han
S.-A . Tydsk . Bed y sl.
1983,
14(
3)
y o a
500'/o
inc ease in sales wi h a
p oduc
ha gene a es
only
30'/o
o
sales.
In
ac
he
low olume p oduc s should
be ca e ully sc u inized wi h ega d
o
hei emaining
in
he
po olio
a
all, pa icula ly
i
hey consume
la ge
amoun s
o
managemen
ime, inance
o
o he esou ces.
When
dealing wi h la ge
numbe s
o
p oduc s
i
helps
o
es ablish a classi ica ion sys em. I
is
ypical
o
use a h ee
way classi ica ion
in o
A,
B
and
C p oduc s,
o
businesses.
Somewha a bi a ily,
p oduc s
can
be de ined:
• as A p oduc s
i
hey help con ibu e owa d he i s
75"7o
o
sales,
• as B
p oduc s
i
hey help
con ibu e
o
he nex
15%
o
sales, alling be ween
750'/o
and
900'/o,
and
• as C
p oduc s
i
hey
con ibu e
o
he
las
100'/o
o
sales.
This classi ica ion
is
pu ely
a bi a y
and
a ma e o
judgemen . Dependen
on
he
planning ci cums ances
i
may
be
necessa y
o
use a
cu -o
o
A
p oduc s
a
70%,
SO"lo
o
some
o he
alue,
and
a
cu -o
o
B p oduc s a
80%,
850'/o
o
some
o he
alue.
This
is
illus a ed by Figu e
2.
100
90
-------------
---
B I
80
----------
------
'2
I
"'
70
...
-'
C
"'
...
60
Cl
C
...
z
50
...
..,
a::
...
....
40
...
~
...
30
C
-'
::,
lC
::,
20
..,
10
0%
0%
10
20
30
40
50
60
70
80
CUMULATIVE
PERCENTAGE
PRODUCT
LIST
Figu e
2 P oduc classi ica ion on he Pa e o cu e
3
90
100
On
Figu e 2
p oduc
5 alone does
no
gene a e
750'/o
o
sales, only
500'/o,
which
is
conside ably less
han
750'/o.
By
cu ing
a
800'/o
p oduc s 5
and
2
a e
included as A ca ego y
p oduc s.
To
ge
any
B ca ego y
p oduc s
i
is
necessa y o
cu
a
92,50'/o
which hen includes
p oduc
I as a B ca ego y
p oduc .
P oduc s
4
and
3
a e
C ca ego y p oduc s. The
ca ego iza ion
is
hen
Ca ego y
A
B
C
P oduc s
5,2
I
4,3
The
esul s
o
he
one
way
Pa e o
analysis
a e
al eady
enough
o
begin
o
ask
p obing
ques ions ega ding he
s a us
o
he
C ca ego y
p oduc s
o
businesses. Indeed he
e y a ionale behind hei exis ence should be unde i e.
s.
A .
J.
Bus.
Mgm .
1983,
14(3)
The
use
o
one-way Pa e o analysis
is
o
g ea
use
in
answe ing
ques ions on he
le el
and ype
o
in en o y o
be
ca ied.
When
allied wi h concep s
such
as s a ic
ma ginal
analysis,
2
in
which powe ul p o i abili y
o
se ice indices
can
be
gene a ed, Pa e o analysis allows o policy s a e-
men s
on
in en o y holding
le els
a he unc ional a ea
le el
and
s a egic s a emen s a he co po a e
le el.
Inadequa e
a emp s
seem
o ha e been made o
use
he echnique
on
app op ia e indices o help
in
s a egic planning
o
se ice
indus ies.
Many po en ial applica ions mus exis ,
in
a eas
such
as
banking and insu ance, i
well
designed
a ios
e lec-
ing
p o i abili y, se ice
le el
and
so
on can
be
calcula ed.
E en
mo e insigh
is
made possible by using mo e han one
index
o
me i : This leads na u ally o he concep
o
wo-
way
Pa e o analysis.
Two-way
Pa e o
analysis
I
is
possible o ca y ou Pa e o analyses
in
mo e han one
dimension.
The s a i ica ion
in
wo dimensions
is
used
o
c i ically
examine a po olio
o
p oduc s o businesses. A
wo-way
Pa e o analysis
is
simply composed
o
wo
one-way
Pa e o analyses and a ma ix ep esen a ion
o
he p oduc
ca ego ies.
