Evaluating the Strategies of Diversified Companies. Crafting and implementing action plans to improve the overall attractiveness and competitive strength of a company’s business line-up is the central strategic task of corporate level managers. How attractive is the group of businesses?
Crafting and implementing action plans to improve the overall attractiveness and competitive strength of a company’s business line-up is the central strategic task of corporate level managers.
How attractive is the group of businesses?
How good is the performance outlook?
Are there changes to be made to present line-up?
Identifying the present corporate strategy
Applying the industry attractiveness test
Applying the competitive strength test
Applying the strategic fit test
Applying the resource fit test
Ranking businesses on historic & future
Ranking businesses on priority for resource allocation
Crafting new strategic moves
Type of diversification
Extent of diversification
Recent / Impending moves
Efforts to capture fits
% Total Cap Ex per unit in prior yrs
What is current corporate strategy & rationale
*** Individual - Relative - Collective ***
Mkt size, projected growth, profitability
Intensity of competition
Threats / Opportunities
Seasonal / Cyclical factors
Fits with present businesses
Social, political, regulatory, environmental factors
Degree of risk / uncertainty
Select industry measures
Assign weightings (sum = 1.0)
Rate industries according to a scale eg. 1-10
The sum of the weighted ratings provides a quantitative measure of the attractiveness relative to other industries
Rank the industries
Measures Weighting Ratings (1-10) Ind. Attract.
Co.A Co.B Co.C A B C
Mkt size .1 6 2 5 .6 .2 .5
Growth Rate .15 1 8 5 .15 1.2 .75
Intensity (comp) .3 2 9 5 .6 2.7 1.5
Resource reqs .1 3 5 5 .3 .5 .5
Strategic fit .15 6 8 5 .9 1.2 .75
Opps / threats .05 1 6 5 .05 .3 .25
Social, political… .05 1 4 5 .05 .2 .25
Degree of risk .05 1 4 5 .05 .2 .25
Industry profitability .05 7 5 5 .35 .25 .25
Attractiveness of mix of industries as a whole
A substantial portion of revenues & profit (& principal businesses) should come from bus. units in attractive industries
Businesses in least attractive industries are divestiture candidates
Measuring strength of position of business within
Choose measures - relative mkt share
Assign weights - ability to compete on cost
Use rating scale - ability to match quality
Rank (> 6.7 strong, - leverage
< 3.3 weak) - fits, skills, capabilities
- brand recognition / reputation - profitability relative to competit.
Business mkt share
Strong Average Weak
Competitive Strength Position
General Strategic Prescription
Grow & Build
Relative to economy as a whole
Relative Market Share (volume)
size of circle represents revenue
Industry Growth Rate
Identifying competitively valuable matches in value chains in portfolio
Whether each unit fits well with firm’s LT strategic direction
The greater the competitively valuable fits the greater the potential for economies of scope.
Logistics Technology Sales/Mkg Distribution
Logistics / Ops
No fit opportunities
When businesses add to a company’s strengths either financially or strategically
A company must have the resources to support the resource requirements of its group of businesses
Enough cash cows to finance the cash hogs with potential to be star performers
Concentrate resources on businesses with good to excellent prospects. Allocate minimal resources to those with sub-par prospects.
Steering resources out of low opportunity areas into high opportunity areas.
Strategic Options - Invest & Grow
- Fortify & Defend
- Overhaul & Re-position
- Harvest & Divest
Right mix of businesses?
Enough cash cows to finance cash hogs with potential to be star performers?
Can the principal business be counted on to generate dependable profits and cash flows?
Does the make-up put the co. in a good position for the future?
COMPOSITION & COORDINATION
Q. Can the company attain its performance objectives with the current line-up of businesses and resource capabilities?
A. Yes - no major corporate strategy changes needed
A. No - alter plans for some or all businesses
- add new businesses
- divest weaker businesses
- form alliances to strengthen existing businesses
- upgrade co. resource base
- lower co. performance objectives
Strategy & analysis tends to emerge incrementally