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CORPORATE-LEVEL STRATEGY

CORPORATE-LEVEL STRATEGY. THREE KEY ISSUES FACING THE CORPORATION… THE FIRM’S ORIENTATION TOWARD GROWTH, STABILITY, AND RETRENCHMENT (Directional Strategy) THE INDUSTRIES OR MARKETS IN WHICH THE FIRM COMPETES (Portfolio Strategy)

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CORPORATE-LEVEL STRATEGY

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  1. CORPORATE-LEVEL STRATEGY THREE KEY ISSUES FACING THE CORPORATION… • THE FIRM’S ORIENTATION TOWARD GROWTH, STABILITY, AND RETRENCHMENT (Directional Strategy) • THE INDUSTRIES OR MARKETS IN WHICH THE FIRM COMPETES (Portfolio Strategy) • THE MANNER IN WHICH MANAGEMENT COORDINATES ACTIVITIES AND TRANSFERS RESOURCES AND CULTIVATES CAPABILITIES AMONG PRODUCT LINES AND BUSINESS UNITS (Parenting Strategy) Corporate headquarters must play the “parent” as it deals with its various lines of business (children).

  2. CORPORATE GROWTH STRATEGIES CONCENTRATION • HORIZONTAL INTEGRATION • GEOGRAPHIC EXPANSION • Local, Regional, National, Global • INCREASING THE RANGE OF PRODUCTS and/or SERVICES • VERTICAL INTEGRATION • BACKWARD Long-Term Contracts Quasi-integration Tapered Integration Full Integration • FORWARD DIVERSIFICATION • CONCENTRIC Related • CONGLOMERATE Unrelated

  3. GROWTH-ENTRY STRATEGIES DOMESTIC ENTRY INTERNAL DEVELOPMENT & EXPANSION EXTERNAL ACQUISITIONS & MERGERS STRATEGIC ALLIANCES & PARTNERSHIPS Licensing, Franchises, Joint Ventures INTERNATIONAL ENTRY EXPORTING LICENSING FRANCHISING JOINT VENTURES ACQUISITIONS GREEN-FIELD DEVELOPMENT PRODUCTION SHARING TURNKEY OPERATIONS MANAGEMENT CONTRACTS

  4. WHEN ARE GROWTH STRATEGIES LOGICAL? COMPETITIVE POSITION WEAK STRONG - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - RAPIDREFORMULATE HORIZONTAL HORIZ & VERTICAL INTEGRATION INTEGRATION VERTICAL DIVERSIFICATION INTEGRATION SELL-OUT/DIVEST CONCENTRIC DIVERSIFICATION MARKET - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - GROWTH RATEDIVERSIFICATION INTERNATIONAL EXPANSION CAPTIVE FIRM/MERGE DIVERSIFICATION ABANDONMENT SLOW JOINT VENTURE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

  5. WHEN IS DIVERSIFICATION LOGICAL? DON’T DIVERSIFY UNLESS… SYNERGY IS ACHIEVED SHAREHOLDER VALUE IS BUILT CONCENTRIC DIVERSIFICATION FINDING A SYNERGISTIC “FIT” Marketing Operations Management MERGING THE FUNCTIONS CONGLOMERATE DIVERSIFICATION FIND FIRMS WHOSE ASSETS ARE UNDERVALUED FIND FIRMS THAT ARE FINANCIALLY DISTRESSED FIND FIRMS WITH BRIGHT PROSPECTS BUT ARE SHORT ON $$$

  6. CONGLOMERATE (UNRELATED) DIVERSIFICATION PROS… 1--BUSINESS RISK IS SCATTERED OVER MANY INDUSTRIES 2--CAN INVEST CAPITAL IN WHATEVER OFFERS THE BEST PROFIT PROSPECTS 3--PROFITABILITY IS MORE STABLE BECAUSE HARD TIMES IN ONE INDUSTRY CAN BE PARTIALLY OFFSET BY GOOD TIMES IN ANOTHER 4--IF CORPORATE MANAGERS ARE GOOD AT SPOTTING BARGAIN-PRICED FIRMS WITH BIG UPSIDE PROFIT POTENTIAL, SHAREHOLDER WEALTH WILL BE ENHANCED CONS… 1--TOP MANAGEMENT COMPETENCE Can they tell a good acquisition from a bad one? Can they select good managers to run each business? Do they know what to do if a business unit stumbles? 2--DIVERSIFICATION DOES NOTHING TO ENHANCE THE COMPETITIVE STRENGTH OF INDIVIDUAL BUSINESS UNITS Each business unit is on it own No corporate synergy can be achieved 3--ARE THE FIRM’S PROFITS MORE STABLE? Do the “up and down” cycles cancel out? 4--HOW MUCH DIVERSITY CAN THE FIRM MANAGE SUCCESSFULLY? How broad should our portfolio be?

