Professional Documents
Culture Documents
CONCENTRATION
1. HORIZONTAL INTEGRATION
GEOGRAPHIC EXPANSION
Local, Regional, National, Global
INCREASING THE RANGE OF PRODUCTS and/or SERVICES
2. VERTICAL INTEGRATION
BACKWARD
Long-Term Contracts
Quasi-integration
Tapered Integration
Full Integration
FORWARD
DIVERSIFICATION
1. CONCENTRIC
Related
2. CONGLOMERATE
Unrelated
GROWTH-ENTRY STRATEGIES
DOMESTIC ENTRY
INTERNAL DEVELOPMENT & EXPANSION
INTERNATIONAL ENTRY
EXPORTING
LICENSING
FRANCHISING
JOINT VENTURES
ACQUISITIONS
GREEN-FIELD DEVELOPMENT
PRODUCTION SHARING
TURNKEY OPERATIONS
MANAGEMENT CONTRACTS
WHEN ARE GROWTH STRATEGIES LOGICAL?
COMPETITIVE POSITION
WEAK STRONG
---------------------------------------------
RAPID REFORMULATE HORIZONTAL
HORIZ & VERTICAL INTEGRATION
INTEGRATION
VERTICAL
DIVERSIFICATION INTEGRATION
SELL-OUT/DIVEST CONCENTRIC
DIVERSIFICATION
MARKET ---------------------------------------------
GROWTH RATE DIVERSIFICATION INTERNATIONAL
EXPANSION
CAPTIVE FIRM/MERGE
DIVERSIFICATION
ABANDONMENT
SLOW JOINT VENTURE
---------------------------------------
WHEN IS DIVERSIFICATION LOGICAL?
SYNERGY IS ACHIEVED
CONCENTRIC DIVERSIFICATION
FINDING A SYNERGISTIC FIT
Marketing
Operations
Management
MERGING THE FUNCTIONS
CONGLOMERATE DIVERSIFICATION
FIND FIRMS WHOSE ASSETS ARE UNDERVALUED
FIND FIRMS THAT ARE FINANCIALLY DISTRESSED
FIND FIRMS WITH BRIGHT PROSPECTS BUT ARE SHORT ON $$$
CONGLOMERATE (UNRELATED) DIVERSIFICATION
PROS
1--BUSINESS RISK IS SCATTERED OVER MANY INDUSTRIES
CONS
1--TOP MANAGEMENT COMPETENCE
Can they tell a good acquisition from a bad one?
Can they select good managers to run each business?
Do they know what to do if a business unit stumbles?
NARROWLY DIVERSIFIED
With a few (2-5) related core business units
With a few (2-5) unrelated business units
BROADLY DIVERSIFIED
With many related business units
With many business units in mostly unrelated industries
A MULTI-BUSINESS FIRM
With several unrelated groups of related businesses
POST-DIVERSIFICATION STRATEGIES
PROFIT
Keep milking the cow, but dont feed it
Artificially supporting profits by cutting costs
Keeping up appearances that everything is still OK
A temporary strategy for a worsening environment
PAUSE
Consolidate after recent rapid growth
A temporary strategy to catch your breath
NO-CHANGE
A very predictable environmentnothing uncertain ever happens
Why tamper with success? What firms did before WalMart came
CORPORATE RETRENCHMENT STRATEGIES
OFTEN TRIGGERED BY
DISAPPOINTING PERFORMANCE
ECONOMIC DOWNTURN
EXCESSIVE DEBT
ILL-CHOSEN ACQUISITIONS
TURNAROUND
Help subsidiaries become profitable
Belt-tightening and consolidation
CAPTIVE COMPANY
Give up independence for securitysell mostly to one large customer angel
Can scale back on some functions, like marketing
SELL-OUT/DIVEST
Sell the entire operation to someone as an ongoing business
Divest a healthy firm that doesnt fit our portfolioor a low-producing business
LIQUIDATION
The last resortno one wants to buy the entire business
The assets are worth more than the businessso theyre sold piece by piece
EVALUATING DIVERSIFIED PORTFOLIOS
DIMENSIONS
Industry Growth Rate
Compared to GDP
Relative Market Share
Uses ratios instead of absolute market shares
CLASSIFICATIONS
Question Marks (or Problem Children or Wildcats)
Stars
Cows
Dogs
GROWTH RATE
COWS DOGS
LOW ---------------------------------------------
SIZE OF CIRCLES
The significance (revenues) of each SBU to the firm
WEAKNESSES IN THE BCG GROWTH-SHARE MATRIX
PIE SLICES
Represents your share of that market
PROS & CONS OF THE GE BUSINESS SCREEN
STRENGTHS
USES MORE COMPREHENSIVE MEASURES / VARIABLES IN ASSESSING INDUSTRY
ATTRACTIVENESS AND BUSINESS STRENGTH / COMPETITIVE POSITION
NINE CELL APPROACH ALLOWS FOR INTERMEDIATE RANKINGS BETWEEN HIGH/LOW AND
STRONG/WEAK
WEAKNESSES
PROVIDES NO REAL GUIDANCE ON THE SPECIFICS OF WHAT STRATEGY TO FOLLOW
ITS TOO GENERAL
CANT SPOT UNITS THAT ARE ABOUT TO BECOME WINNERS BECAUSE THEIR INDUSTRIES
ARE ENTERING THE TAKEOFF STAGE
SHOULD THE WEIGHTS & FACTORS USED TO ASSESS INDUSTRY ATTRACTIVENESS AND
BUSINESS POSITION BE USED GENERICALLY, OR ADJUSTED DEPENDING ON THE
INDUSTRY UNDER INVESTIGATION?
THE HOFER LIFE-CYCLE MARKET EVOLUTION
MATRIX
TWO DIMENSIONS (Charles Hofer & A. D. Little, Co)
Stage of Industry / Market Evolution
EARLY DEVELOPMENT
RAPID GROWTH / TAKE-OFF
SHAKE-OUT
MATURITY / SATURATION
DECLINE / STAGNATION
ADVANTAGES
Illustrates how the firms businesses are distributed across the stages of industry
evolution
THE HOFER LIFE-CYCLE MARKET EVOLUTION
MATRIX
STRENGTHS
ENCOURAGES TOP MANAGEMENT TO EVALUATE EACH LINE OF BUSINESS SEPARATELY, AND
TO SET OBJECTIVES AND ALLOCATE RESOURCES TO EACH.
RAISES THE ISSUE OF CASH FLOW AVAILABILITY FOR USE IN EXPANSION AND GROWTH
WEAKNESSES
DEFINING PRODUCT / MARKET SEGMENTS IS DIFFICULT
ITS NOT ALWAYS CLEAR WHAT MAKES AN INDUSTRY ATTRACTIVE OR WHERE A PRODUCT IS
IN ITS LIFE CYCLE
SEASONALITY/CYCLICALITY AVERAGE
INVESTMENT PRIORITY 4 1 2 3
CRAFTING A CORPORATE STRATEGY
BY EVALUATING YOUR PORTFOLIO MATRIX