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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 l.jpg
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).


Corporate growth strategies l.jpg
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


  • Growth entry strategies l.jpg
    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


    When are growth strategies logical l.jpg
    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

    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


    When is diversification logical l.jpg
    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 $$$


    Conglomerate unrelated diversification l.jpg
    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?


    Combination diversification strategies l.jpg
    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


    Post diversification strategies l.jpg
    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)


    Corporate stability strategies l.jpg
    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…


    Corporate retrenchment strategies l.jpg
    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


    Evaluating diversified portfolios l.jpg
    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


    Weaknesses in the bcg growth share matrix l.jpg
    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


    The bcg growth share matrix l.jpg
    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


    The ge business screen the industry attractiveness business strength matrix l.jpg
    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


    The ge business screen l.jpg
    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


    Pros cons of the ge business screen l.jpg
    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?


    The hofer life cycle market evolution matrix l.jpg
    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


    The hofer life cycle market evolution matrix18 l.jpg
    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


    In summary using portfolio analysis pros and cons l.jpg
    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!


    How to apply portfolios in your analysis the non quantitative approach l.jpg
    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


    Evaluating industry attractiveness unweighted l.jpg
    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


    Evaluating industry attractiveness numeric unweighted l.jpg
    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


    Evaluating industry attractiveness numeric weighted l.jpg
    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


    Evaluating business strength competitive position unweighted l.jpg
    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


    Evaluating competitive business strength numeric unweighted l.jpg
    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


    Evaluating competitive business strength numeric weighted l.jpg
    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


    Comparing business unit performance l.jpg
    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?


    Comparing business unit performance a simple example l.jpg
    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


    Crafting a corporate strategy by evaluating your portfolio matrix l.jpg
    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?


    Steps in the strategic analysis of diversified firms a summary l.jpg
    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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