  7. COMBINATION DIVERSIFICATION STRATEGIES ONE MAJOR CORE BUSINESS …With a modest diversified portfolio (1/3 or less) NARROWLY DIVERSIFIED …With a few (2-5) related core business units …With a few (2-5) unrelated business units BROADLY DIVERSIFIED …With many related business units …With many business units in mostly unrelated industries A MULTI-BUSINESS FIRM …With several unrelated groups of related businesses

  8. POST-DIVERSIFICATION STRATEGIES MAKE NEW ACQUISITIONS Related or Unrelated? DIVEST SOME BUSINESS UNITS Poor Performers? Poor Strategic “Fit?” RESTRUCTURE THE WHOLE PORTFOLIO NARROW THE DIVERSIFICATION BASE BECOME A DIVERSIFIED MULTINATIONAL, MULTI-INDUSTRY COMPANY (DMNC)

  9. CORPORATE STABILITY STRATEGIES PROFIT “Keep milking the cow, but don’t feed it” Artificially supporting profits by cutting costs Keeping up appearances that everything is still OK A temporary strategy for a worsening environment PAUSE Consolidate after recent rapid growth A temporary strategy to “catch your breath” PROCEED WITH CAUTION Environment looks scary…wait to see what happens NO-CHANGE A very predictable environment…nothing uncertain ever happens Why tamper with success? What firms did before WalMart came…

  10. CORPORATE RETRENCHMENT STRATEGIES OFTEN TRIGGERED BY… DISAPPOINTING PERFORMANCE ECONOMIC DOWNTURN EXCESSIVE DEBT ILL-CHOSEN ACQUISITIONS TURNAROUND Help subsidiaries become profitable Belt-tightening and consolidation CAPTIVE COMPANY Give up independence for security…sell mostly to one large customer “angel” Can scale back on some functions, like marketing SELL-OUT/DIVEST Sell the entire operation to someone as an ongoing business Divest a healthy firm that doesn’t fit our portfolio…or a low-producing business LIQUIDATION The last resort…no one wants to buy the entire business The assets are worth more than the business…so they’re sold piece by piece

  11. EVALUATING DIVERSIFIED PORTFOLIOS THE BCG GROWTH-SHARE MATRIX (Boston Consulting Group) DIMENSIONS Industry Growth Rate Compared to GDP Relative Market Share Uses ratios instead of absolute market shares CLASSIFICATIONS Question Marks (or Problem Children or Wildcats) Stars Cows Dogs ADVANTAGES & IMPLICATIONS It is quantifiable and easy to use Easy to remember terms and their meaning when referring to business units Assumes large market shares => economies of scale => cost leadership Each business unit moves across the matrix in predictable ways over time Focuses attention on cash flows and needs

  12. WEAKNESSES IN THE BCG GROWTH-SHARE MATRIX TOO SIMPLISTIC—IT ONLY HAS A FOUR-CELL MATRIX WHERE DO “AVERAGE” BUSINESSES BELONG? PREJUDICIAL CLASSIFICATION SCHEME DOGS & PROBLEM CHILDREN v. STARS & COWS…VERY BIASED TERMS THE TRENDS & MOVEMENTS OF THESE UNITS SEEM MORE IMPORTANT IS HIGH INDUSTRY GROWTH ALWAYS GOOD? DOES HIGH MARKET SHARE ALWAYS MEAN HIGH PROFITABILITY? FIRMS CAN LOSE MONEY WHILE HOLDING A LARGE MARKET SHARE LOW-SHARE BUSINESSES CAN ALSO BE PROFITABLE ONLY CONSIDERS RELATIONSHIP TO THE MARKET LEADER—WHILE OTHERS ARE IGNORED WHAT ABOUT SMALL COMPETITORS WITH FAST-GROWING MARKET SHARES? GROWTH RATE IS ONLY ONE ASPECT OF INDUSTRY ATTRACTIVENESS MARKET SHARE IS ONLY ONE ASPECT OF OVERALL COMPETITIVE POSITION

