Multi-Business Strategy

Multi-regional strategy

Lecture Outline
What is Portfolio Management What is Portfolio Analysis Boston Box McKinsey/GE Matrix AD Little Life-Cycle Matrix

Portfolio Management
enable strategic planners to select the optimal strategies for the individual products whilst achieving overall corporate objectives (Mcnamee, 1985) Multi-business And/or multi-location

Portfolio Analysis the strategic units that make up the company and the attempts to evaluate current effectiveness and vulnerabilities (McDonald et al, 1992)
How much of our time and money should we spend on our best products to ensure that they continue to be successful?
How much of our time and money should we spend developing new costly products, most of which will never be successful?

Examples of Portfolios
Unilever: ice cream, tea, spreads, Proctor & Gamble: Detergents, nappies, Gillette: batteries, Shaving products Virgin; trains, planes, cola, music stores

Hold Strategy

To enjoy continued strong cashflow. Relatively high market share / low market growth rate Cash Cow opportunities should be able to maintain market share at or around existing levels

Build Strategy
To grow the business. Relatively low relative market share / high market growth rate Question Mark opportunities need investment in order to grow.

Harvest Strategy
To develop short term cashflow irrespective of the long term damaging effect to the product or business. This strategy is appropriate for any weak products where disposal in the form of a sale is unavailable or not preferred due to high exit barriers

Divest Strategy

To change the capital of the business and allow resources to be used elsewhere

Boston Box - Uses

Simplifies complex situations Target setting tool Encourages strategists to view their business as a collection of diversified cash flows and investments Success sequences Disaster Sequences

Disadvantages
Uses 2 factors only Many businesses are Average Dogs -10% mkt share most fall into this category Can use dogs as a tactical tool- barrier to entry Cash flow? Why not ROI?

GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

General Electrics Business Screen

C Winners A High Winners B Question Marks D Winners E Medium

Average Businesses F Losers

Losers G Low Profit Producers Strong Average

Losers Weak

Business Strength/Competitive Position

Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.

GE Matrix- uses
More sophisticated than BCG uses more variables Condenses much information into 2 variables?

Limitations
Complex and Weighty The numerical estimates can be objective What about new products or business units in growth industries.

Uses
The power of the Life-cycle matrix is the story it tells about the distribution of the firms businesses across the stages of the industry evolution

Limitations
Limited strategic prescription Once defined prescription is limited Some businesses skip cycles Go from Growth to Decline in a short time. Duration of cycles Eg. Mars (1930)

International Portfolio Analysis

2 Factors:
Countrys attractiveness
Market size, rate of growth, regulation

Competitive strength
Market share, product fit, contribution margin, market support

Portfolio Matrix for Plotting Products by Country

Competitive Strengths High Low

Invest/Grow

Dominate/Divest Joint Venture

Selective Strategies

Harvest/Divest Combine/License

Portfolio Analysis Advantages:

Top management evaluates each of firms businesses individually Use of externally-oriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication

Portfolio Analysis

Disadvantages:
Difficult to define product/market segments Standard strategies can miss opportunities Illusion of scientific rigor Value-laden terms