Da a
on
sales
by
p oduc class and con ibu ion o p o-
i s
a e
gi en
in Table
3.
In Table 4 a one-way Pa e o
analysis
by
sales alue
is
gi en and Table S
gi es
a one-way
Pa e o analysis by p o i con ibu ion. Figu es 3 and 4
g aphically po ay he esul s
o
he wo analyses.
Table
3 Raw sales olume and p o i con ibu ion
da a o a wo-way Pa e o analysis ·
Sales Con ibu ion
P oduc
class
S's
o p o i s
I
6000
2900
2 8 000 3 000
3 2 000 I 000
4 3 000 I 000
s II 000
4000
6
4000
2000
7 I 000
400
8 S 000 l
soo
In
Table 4 and Figu e 3, he analysis by p oduc class,
cu -o alues
o
750/o
and
92,50/o
gi e
he ollowing ca e-
go ies:
-ca ego y A
-ca ego y B
-ca ego y C
p oduc s
5;
2;
I;
8;
p oduc s 6; 4;
p oduc s
3;
7.
Using
he same cu -o alues
o
750/o
and
92,50/o,
o
he
analysis
by con ibu ion, he
ollowing
ca ego ies
eme ge
om
Table 5 and Figu e
3:
-ca ego y A
-ca ego y B
-ca ego y C
p oduc s
S;
2;
I;
6;
p oduc s
8;
4;
p oduc s
3;
7.
. The esul s
o
he wo-way Pa e o analysis a e
gi en
in
Figu e
5.
The posi ion
o
each p oduc
is
g aphically po -
111
Table
4
One-way
Pa e o analysis by sales olume
Pe cen age
Pc c:en age
o
Cumula i e Cumula i e
o
P oduc
p oduc
lis
Sales
Illa
cumula i e
class
lis
pe cen age
alue
alue
Illa
s
12,S'!
12,S'l
II
CXX>
II
000
27,S'II
2
12,51
25,0'l
8
(XX)
19
(XX)
49,7'1
I
12,S'1
37,51
6000
25
(XX)
62,S'l
8
12,.5'1
50,0'/o
s
(XX)
30
(XX)
7S,O'l
6
12,S'lo
62,S'l
4
(XX)
34
(XX)
85,0'l
4
12,S'!
7S,O'l
3
(XX)
37
(XX)
92,S'1
3
12,S /1
87,S'II
2000
39
CXX>
97,S'l
7
12,.5'11
100,0'!
I
CXX>
40000
100,00'l
Table 5
One-way
Pa e o analysis
by
p o i
con ibu ion
PCRlell qc
o
Cumula i e
Pc cen qc
P oduc p oduc
lis
P o
Cumula i e
cumula i e
dass
lis
pe ccn qc
com ibu ion
con ibu ion
llOlll ibu ion
s
12,S'l
12,S'7e
4000 4000
2S,0'7e
2
12,5'7e
25,0'l 3
000
7000
44,0'7e
I
12,S'l
37,S'7e
2900 9
900
67,9"'
6
12,S'7e
50,0'lo
2000 II
900
74,4'11
8
12,S'7e
62,S'7e
I
500
13400 83,8"'
4
12,S'l'I
75,0'7e
1200
14600
91,3'11
3
12,5'11
87,S'l'
I
000
IS600
97,5'11
7
12,5'11
100,0'7e
400
16000
100,0'l
100
7
go
-----------------i -
".",·!,<-
--
--
_!:_.
y I
"'
...
..,
~
...
5
~
z
~
"
'"'
...
...
...
>
•
_,,.
B !
, I
-------------
------~
A
0%
10
20
30
40
50 60
70
80
go
IOOY
CUIIULATIVE
PERCENTAGE
PRODUCT
LIST
Fip e 3
One-way
Pa e o
analysis
by
sales
alue
ayed on he g id. Insigh in o he posi ioning
o
each p o-
duc
can
be
ob ained om he g id.
• P oduc s
5,
2 and 1
a e
majo
selle s
and con ibu e
mos
o
p o i s. They
should
be
examined
ca e ully
as
hey
may
be
ulne able
o
compe i i e
a ack.
Con e sely,
hey
may
highligh majo compe i i e s eng hs o be exploi ed
u he .