  13. THE BCG GROWTH-SHARE MATRIX RELATIVE MARKET SHARE HIGH 1.0 LOW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - HIGHSTARS QUESTION MARKS INDUSTRY1.0- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - GROWTH RATE COWS DOGS LOW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - RELATIVE MARKET SHARE Your market share divided by largest rival’s share INDUSTRY GROWTH RATE Industry growth percentage compared to GDP SIZE OF CIRCLES The significance (revenues) of each SBU to the firm

  14. THE GE BUSINESS SCREENTHE INDUSTRY ATTRACTIVENESS / BUSINESS STRENGTH MATRIX TWO DIMENSIONS (McKinsey & Co) Industry Attractiveness MARKET SIZE & GROWTH RATE INDUSTRY PROFITABILITY INTENSITY OF COMPETITION BARRIERS TO ENTRY / EXIT SEASONALITY / CYCLICALITY TECHNOLOGICAL & PRODUCT CONSIDERATIONS CAPITAL REQUIREMENTS EMERGING OPPORTUNITIES & THREATS SOCIAL, ENVIRONMENTAL, & POLITICAL FACTORS STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS Business Strength / (Competitive Position) RELATIVE MARKET SHARE RELATIVE PRICE, QUALITY, & SERVICE v. RIVALS PROFIT MARGINS and COST POSITION v. RIVALS KNOWLEDGE OF CUSTOMERS & MARKETS TECHNOLOGICAL CAPABILITY & LEADERSHIP FINANCIAL & PHYSICAL RESOURCES CALIBER OF MANAGEMENT & STAFF COMPETENCIES MATCH KEY SUCCESS FACTORS

  15. THE GE BUSINESS SCREEN BUSINESS STRENGTH / COMPETITIVE POSITION STRONG AVERAGE WEAK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - HIGHWINNER WINNER QUESTION MARK LONG-TERM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - INDUSTRYAVERAGE WINNER AVERAGE LOSER ATTRACTIVENESS BUSINESS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PROFIT LOSER LOSER LOW PRODUCER - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - INDIVIDUAL PRODUCT LINES Identified by letter SIZE OF EACH CIRCLE Represents the total revenues in the industry PIE SLICES Represents your share of that market

  16. PROS & CONS OF THE GE BUSINESS SCREEN STRENGTHS USES MORE COMPREHENSIVE MEASURES / VARIABLES IN ASSESSING INDUSTRY ATTRACTIVENESS AND BUSINESS STRENGTH / COMPETITIVE POSITION DOESN’T LEAD TO AS SIMPLISTIC CONCLUSIONS AS THE BCG GRID NINE CELL APPROACH ALLOWS FOR INTERMEDIATE RANKINGS BETWEEN HIGH/LOW AND STRONG/WEAK STRESSES CHANNELING OF RESOURCES TO AREAS WITH THE GREATEST PROBABILITY OF ACHIEVING COMPETITIVE ADVANTAGE AND SUPERIOR PERFORMANCE WEAKNESSES PROVIDES NO REAL GUIDANCE ON THE SPECIFICS OF WHAT STRATEGY TO FOLLOW … IT’S TOO GENERAL CAN’T SPOT UNITS THAT ARE ABOUT TO BECOME WINNERS BECAUSE THEIR INDUSTRIES ARE ENTERING THE TAKEOFF STAGE USE OF NUMERIC ESTIMATES SEEMS OBJECTIVE, BUT IS REALLY VERY SUBJECTIVE SHOULD THE WEIGHTS & FACTORS USED TO ASSESS INDUSTRY ATTRACTIVENESS AND BUSINESS POSITION BE USED GENERICALLY, OR ADJUSTED DEPENDING ON THE INDUSTRY UNDER INVESTIGATION?

  17. THE HOFER LIFE-CYCLE MARKET EVOLUTION MATRIX TWO DIMENSIONS (Charles Hofer & A. D. Little, Co) Stage of Industry / Market Evolution EARLY DEVELOPMENT RAPID GROWTH / TAKE-OFF SHAKE-OUT MATURITY / SATURATION DECLINE / STAGNATION Business Strength / (Competitive Position) SAME DIMENSIONS AS USED IN THE GE BUSINESS SCREEN ADVANTAGES Can be used to identify and track developing winners Illustrates how the firm’s businesses are distributed across the stages of industry evolution

