Corporate Strategy Assignment 2 Script

Slide 1

Hi Sir and everyone! My name is Delisha and I’ll be presenting Strategy and the Business Portfolio article
by Barry Hedley.

Slide 2

This is the content of what I will be taking you all through.

Slide 3

So, when a company operates within a single broad business area, Barry analysis reveal that it is involved in
several product-market segments have different economically.

The fundamental factor of strategy success for a business segment is their relative competitive position.

A competitor with high market share has the highest and most stable profits, regardless of the changes in the
economic environment.

Some businesses will be competitively strong and have no strategic problem; and others will be weak, so
such companies must face the question of whether it would be worth to try to improve their position, making
any investments to achieve this; if not their company can only expect poor performance and the best option
economically will be disinvestment.

Barry also stated that the difficulty of making a firm final choice on strategy is that it must operate within
the limitations established by limited cash resources.

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According to Barry, the growth of a business is a major factor influencing the likely ease and cost of gaining
market share. In high-growth businesses, market share can be gained progressively by securing the largest
share of the growth in the business: expanding capacity earlier than the competitors, ensuring product
availability and effective selling support despite the tensions imposed by the growth.

The second important factor he mentioned concerning growth is the opportunity it provides for investment.
The faster a business grows, the more investment it will require just to maintain market share. While these
growth considerations affect the rate at which a business will use cash, the relative competitive position of
the business will determine the rate at which the business will generate cash so the stronger the company’s
position relative to its competitors, the higher their margins will be.
Slide 5

Businesses have different financial characteristics and face different strategic options depending on how
they are placed in terms of growth and relative competitive position. They will fall into any one of four
broad strategic categories, as shown in the matrix.

Stars

 Have high growth and high share.

 Companies grow rapidly; they generate and use large amounts of cash to maintain their position.
 They can be self-sustaining in growth terms.
 They represent probably the best profit growth and investment opportunities available to the
company, and every effort they make is maintained to their competitive position.
 If star business fail to hold share, they cut back on investment and raise their price.

Cash cows
 Have low growth and high share.
 So, large cash is generated by these businesses.
 They pay dividends and interest, provide the debt capacity, pay for the company overhead and
provide the cash for investment elsewhere in the company’s portfolio.
 They are the foundation on which the company rests.

Dogs

 Have low growth, and low share.

 So, their poor competitive position sentences them to poor profits.
 And because the growth is low, there is little potential for gaining sufficient share to achieve a
valuable cost position at any reasonable cost.
 The company should take every precaution to minimize the proportion of its assets.

Question marks
 Have high growth, and low share.
 Their cash needs are high because of their growth, but their cash generation is small because of their
low share.
 Following this sort of strategy, the question mark is a cash loser throughout its existence.

Companies therefore need to make necessary investments to gain share like properly fund the business so
that it can become a star. This strategy will be very costly in the short term, growth rates will be higher than
if share were being maintained, and additional marketing and other investments will be required to make the
share, this is the only way of developing the business from the question mark over the long term.
Slide 6

Emirate’s airline is owned by the government of Dubai. It is the largest airline in the Middle East. They face
immense competition from Etihad Airways, Air-Arabia, and Qatar Airways.

 Star services of Emirates Airlines is Business and First Class. They have a high market share in the
growing industry and a very high potential in these two services. As the attraction and desire for
traveling business and first class increases, it will lead to more growth opportunities for Emirates
Airlines. To maintain its star services, Emirates focuses on maintaining its services globally and
ensuring that the service and aircraft quality is constant for all customers.
 Economy Class is the cash cow of Emirates Airline, this is the foundation of the company. It has
always had a large market share, but there is no growth. Before Emirates Economy came into play,
other airlines such as Qatar Airways had the most success in the industry. Today, many people use
Emirates Airlines, particularly the Economy seats on the flight as the experience with Economy
Class is wonderful.
 The Question Mark is Emirates Holidays service, and the investment is high as compared to the
revenue. Emirates has been putting efforts to increase the popularity and market share of Emirates
Holidays. They added promotional discounts on family packages and summer offers, and lucky
draws to create awareness. This service has a low market share, although has a very high potential to
become a substantial source of income.

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Most companies have their portfolio of businesses scattered through all four strategies of the matrix. It is
possible to outline quite briefly what the suitable overall portfolio strategy for such a company should be.

Firstly, maintain position in the cash cows and reinvest in them excessively. The cash generated by the cash
cows should be used as a priority to maintain position. Any extra remaining can be used to fund question
marks. Most companies will find they have inadequate cash generation to finance market share-gaining
strategies. Those which are not funded should be disinvested either by sale or liquidation over time.

Barry said it is possible to restore a dog to viability by a creative business segmentation strategy like
rationalizing and specializing the business into a small niche which it can control. Or increase in share by
taking it to a position comparable to the leading competitors in the segment. This is likely to be costly in a
mature business, and therefore the only vision for obtaining a return from a dog is to manage cash, cutting
off all investment in the business.

Lastly, the appropriate strategy for a company involves striking a balance in the portfolio such that the cash
generated by the cash cows, and by those question marks and dogs which are being liquidated, is sufficient
to support the company’s stars and to fund the question marks.

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Barry analysis and research said it is possible to divide a company into its various business segments
appropriately defined for its purpose of strategy development. The first step is to determine the overall
growth rate of a business, the company’s size, and relative competitive position within the business.
Equipped with these data it is possible to develop a precise overall picture of the company’s portfolio
graphically which can greatly ease the identification and resolution of the key strategic issues facing the
company.

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According to Barry, for the stars, the key objectives should be the maintenance of market share. For the cash
cows, profitability may be their primary goal. Dogs would be expected to yield cash. Question marks would
set objectives in terms of increased market share. However, the strategy objectives vary between businesses
as the strategy developed for each business must fit its own matrix position and the needs and capabilities of
the company’s overall portfolio.

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There are some strategic errors which are committed by companies which will result in a serious
suboptimization of potential performance in which some businesses are not producing the full results of
which they are capable. Where mismanagement of this kind becomes risky and leads to an unbalanced
portfolio.

So, Barry suggests a careful analysis needs to be done of the actual nature of the businesses concerned and
particularly the characteristics and behaviour of the competitors faced in those businesses. And without the
clarity of the matrix, which focuses on the real fundamentals of the businesses and their relationships to each
other within the portfolio, it is impossible to develop strategy effectively in any company.

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To conclude, Barry stated that relative competitive position and growth are the two fundamental factors
which must be considered in determining the strategy that a business should follow when viewed within the
context of the company's overall business portfolio.

He discussed the likely patterns of business strategy which will lead to overall corporate success and
contrasted with those which can lead to failure.

The key is that strategies differ widely from business to business since every company has different function
of the growth and relative competitive position and different resources particularly respect to cash.

The business portfolio concept provides a excellent approach for developing the differentiated strategic
business objectives which are necessary for any company to make the most of its opportunities.

Slide 12
Here are my references.

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Thank you for your attention, any question?