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Topic: Portfolios & evaluation

Topic: Portfolios & evaluation. How do we integrate these individual strategies?. One method is to consider portfolios of businesses What would that look like? How would you describe yours?. How do we integrate these individual strategies?.

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Topic: Portfolios & evaluation

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  1. Topic: Portfolios & evaluation

  2. How do we integrate these individual strategies? • One method is to consider portfolios of businesses • What would that look like? • How would you describe yours?

  3. How do we integrate these individual strategies? • One method is to consider portfolios of businesses: • Bud v. Light v. Michelob • Cars v. trucks v. financing v. insurance • US v. Mexico v. EU v. Japan v. China • Two models: • BCG Model • GE Model • Same, only different • (And revisit Hall…)

  4. BCG portfolio model • Assesses our portfolio of industry activity • This can be broadened to include products within an industry, regions within an industry, etc. • Stern & Stalk (1998), Perspectives on Strategy from the Boston Consulting Group. New York: Wiley

  5. Strategy Formulation: BCG Portfolio Model HIGH Industry Growth LOW HIGH LOW Market Share

  6. Strategy Formulation: BCG Portfolio Model HIGH Could be 1% to 4% Could be 6% to 55% Anchor the ends, and plot where each business line (or market, or product) lies, relative to industry norms/standards Industry Growth LOW HIGH LOW Market Share

  7. Strategy Formulation: BCG Portfolio Model HIGH Could be -4% to 4% Could be 5% to 95% Anchor the ends, and plot where each business line (or market, or product) lies, relative to general standards Industry Growth LOW HIGH LOW Market Share

  8. Might look like this: BCG Portfolio Model HIGH Industry Growth LOW HIGH LOW Market Share

  9. Strategy Formulation: BCG Portfolio Model HIGH Stars ? Industry Growth Cash Cows Dogs LOW HIGH LOW Market Share

  10. Strategy Formulation: BCG Portfolio Model HIGH Stars ? Industry Growth Cash Cows Dogs LOW HIGH LOW Market Share

  11. Strategy Formulation: BCG Portfolio Model HIGH Stars ? $ Industry Growth $ $ Cash Cows Dogs LOW HIGH LOW Market Share

  12. Strategy Formulation: GE Business Screen Portfolio Model (5) HIGH ? Winners Industry Attractiveness Profit Producers Losers (1) LOW STRONG WEAK Competitive Position (5) (1)

  13. Strategy Formulation: GE Business Screen Portfolio Model (5) HIGH ? Winners Lots more going on here than just growth and market share Industry Attractiveness Profit Producers Losers (1) LOW STRONG WEAK Competitive Position (5) (1)

  14. Strategy Formulation: GE Business Screen Portfolio Model (5) HIGH An example: Recall Hall’s model and how we evaluated various competitors: What factors matter, and how much? ? Winners Industry Attractiveness Profit Producers Losers (1) LOW STRONG WEAK Competitive Position (5) (1)

  15. Strategy Formulation: GE Business Screen Portfolio Model (4.5) * 3.38 IA (1.5) (4.5) (1.5) CP

  16. Strategy Formulation: GE Business Screen Portfolio Model (5) HIGH ? Winners Similar process on this axis Industry Attractiveness Profit Producers Losers (1) LOW STRONG WEAK Competitive Position (5) (1)

  17. Strategy Formulation: GE Business Screen Portfolio Model (4.5) * 3.38 IA 4.30 (1.5) * (4.5) (1.5) CP

  18. Strategy Formulation: GE Business Screen Portfolio Model (4.5) * IA (1.5) (4.5) (1.5) CP

  19. Strategy Formulation: GE Business Screen Portfolio Model (4.5) * * * * IA * * (1.5) (4.5) (1.5) CP

  20. Strategy Formulation: Can apply by market or product, too (4.5) What makes each market attractive or not? What makes for a competitive position? Market Attractiveness (1.5) (4.5) (1.5) Comp. Pos.

  21. Strategy Formulation: Can apply by market or product, too (4.5) Do this for your current markets, products, industries, regions, etc. Market Attractiveness (1.5) (4.5) (1.5) Comp. Pos.

  22. Strategy Formulation: Can apply by market or product, too (4.5) What do you do with that information once you have it? Answer:… Market Attractiveness (1.5) (4.5) (1.5) Comp. Pos.

  23. Strategy Formulation: Can apply by market or product, too (4.5) Do we have the appropriate strategic mix in our portfolio of businesses? Market Attractiveness (1.5) (4.5) (1.5) Comp. Pos.

  24. And one additional framework for assessing our portfolio:

  25. Recall from Corporate Mission section: Hall’s Competitiveness Model HIGH G of E Power Alley Zone of Competitive Battle Relative Differentiation Power Alley Danger Zone Death Valley LOW LOW HIGH Relative Cost

  26. Previously, this was our single position vs. all competitors: HIGH * * * * * Relative Differentiation * * * * * * LOW LOW HIGH Relative Cost

  27. But suppose… We use this to assess our own position We use this NOT to compare us to competitors in a specific market, but to assess our own portfolio of positions in various markets, e.g.: Multiple geographic markets Multiple product markets

  28. Maybe we operate in 11 distinct markets: * HIGH * * * * Relative Differentiation * * * * * * LOW LOW HIGH Relative Cost

  29. Here, we’ve just plotted our spot for each & left competitors off: * HIGH * * * * Relative Differentiation * * * * * * LOW LOW HIGH Relative Cost

  30. Note that in this case, it could look like this (open space on axes): HIGH * * * Relative Differentiation * * * * * * LOW LOW HIGH Relative Cost

  31. Strategy formulation: Other issues • Game theory (if time) • Functional strategies • Pitfalls

  32. Strategy Formulation: Game Theory • Turns out…there are competitors out there

  33. Strategy Formulation: Game Theory Maintain A B Incumbent Options C D Cut Maintain Cut Attacker Options

  34. Strategy Formulation: Game Theory Maintain 100 70 A B 60 70 Jones Options 120 80 C D 20 30 Cut Maintain Cut Smith Options

  35. Strategy Formulation: Game Theory Maintain 100 70 A B 60 70 Jones Options 120 80 C D 20 30 Cut Maintain Cut Smith Options

  36. Strategy Formulation: Game Theory Maintain 100 70 A B 60 70 Jones Options 120 80 C D 20 30 Cut Maintain Cut Smith Options

  37. Strategy Formulation: Game Theory Maintain 100 70 A B 60 70 Jones Options 120 80 C D 20 30 Cut Maintain Cut Smith Options

  38. Strategy Formulation: Game Theory Maintain 100 70 A B 60 70 Jones Options 120 80 C 110! 20 30 Cut Maintain Cut Smith Options

  39. Evaluating Strategies 1. Is it profitable? (+ NPV or out) 2. Does it conform to our mission? (mission driven) 3. Does it involve a LTSCA? (If not, why do it?) 4. Is it feasible? (S,W) 5. Is it an acceptable risk? 6. Is it responsive to our external environment? (O,T) 7. Does it provide adequate flexibility? (all eggs?) 8. Is the time frame appropriate? (immed. needs?) 9. Is it profitable? (best NPV)

  40. Another macro-level summary: • Mission: Basic strategic posture (cost/diff, growth/stabil, broad/focus), Hall • SW: Value chain • OT: 5 forces; macro-environment, strategic inflection points • LTSCA: Criteria • Issues & problems: Potentially all • Strategies: Growth, cost/diff, competitive scope, portfolios, Hall, game theory, evaluation • Fallout: Potentially all

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