  18. THE HOFER LIFE-CYCLE MARKET EVOLUTION MATRIX BUSINESS STRENGTH / COMPETITIVE POSITION STRONG AVERAGE WEAK EARLY - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - DEVELOPMENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - STAGE OF RAPID GROWTH / TAKE-OFF INDUSTRY / MARKET - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - SHAKE-OUT EVOLUTION - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - MATURITY / SATURATION - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - DECLINE / STAGNATION - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREEN Except for the Stage of Market Evolution, this model is identical to the GE Business Screen

  19. IN SUMMARY: USING PORTFOLIO ANALYSISPROS AND CONS STRENGTHS ENCOURAGES TOP MANAGEMENT TO EVALUATE EACH LINE OF BUSINESS SEPARATELY, AND TO SET OBJECTIVES AND ALLOCATE RESOURCES TO EACH. IT STIMULATES THE USE OF EXTERNALLY-ORIENTED DATA TO SUPPLEMENT MANAGEMENT’S JUDGMENT RAISES THE ISSUE OF CASH FLOW AVAILABILITY FOR USE IN EXPANSION AND GROWTH GRAPHICALLY COMMUNICATES THE MIX OF BUSINESSES THE FIRM HAS INVESTED IN WEAKNESSES DEFINING PRODUCT / MARKET SEGMENTS IS DIFFICULT IT SUGGESTS STANDARD STRATEGIES THAT CAN MISS OPPORTUNITIES OR BE IMPRACTICAL PROVIDES AN ILLUSION OF SCIENTIFIC RIGOR, WHEN POSITIONS ARE REALLY BASED ON SUBJECTIVE JUDGMENTS VALUE-LADEN TERMS (cow, dog) LEAD TO SIMPLISTIC STRATEGIES AND SELF-FULFILLING PROPHESIES ITS NOT ALWAYS CLEAR WHAT MAKES AN INDUSTRY ATTRACTIVE OR WHERE A PRODUCT IS IN ITS LIFE CYCLE NAIVELY FOLLOWING PORTFOLIO PRESCRIPTIONS MAY REDUCE PROFITS –DOGS CAN MAKE MONEY!

  20. HOW TO APPLY PORTFOLIOS IN YOUR ANALYSISTHE NON-QUANTITATIVE APPROACH COMPARING INDUSTRY ATTRACTIVENESS ATTRACTIVENESS OF EACH INDUSTRY IN THE PORTFOLIO Is this a good industry for our organization to be in? EACH INDUSTRY’S ATTRACTIVENESS RELATIVE TO THE OTHERS Which industries are the most / least attractive? ATTRACTIVENRSS OF ALL THE INDUSTRIES AS A GROUP How appealing is the mix of industries? Is the portfolio a “good” one? TO DETERMINE INDUSTRY ATTRACTIVENESS 1--USE GE BUSINESS SCREEN METHODOLOGY 2--SUBJECTIVELY CLASSIFY EACH INDUSTRY FACTOR INTO ONE OF THREE CATEGORIES… HIGHLY ATTRACTIVE AVERAGE NOT ATTRACTIVE

  21. EVALUATING INDUSTRY ATTRACTIVENESS(UNWEIGHTED) INDUSTRY FACTORCLASSIFIED AS MARKET SIZE & GROWTH RATE AVERAGE INDUSTRY PROFITABILITY ATTRACTIVE INTENSITY OF COMPETITION UNATTRACTIVE BARRIERS TO ENTRY/EXIT UNATTRACTIVE SEASONALITY/CYCLICALITY AVERAGE TECHNOLOGY & PRODUCT CONSIDERATIONS AVERAGE CAPITAL REQUIREMENTS UNATTRACTIVE EMERGING OPPORTUNITIES & THREATS AVERAGE SOCIAL, REGULATORY, & POLITICAL FACTORS AVERAGE STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS ATTRACTIVE OVERALL EVALUATION = AVERAGE

  22. EVALUATING INDUSTRY ATTRACTIVENESS(NUMERIC, UNWEIGHTED) ASSIGN A NUMBER TO EACH INDUSTRY FACTOR USING THE FOLLOWING SCHEME… UNATTRACTIVE = 0, 1, 2, 3 AVERAGE = 4, 5, 6 ATTRACTIVE = 7, 8, 9, 10 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - INDUSTRY FACTORASSIGNED NUMBER MARKET SIZE & GROWTH RATE 6 INDUSTRY PROFITABILITY 9 INTENSITY OF COMPETITION 2 BARRIERS TO ENTRY/EXIT 3 SEASONALITY/CYCLICALITY 6 TECHNOLOGY & PRODUCT CONSIDERATIONS 5 CAPITAL REQUIREMENTS 1 EMERGING OPPORTUNITIES & THREATS 5 SOCIAL, REGULATORY, & POLITICAL FACTORS 4 STRATEGIC FIT WITH OTHER LINES OF BUSINESS 8 OVERALL EVALUATION = 49/10 = 4.9 = AVERAGE

