1. Multibusiness Strategy
Chapter 9
Multibusiness Strategy
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2. Learning Objectives
Understand the portfolio approach to strategic analysis and choice in multibusiness companies.
Understand and use three different portfolio approaches to conduct strategic analysis and choice in multibusiness companies
Identify the limitations and weaknesses of the various portfolio approaches
Understand the synergy approach to strategic analysis and choice in multibusiness companies
Evaluate the parent company role in strategic analysis and choice to determine whether and how it adds tangible value in a multibusiness company

3. The Portfolio Approach
The portfolio approach is a historical starting point for strategic analysis and choice in multibusiness firms.
The portfolio approach helps allocate resources in multibusiness companies.

4. Portfolio Techniques
An approach pioneered by the Boston Consulting Group that attempted to help managers “balance” the flow of cash resources among their various businesses while also identifying their basic strategic purpose within the overall portfolio.

5. The BCG Growth-Share Matrix Dimensions
Market Growth Rate
The projected rate of sales growth for the market being served by a particular business
Relative Competitive Position
The market share of a business divided by the market share of its largest competitor.

6. The BCG Growth-Share Matrix Types of Businesses
Stars
Businesses in rapidly growing markets with large market shares.
Cash Cows
Businesses with a high market share in low-growth markets or industries.

7. The BCG Growth-Share Matrix Types of Businesses (contd.)
Dogs
Low market share and low growth businesses
Question Marks
Businesses whose high growth rate gives them considerable appeal but whose low market share makes their profit potential uncertain.

8. Ex. 9.2 The BCG Growth-Share Matrix

9. The Industry Attractiveness-Business Strength Matrix
This approach has a much broader focus than the growth-share matrix
It uses multiple factors to assess industry attractiveness and business strength rather than the single measures employed in the BCG matrix
It also has 9 cells instead of BCG’s 4 to allow for finer distinctions among business portfolio positions.

10. Industry Attractiveness
Ex. 9.4 Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (adapted)
Industry Attractiveness
Nature of competitive rivalry
Bargaining power of suppliers/customers
Threat of substitute products/new entrants
Economic factors
Financial norms
Sociopolitical considerations

11. Ex. 9.4 Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (adapted)
Business Strength
Cost position
Level of differentiation
Response time
Financial strength
Human assets
Public approval

12. Ex. 9.5 The Industry Attractiveness-Business Strength Matrix

13. BCG’s Strategic Environments Matrix
This approach uses the idea that it was the nature of competitive advantage in an industry that determined the strategies available to a company’s businesses, which in turn determined the structure of the industry.
BCG believed that such a framework could help ensure that individual businesses' strategies were consistent with strategies appropriate to their strategic environment.
This allowed corporate managers in multiple-business companies one way to rationalize which businesses they are in.

14. Ex. 9.6 BCG’s Strategic Environments Matrix

15. BCG’s Strategic Environments Matrix Types of Businesses
Volume Businesses
Businesses that have few sources of advantage, but the size is large – typically the result of scale economics
Stalemate Businesses
Businesses with few sources of advantage, most of them small. Skills in operational efficiency, low overhead, and cost management are critical to profitability.

16. BCG’s Strategic Environments Matrix Types of Businesses (contd.)
Fragmented Businesses
Businesses with many sources of advantage, but they are all small. They typically involve differentiated products with low brand loyalty, easily replicated technology, and minimal scale economies.
Specialization Businesses
Businesses with many sources of advantage. Skills in achieving differentiation (product design, branding expertise, innovation, and perhaps scale) characterize winning specialization businesses.

17. Limitations of Portfolio Approach
It does not address how value is being created across business units
Truly accurate measurement for matrix classification was not as easy as the matrices portrayed
The underlying assumption about the relationship between market share and profitability varied across industries and market segments
The limited strategic options came to be seen more as basic strategic missions
It ignored capital raised in capital markets
It typically failed to compare the competitive advantage a business received from being owned by a particular company with the costs of owning it

18. The Synergy Approach: Leveraging Core Competencies
Opportunities to build value via diversification, integration, or joint venture strategies are usually found in market-related, operations-related, and management activities
Strategic analysis is concerned with whether or not the potential competitive advantages expected to arise from each value opportunity have materialized
The most compelling reason companies should diversify can be found in situations where core competencies—key value-building skills—can be leveraged with other products or into markets that are not a part of where they were created

19. The Synergy Approach
Each core competency should provide a relevant competitive advantage to the intended businesses
Businesses in the portfolio should be related in ways that make the company’s core competencies beneficial
Any combination of competencies must be unique or difficult to recreate

20. Elements Critical in Meaningful Shared Opportunities
The shared opportunities must be a significant portion of the value chain of the businesses involved.
The businesses involved must truly have shared needs – need for the same activity – or there is no basis for synergy in the first place.

21. The Parenting Opportunities Framework
The perspective that the role of corporate headquarters (the “parent”) in multibusiness (the “children”) companies is that of a parent sharing wisdom, insight, and guidance to help develop its various businesses to excel.

22. The Parenting Opportunities Framework (contd.)
The parenting opportunities framework perspective sees multibusiness companies as creating value by
influencing—or parenting—their businesses
The best parent companies create more value than any of their rivals do or would if they owned the same businesses
To add value, a parent must improve its businesses

23. The Corporate Parent Role: Can It Add Tangible Value?
Realizing synergies from shared capabilities and core competencies is a key way value is added in multibusiness companies.
1. Research suggests that figuring out if the synergies are real and, if so, how to capture those synergies is most effectively accomplished by business unit managers, not the corporate parent.
2. How can the corporate parent add value to its businesses in a multibusiness company?

24. 10 Sources of Parenting Opportunities
Size & Age
Management
Business Definition
Predictable Errors
Linkages
Common capabilities
Specialized expertise
External relations
Major decisions
Major changes

25. The Parenting Strategy Approach
According to BCG, corporate parents add value through five types of levers:
Corporate functions and resources
Strategy development
Financing advantages
Business synergies
Operational engagement

26. Parenting Strategy Types
Hands-off owner
Financial sponsor
Family builder
Strategic guide
Functional leader
Hands-on manager

27. Patching
The process by which corporate executives routinely “remap” their businesses to match rapidly changing market opportunities – adding, splitting, transferring, exiting, or combining chunks of businesses.

28. The Patching Approach
It can take the form of adding, splitting, transferring, exiting, or combining chunks of businesses
Patching is not seen as critical in stable, unchanging markets
When markets are turbulent and rapidly changing, patching is seen as critical to the creation of economic value in a multibusiness company

29. Proponents of Patching
View traditional corporate strategy as creating defensible strategic positions for business units by acquiring or building valuable assets, wisely allocating resources to them, and weaving synergies among them
In volatile markets, they argue, this traditional approach results in business units with strategies that are quickly outdated and competitive advantages rarely sustained beyond a few years
As a result, strategic analysis should center on strategic processes more than strategic positioning
In these volatile markets, patchers strategic analysis focuses on making quick, small, frequent changes in parts of businesses and organizational processes

30. Patching (contd.) Strategic Processes Strategic Positioning
Decision making, operational activities, and sales activities that are critical business processes.
Strategic Positioning
The way a business is designed and positioned to serve target markets.

31. Ex. 9.11 Three Approaches to Strategy

32. Key Terms Businesses Cash cows Dogs Fragmented businesses
Market growth rate
Parenting framework
Patching
Portfolio techniques

33. Key Terms (contd.) Position Question marks Stalemate businesses Stars
Strategic positioning
Strategic processes
Volume businesses