1. Rationalizing Diversification and Building Shareholder Value
SESSION 12: Strategic Analysis and Choice in The Multi-Business Company
Rationalizing Diversification and Building Shareholder Value

2. The Concept of Corporate-Level Strategy
Primary Question - Where to Compete?
Are there other business opportunities?
Entering or exiting Industries

3. Multibusiness Corporations
Corporations comprised of multiple businesses are often referred to as having a portfolio of businesses

4. By Definition a change in Corporate Level Strategy should be reflected in a change in Mission Statement

14.                                                                                                      
                                                         
SONY PICTURES STUDIOS

18. The Portfolio Approach to Corporate Level Strategy
Research Allocation Decisions
Evolution of Businesses
Recipe for Diversification

19. GE and McKinsey
The Concept of The SBU
Corporate Review Capability: Full Time Planning Facilitators
Matrices to Facilitate/Illuminate the Resource Allocation Decision

20. To Be Designated an SBU, Businesses had to:
Have a unique mission independent of other SBUs
Have a clearly definable set of competitors
Compete in external markets
Be able to manage resources in key areas

21. Balancing Financial Resources: Portfolio Techniques
BCG Growth-Share Matrix
Industry Attractiveness-Business Strength Matrix
Life Cycle-Competitive Strength Matrix

22. BCG Growth-Share Matrix
Cash Generation (Market Share)
High
Low
Market Share: Sales relative to those of other competitors in market (dividing point is usually selected to have only 2-3 largest competitors in any market fall into high market share region)
Growth Rate: Industry growth rate in constant dollars (dividing point is typically GNP’s growth rate)
Description of Dimensions
Star
Problem Child
Cash Cow
Dog
High
Low
Cash Use (Growth Rate)

23. Industry Attractiveness Factors
Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix
Industry Attractiveness Factors
Nature of Competitive Rivalry
Number of competitors
Size of competitors
Strength of competitors’ corporate parents
Price wars
Competition on multiple dimensions
Bargaining Power of Suppliers/Customers
Relative size of typical players
Numbers of each
Importance of purchases from or dales to
Ability to vertically integrate
Threat of Substitutes/ New Entrants
Technological maturity/stability
Diversity of the market
Barriers to entry
Flexibility of distribution system

24. Industry Attractiveness Factors
Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued)
Industry Attractiveness Factors
Economic Factors
Sales volatility
Cyclicality of demand
Market growth
Capital intensity
Financial Norms
Average profitability
Typical leverage
Credit practices
Sociopolitical Considerations
Government regulation
Community support
Ethical standards

25. Business Strength Factors
Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued)
Business Strength Factors
Cost Position
Economies of scale
Manufacturing costs
Overhead
Scrap/waste/rework
Experience effects
Labor rates
Proprietary processes
Level of Differentiation
Promotion effectiveness
Product quality
Company image
Patented products
Brand awareness
Response Time
Manufacturing flexibility
Time needed to introduce new products
Delivery times
Organizational flexibility

26. Business Strength Factors
Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (concluded)
Business Strength Factors
Financial Strength
Solvency
Liquidity
Break-even point
Cash flows
Profitability
Growth in revenues
Human Assets
Turnover
Skill level
Relative wage/salary
Morale
Managerial commitment
Unionization
Public Approval
Goodwill
Reputation
Image

27. Industry Attractiveness-Business Strength Matrix
Medium
High
Low
Industry Attractiveness
Industry Attractiveness: Subjective assessment based on broadest possible range of external opportunities and threats beyond control of management
Business Strength: Subject assessment of how strong a competitive advantage is created by a broad range of a firm’s internal strengths and weaknesses
Description of Dimensions
Invest
Selective Growth
Grow or Let Go
Selective
Growth
Grow or
Let Go
Harvest
Divest
Low
High
Medium
Business Strength

28. Terminology is less offensive and more understandable
Advantages of the Industry Attractiveness-Business Strength Matrix over the BCG Matrix
Terminology is less offensive and more understandable
Multiple measures associated with each dimension tap many factors relevant to business strength and market attractiveness
Allows for broader assessment during both strategy formulation and implementation for a multibusiness company

29. Fig. 9-5: Market Life Cycle-Competitive Strength Matrix
Growth
Introduction
Maturity
Stage of Market Life Cycle
Decline
Stage of Market Life Cycle: See page 182
Competitive Strength: Overall subjective rating, based on wide range of factors regarding likelihood of gaining and maintaining a competitive advantage
Description of Dimensions
Invest Aggressively
Push:
Caution:
Invest Selectively
Danger:
Harvest
Low
High
Moderate
Competitive Strength

30. Contributions of Portfolio Approaches
Convey large amounts of information about diverse businesses and corporate plans in a simplified format
Illuminate similarities and differences among businesses, conveying the logic behind corporate strategies for each business
Simplify priorities for sharing corporate resources across diverse businesses
Provide a simple prescription of what should be accomplished - a balanced portfolio of businesses