  23. EVALUATING INDUSTRY ATTRACTIVENESS(NUMERIC, WEIGHTED) 1--ASSIGN WEIGHTS TO EACH INDUSTRY FACTOR (Must add up to 100%) 2--THEN ASSIGN NUMBERS TO EACH FACTOR USING THE FOLLOWING SCHEME… UNATTRACTIVE = 0 - 3 AVERAGE = 4 - 6 ATTRACTIVE = 7 - 10 3--MULTIPLY WEIGHTS BY NUMBERS TO DETERMINE THE WEIGHTED SCORE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - WEIGHTINDUSTRY FACTORASSIGNED NUMBER .10 MARKET SIZE & GROWTH RATE 6 .10 INDUSTRY PROFITABILITY 9 .15 INTENSITY OF COMPETITION 2 .05 BARRIERS TO ENTRY/EXIT 3 .05 SEASONALITY/CYCLICALITY 6 .08 TECHNOLOGY & PRODUCT CONSIDERATIONS 5 .12 CAPITAL REQUIREMENTS 1 .10 EMERGING OPPORTUNITIES & THREATS 5 .10 SOCIAL, REGULATORY, & POLITICAL FACTORS 4 .15 STRATEGIC FIT WITH OTHER LINES OF BUSINESS 8 OVERALL EVALUATION = 4.87 = AVERAGE

  24. EVALUATING BUSINESS STRENGTH / COMPETITIVE POSITION(UNWEIGHTED) USE THE FOLLOWING SCHEME TO CLASSIFY EACH BUSINESS STRENGTH FACTOR… STRONG AVERAGE WEAK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BUSINESS STRENGTH FACTORCLASSIFIED AS OUR RELATIVE MARKET SHARE STRONG OUR RELATIVE PRICE v. RIVALS AVERAGE OUR QUALITY & SERVICE v. RIVALS AVERAGE OUR RELATIVE COST POSITION v. RIVALS STRONG OUR PROFIT MARGINS v. RIVALS STRONG KNOWLEDGE OF CUSTOMERS & MARKETS AVERAGE TECHNOLOGICAL CAPABILITY / LEADERSHIP WEAK FINANCIAL & PHYSICAL RESOURCES AVERAGE CALIBER OF MANAGEMENT & STAFF STRONG COMPETENCIES MATCH KEY SUCCESS FACTORS AVERAGE OVERALL EVALUATION = AVERAGE to STRONG

  25. EVALUATING COMPETITIVE BUSINESS STRENGTH(NUMERIC, UNWEIGHTED) ASSIGN NUMBERS TO EACH BUSINESS STRENGTH FACTOR …USE THE FOLLOWING… WEAK = 0, 1, 2, 3 AVERAGE = 4, 5, 6 STRONG = 7, 8, 9, 10 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - INDUSTRY FACTORASSIGNED NUMBER RELATIVE MARKET SHARE 7 RELATIVE PRICE v. RIVALS 5 QUALITY & SERVICE v. RIVALS 6 RELATIVE COST POSITION v. RIVALS 8 PROFIT MARGINS v. RIVALS 8 KNOWLEDGE OF CUSTOMERS & MARKETS 5 TECHNOLOGICAL CAPABILITY & LEADERSHIP 2 FINANCIAL & PHYSICAL RESOURCES 4 CALIBER OF MANAGEMENT & STAFF 8 COMPETENCIES MATCH KEY SUCCESS FACTORS 6 OVERALL EVALUATION = 59/10 = 5.9 = AVERAGE

