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The following materials are key exhibits from the book that may be helpful in teaching Please contact us with any questions, requests or comments!. [email protected] Chapter 1. Business Attractiveness Matrix. High. Market profitability. Medium. Low.

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jo whitehead@ashridge org uk

The following materials are key exhibits from the book that may be helpful in teachingPlease contact us with any questions, requests or comments!

[email protected]

business attractiveness matrix
Business Attractiveness Matrix

High

Market profitability

Medium

Low

Significantly disadvantaged

About the same

Significantly advantaged

Competitive advantage

heartland matrix
Heartland Matrix

LOW

HEARTLAND

Risk of subtracting value from a business due to mis-understanding of or failing to adjust to the situation in the business

Ballast

EDGE OF HEARTLAND

ALIEN

TERRITORY

VALUE TRAP

HIGH

LOW

HIGH

Potential to add value to a business from parent skills and resources

fair value matrix
Fair Value Matrix

HIGH

  • Better to be a seller
  • If you own; Sell
  • If you don’t own; Don’t buy

Market

price

  • No compelling Capital Markets logic for buying or selling
  • Better to be an owner
  • If you own; Hold
  • If you don’t own; Buy

LOW

LOW

HIGH

NPV of owning the business

experience curve costs decline with cumulative experience
Experience curve: Costs decline with Cumulative Experience

Steam turbine production cost example (1946–1963)

Direct cost per megawatt for three different competitors (constant $)

Allis Chalmers

Westinghouse

95% slope

General Electric

Firm cumulative megawatts (000s)

Note: For each competitor, the cost of production in each year between 1946 and 1963 is shown

the growth share matrix
The Growth Share matrix

HIGH

Stars

Question marks

?

Marketgrowth1

Cash

use

Cash cows

Dogs

LOW

Cash generation

LOW

HIGH

Relative market share2

1. Over 3–5 years usually 2. Company\'s market share/largest competitor\'s market share

the competitive environments matrix

Niche

The competitive environments matrix

MANY

Fragmented

Graphs in each of the 4 boxes show how profitability of incumbents (y axis) varies with size of the company (x axis)

Number of ways toachieve advantage

Stalemate

Volume

FEW

HIGH

LOW

Potential competitiveadvantage

the ge mckinsey matrix
The GE/ McKinsey matrix

High

Industry attractiveness

Medium

Low

Significantly disadvantaged

About the same

Significantly advantaged

Business Unit Strength

slide12

Profitability of selected EU industriesAverage ROCE (Return on Capital Employed) 1997-20062)

Profitability of selected U.S. industriesAverage ROIC(Return on Invested Capital)

1992-20061)

Security Brokers & Dealers

Manufacture of tobacco products

Manufacture of coke, refined petroleumproducts and nuclear fuel

Soft Drinks

Construction

Prepackaged Software

Sale, maintenance and repair of motor vehiclesand motorcycles; retail sales of automotive fuel

Pharmaceuticals

Manufacture of machinery and equipment

Perfume, Cosmetics, Toiletries

Cookies & Crackers

Manufacture of chemicals and chemical products

Average industryROIC in the U.S.14.9%

Average industryROCE in the EU9.8%

Publishing, printing and reproductionof recorded media

Mobile Homes

Manufacture of medical, precision andoptical instruments, watches and clocks

Wine & Brandy

Manufacture of motor vehicles trailers and semi-trailers

Bakery Products

Public administration and defense;compulsory social security

Soft Drink Bottling

Knitting Mills

Manufacture of textiles

Hotels

Health and social work

Catalog, Mail-Order Houses

Air transport

Airlines

Recycling

Sources: 1) Porter, HBR, January 2008; 2) ESMT analysis Burger, Rocholl

why grow
Why grow?

$100 growing at 5%, 10%, and 15% for 10 years

405

259

163

100

10%

15%

0%

5%

parent as value adding middleman
Parent as Value Adding Middleman

Shareholders / Investors

Parentorganisation

Businesses

schiller price earnings ratio
Schiller Price Earnings Ratio

“Black Monday”

“Black Tuesday”

Dotcom bust

Lehman goes bust

real returns portfolios based on mean reversion 1900 2012
Real returns: Portfolios based on mean reversion, 1900-2012

Source: Elroy Dimson, Paul Marsh and Mike Staunton, DMS database.

many different situations possible
Many different situations possible

Industry

profitability

Risk of subtracted value

Market

price

Low

Competitive advantage

HEARTLAND

High

EDGE OF HEARTLAND

BALLAST

Med

ALIEN TERRITORY

Low

VALUE TRAP

High

High

Low

Significantly disadvantaged

About the same

Significantly advantaged

Competitive advantage

Potential for added value

NPV

Green implies “buy” or “hold”. Red implies “sell”

the value staircase
The value staircase

Contribution of headquarters

Value measured by discounted cash flow

Dividends/cash

Value at end of period

Expand in China

Develop a new product range

Improve technical skills

Starting value

Rationalise manufacturing

Total value

three ways to structure operating activities
Three ways to structure operating activities

Value Chain

  • Function
  • Process
  • Geography
  • Customer
  • Product
  • Project
  • Asset
  • Two boss matrix
  • Front/back

Business Units

Matrix

a way of drawing organisation models
A way of drawing organisation models

Powerful central

functions

Headof structure

Less powerful services

and advisory units

Championing or

coordinating units

(KAM,Lean, Region, ..)

Policy functions

(Fin, HR, IT, Comms, ..)

Core resource functions

(Production, R&D, Marketing, ..)

Shared services

(Accounting, HR, IT, ..)

Business Divisions

the size and role of the corporate centre varies widely
The size and role of the corporate centre varies widely

Headquarters staff

100,000

10,000

1,000

100

10

1

1,000

10,000

100,000

1,000,000

Total company employees

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