112
100
90
z
0
;::
80
:,
!!!
a:
70
...
z
0
u
~
60
...
0
a:
50
0.
...
C,
C
40
...
z
...
u
a:
30
...
0.
...
~
20
...
C
...,
:,
10
E
:,
u
CUMULATIVE
PERCENTAGE
PRODUCT
LIST
Flp e 4
One-way
Pa e o analysis by p o i con ibu ion
A
A 5 ,2, 1
>
CONTRIBUTION
CATEGORY
8
8
C
! 8 6 4
§
"'
i 3,7
Flp e 5 Two-way Pa e o analysis by sales
and
con ibu ion
• P oduc 4
is
an a e age selle and an a e age con ibu o .
I
i has been on he p oduc lis o some ime i may
me i a e-e alua ion
in
e ms
o
b and enhancemen
o
some o m
o
p oduc eposi ioning. I may need phas-
ing ou and should be checked
o
see ha i does no use
oo much
o
managemen 's a en ion.
I
i
is
a new addi-
ion o he p oduc line and a po en ial AA ca ego y p o-
duc i should be managed and unded in he ace
o
com-
pe i i e ac ion.
S.-A . Tydsk .
Bed y sl.
1983,
14(3)
• P oduc s 3
and
7 should be phased ou
o
simply
aban-
doned unless he e
is
a good eason o keeping
hem.
Excep ions may be he case
o
a newly launched p oduc
o
a p oduc essen ial
o
main ain he size
o
he p oduc
line. The p oduc line should be u hlessly p uned o
lose s which abso b managemen a en ion
unnecessa i-
ly.
All in es men s
in
manage ial ego ha ha e
ne e ,
and
will ne e , con ibu e should be winnowed om he p o-
duc po olio .
A
he same ime i is necessa y
o
sound a
wo d
o
cau ion. I
is
possible o be caugh in he depa men
s o e
pa adox, whe e a e igo ous p uning
o
all
non-e ec i e
depa men s he p op ie o wakes up
o
he ac ha
he
no
longe has a depa men s o e. P uning can
be
o e done .
• P oduc 6
is
an
a e age selle
and
an
excellen p o i
con-
ibu o . I may be ulne able
o
compe i i e a ack
pa -
icula ly i i has c ea ed a p ice umb ella
by
gene a ing
e y high ma gins.
I
is
a key p oduc o ma ke
de elop-
men
and
consolida ion
i
he ma ke
is
g owing.
In
a
ma u e
o
declining ma ke i indica es ha a co ec
ha es ing s a egy
is
being ca ied ou .
• P oduc 8
is
an excellen selle bu an a e age con ibu o
o p o i s.
The
p oduc may wa an a p ice inc ease,
unless p ice discoun ing
is
consciously being ca ied ou
o
imp o e ma ke sha e. Me hods
o
imp o ing
ma gins
by quali y con ol, epackaging
o
mino p oduc
en-
hancemen may
be
called o .
Conclusions
One-way Pa e o analysis p o ides a g aphical me hod o
quan i ying he ela i e pe o mance
o
a po olio
o
p o-
duc s
o
businesses. P oduc s,
o
businesses, a e ca ego iz-
ed dependen
on
how he p oduc
is
posi ioned by compa -
ing he sales, p o i con ibu ion
o
any o he meaning ul
a iables o he o al ange
o
p oduc s. S a egic
ca ego ies
o
p oduc s a e de i ed.
By using a wo-dimensional g id each axis
o
which
has
been di ided in o s a egic ca ego ies using a Pa e o
Analysis
i
is
possible
o
gain deepe insigh s in o he posi ioning o
p oduc s. Pe inen ques ions can be gene a ed and a
balance ound be ween managemen ime
and
p oduc
pe -
o mance. The s a egic in en is
o
diagnose in es men s
in manage ial ego.
Re e ences
I. MacMillan, I.C. Pa e o Analysis, Teaching No e No. 100/76,
School
o
Business Leade ship, Uni e si y
o
Sou h A ica,
P e o ia, 1976. (Copy igh UNISA)
2. Ka ,
H.W.
and
Geisle ,
M.A.
A F ui ul Applica ion
o
S a ic
Ma ginal Analysis, Rand
Co po a ion,
San a
Monica, 1971.