Evaluating Strategies of Diversified Companies

Evaluation Steps Identify current strategy Evaluate long-term industry attractiveness Evaluate competitive strengths of business units Identify cross-business strategic fits Determine whether strengths match requirements Rank business units on performance and prospects Decide prospects for resource allocation Craft strategy to improve corporate performance

Present Corporate Strategy The extent to which the firm is diversified Pursuing related or unrelated diversification Scope- domestic to global Moves to add new businesses Moves to divest businesses Recent moves to boost key businesses Management efforts to capture synergy Percentage of resources allocated to each unit

Industry Attractiveness Evaluate the industries in which the firm is invested from three angles Each industry in and of itself In comparison with other industries in the portfolio The portfolio of industries as a whole

Industry Attractiveness Market size and growth rate Intensity of competition Opportunities and threats Seasonal and cyclical factors Resource requirements Presence of strategic fits Industry profitability Social, political, regulatory and environmental factors Uncertainty and business risk

Competitive Strengths of Business Units Relative market share Costs relative to competitors Ability to match or beat rivals on product attributes Ability to exercise bargaining leverage Caliber of partnerships and alliances Ability to develop synergy Technology and innovation capabilities How well business matches industry’s KSF Brand name recognition and reputation Profitability relative to competitors

BCG Matrix A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market The matrix classifies the types of businesses that a diversified organization can engage as “Dogs” have small market shares and no growth prospects “Cash cows” have large shares of mature markets “Question marks” have small market shares in quickly growing markets “Stars” have large shares of rapidly growing markets

BCG Matrix

GE Business Screen A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors Industry attractiveness Competitive position (strength) of each firm in the portfolio In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business

GE Business Screen