  26. EVALUATING COMPETITIVE BUSINESS STRENGTH(NUMERIC, WEIGHTED) 1--ASSIGN WEIGHTS TO EACH COMPETITIVE FACTOR (Must add up to 100%) 2--THEN ASSIGN NUMBERS TO EACH FACTOR USING THE FOLLOWING SCHEME… WEAK = (0 – 3) AVERAGE = (4 – 6) STRONG = (7 – 10) 3--MULTIPLY WEIGHTS BY NUMBERS TO DETERMINE THE WEIGHTED SCORE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - WEIGHTCOMPETITIVE BUSINESS STRENGTHASSIGNED NUMBER .08 RELATIVE MARKET SHARE 7 .08 RELATIVE PRICE v. RIVALS 5 .15 QUALITY & SERVICE v. RIVALS 6 .12 RELATIVE COST POSTION v. RIVALS 8 .06 PROFIT MARGINS v. RIVALS 8 .15 KNOWLEDGE OF CUSTOMERS & MARKETS 5 .05 TECHNOLOGICAL CAPABILITY / LEADERSHIP 2 .10 FINANCIAL & PHYSICAL RESOURCES 4 .06 CALIBER OF MANAGEMENT & STAFF 8 .15 COMPETENCIES MATCH KEY SUCCESS FACTORS 6 OVERALL EVALUATION = 5.93 = AVERAGE

  27. COMPARING BUSINESS UNIT PERFORMANCE WHICH BUSINESS UNITS HAVE THE BEST/WORST PERFORMANCE? ASSESS THE TRENDS RE: Sales Growth Profit Growth Contribution to Company Earnings Return on Capital Invested in the Business (ROA) Cash Flow Generated STRATEGIC FIT ANALYSIS STRATEGIC ATTRACTIVENESS Does this business have cost-sharing or skills-transfer opportunities? FINANCIAL ATTRACTIVENESS Does this business contribute to corporate performance objectives? RANK THE BUSINESS UNITS ON INVESTMENT PRIORITY Which units should get the highest priority regarding financial support?

  28. COMPARING BUSINESS UNIT PERFORMANCEA SIMPLE EXAMPLE UNIT AUNIT BUNIT CUNIT D SALES GROWTH .018 .068 .102 .071 GROWTH IN PROFITS .032 .062 .103 .044 CONTRIBUTION TO CORP EARNINGS (Omit 000s) $ 70 $554 $ 29 $237 RETURN ON ASSETS .072 .124 .088 .096 GENERATED CASH FLOWS $234 $611 $ 28 $342 (Omit 000s) STRATEGICALLY ATTRACTIVE No Yes Yes No FINANCIALLY ATTRACTIVE Yes Yes No Yes INVESTMENT PRIORITY 4 1 2 3

  29. CRAFTING A CORPORATE STRATEGYBY EVALUATING YOUR PORTFOLIO MATRIX • DOES THE PORTFOLIO HAVE ENOUGH BUSINESSES IN ATTRACTIVE INDUSTRIES? • DOES THE PORTFOLIO CONTAIN TOO MANY MARGINAL BUSINESSES OR QUESTION MARKS? • DOES THE CORPORATION HAVE ENOUGH CASH COWS TO FINANCE THE STARS AND EMERGING WINNERS? • DO THE CORE BUSINESSES GENERATE DEPENDABLE PROFITS OR CASH FLOWS? • IS THE PORTFOLIO VULNERABLE TO SEASONAL OR RECESSIONARY INFLUENCES? • DOES THE PORTFOLIO CONTAIN BUSINESSES THAT THE CORPORATION DOESN’T NEED TO BE IN? • IS THE CORPORATION BURDENED WITH TOO MANY BUSINESSES IN AVERAGE-TO-WEAK COMPETITIVE POSITIONS? 8. DOES THE MAKEUP OF THE PORTFOLIO PUT THE CORPORATION IN A GOOD POSITION FOR THE FUTURE?

  30. STEPS IN THE STRATEGIC ANALYSIS OF DIVERSIFIED FIRMSA SUMMARY 1. IDENTIFY THE PRESENT CORPORATE STRATEGY 2. CONSTRUCT BUSINESS PORTFOLIO MATRICES 3. PROFILE THE INDUSTRY AND COMPETITIVE ENVIRONMENT OF EACH BUSINESS UNIT 4. EVALUATE THE COMPETITIVE STRENGTH OF EACH INDIVIDUAL BUSINESS 5. COMPARE PERFORMANCE RECORDS OF EACH BUSINESS UNIT 6. HOW WELL DOES EACH BUSINESS UNIT “FIT” WITH CURRENT CORPORATE STRATEGY? 7. RANK THE UNITS FROM HIGHEST TO LOWEST IN INVESTMENT PRIORITY 8. CRAFT A SERIES OF MOVES TO IMPROVE OVERALL CORPORATE PERFORMANCE

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