Session15: Product Portfolio Strategy Dr. Mark H. Mortensen and 212 Tues &Thurs 2:00 to 3:15 3:30 to 4:45 Manning School of Business

Mortensen Consulting Group Today 1. Attendance 2. Discussion on strategies for managing a portfolio of products 3. Group work on xxx Read Chapter 5 Did Starbucks Assignment

Mortensen Consulting Group Growth Organic – grow the business  Concentration  Diversification Inorganic – acquire new businesses

Mortensen Consulting Group Concentration Strategies 8-4

Mortensen Consulting Group Concentration Strategies 8-5

Mortensen Consulting Group Concentration Strategies 8-6

Mortensen Consulting Group Vertical Integration Strategies Vertical integration: When a firm gets involved in new portions of the value chain  Can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense  By entering the domain of a supplier or a buyer, executives can reduce or eliminate the leverage that the supplier or buyer has over the firm  Can create risks  Can create complacency 8-7

Mortensen Consulting Group Vertical Integration Strategies Backward vertical integration: A strategy that involves a firm entering a supplier’s business  Used when executives are concerned that a supplier has too much power over their firms Forward vertical integration: A strategy that involves a firm entering a buyer’s business  Useful for neutralizing the effect of powerful buyers 8-8

Mortensen Consulting Group Diversification Strategies Diversification strategies: Involve a firm entering entirely new industries  Requires moving into new value chains Three tests for diversification:  How attractive is the industry that a firm is considering entering?  How much will it cost to enter the industry?  Will the new unit and the firm be better off? 8-9

Mortensen Consulting Group Diversification Strategies Related diversification: When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries Core competency: A skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business 8-10

Mortensen Consulting Group Diversification Strategies Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries  Most unrelated diversification efforts do not have happy endings 8-11

Mortensen Consulting Group Strategies for Getting Smaller Retrenchment: Reducing the size of part of a firm’s operations, often through laying off employees  Firms following a retrenchment strategy shrink one or more of their business units  Firms using this strategy hope to make just a small retreat rather than losing a battle for survival 8-12

Mortensen Consulting Group Strategies for Getting Smaller Divestment: Selling off part of a firm’s operations  It reverses a forward vertical integration strategy Spin-off: Creating a new company whose stock is owned by investors out of a piece of a bigger company 8-13

Mortensen Consulting Group Strategies for Getting Smaller Diversification discount: The tendency of investors to undervalue the shares of a diversified firm Liquidation: Shutting down portions of a firm’s operations, often at a tremendous financial loss 8-14

Mortensen Consulting Group Portfolio Planning and Corporate Level Strategy Portfolio planning: A process that helps executives make decisions involving their firms’ various industries  Offers suggestions about what to do within each industry, and provides ideas for how to allocate resources across industries.  It first gained widespread attention in the 1970s and it remains a popular tool among executives today 8-15

Mortensen Consulting Group Portfolio Planning and Corporate Level Strategy The Boston Consulting Group (BCG) matrix  Best-known approach to portfolio planning  Using the matrix requires a firm’s businesses to be categorized as high or low along two dimensions: Its share of the market The growth rate of its industry 8-16

Mortensen Consulting Group Managing a portfolio of products

Mortensen Consulting Group Workshop on Product Portfolio Take the company that your group did a report on, or another company. See if you can do a quick analysis of the company’s portfolio. Discuss how you would manage the different products in the matrix.

Mortensen Consulting Group Thursday Read Chapter 8

Mortensen Consulting Group Strategic Management – Spring 2013