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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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