Corporate Parenting & Portfolio

Corporate Parenting means how corporate parent manages its business units

Factors to look at when comparing SBUs performance with one another

1. Industry growth status – Growth or Maturity/Decline

2. Your market share trend – Increase or Decrease or Maintaining
3. Net profit margin trend – Cost is in control or not
4. BCG assessment
5. Strength / weakness / primary reason for acquisition

BOSTON CONSULTATIVE GROUP: BCG MATRIX (Also known as BOSTON BOX)

BCG Matrix / Boston Box is used to analyze the current position of the various business units within the
Group and what future course of action should be taken for each business unit.

Question Marks Stars

(Harvest) (Build)

Dogs Cash Cows

(Divest) (Hold)

1. Star: Star business unit has a high market share in a growing industry, which means that
there is still a lot of growth potential in future. ‘Build’ strategy is used for Stars, i.e., more
money is invested now to seek long term gain.

2. Cash Cow: Cash Cow business unit has a high market share in a declining industry, which
means that there is limited growth potential in future. The industry has reached the maturity
stage now. ‘Hold’ strategy is used for Cash Cows, i.e., maintain or extend the current position
as much as possible

3. Dog: Dog business unit has a low market share in a declining industry, which means that
there is no growth potential in future. The industry has reached the maturity stage or decline
stage. ‘Divest’ strategy is used for Dogs, i.e., close the business unit and use resources
somewhere else

4. Question Mark: Question Mark business unit has a low market share in a growing industry,
which means that there is growth potential in future. However, it is a decision point as the
Parent needs to decide whether it is willing to take the risk and invest for future gains?
‘Harvest’ strategy is used for Question Marks, i.e., whether some money should be invested or
not?
Generic Competitive Strategies
Porter’s four generic strategies for competitive advantage
1. Cost leadership (across the industry, i.e., all segments)
2. Differentiation (across the industry, i.e., all segments)
3. Focused / Niche strategy (on a particular segment):

Cost leadership
▪ Reduced cost to sell cheaper (targeting higher volumes)
▪ Options through which cost leadership could be achieved:
 Control over raw material cost (bargaining power with suppliers)
 Economies of scale (high volumes)
 Design of products and process (value engineering)
 Experience / learning curve
 Automation / Technologies
 Continuous cost reductions initiatives
 Outsourcing
▪ ‘No Frill’ cost strategy
 Lowest price / minimum benefit
 Zero brand loyalty
 Appropriate where:
 Customers do not value differentiation / quality / service
 Customers are very price sensitive

Differentiation
▪ Focusing on quality or uniqueness.
 Reinvesting portion of profit into R&D and product improvement
 Creating switching cost for the customers
▪ Options through which differentiation could be achieved:
 Continuous research and innovation
 Brand image / goodwill
 Heavy marketing

Focus / Niche
▪ Concentrate on one particular segment of the entire market
▪ Can adopt a “cost focus” strategy OR “differentiation focus” strategy
▪ Advantages of a niche strategy:
 Specialization
 Identify segment too small to attract major competitors
 Easier to create customer goodwill, loyalty, and barriers to entry
 Ability to charge higher prices