Chapter 9

Multibusiness
Strategy

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 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

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 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.

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 A Portfolio of ??
• Aviation
• Capital
Commercial Lending and Leasing
Consumer
Real Estate
Energy Financial Services
Aviation Financial Services
• Energy Management
• Healthcare
• Home & Business Solutions
Appliances & Lighting
• Oil & Gas
• Power & Water
• Transportation

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 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.

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 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.

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 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.

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 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.

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Ex. 9.2 The BCG Growth-Share Matrix

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 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.

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 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

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 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

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Ex. 9.5 The Industry Attractiveness-Business Strength
Matrix

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 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.

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Ex. 9.6 BCG’s Strategic Environments Matrix

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 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.

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 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.

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 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

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 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

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 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

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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.

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 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.

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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

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 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?

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 10 Sources of Parenting Opportunities

• Size & Age • Common capabilities

• Management • Specialized expertise
• Business Definition • External relations
• Predictable Errors • Major decisions
• Linkages • Major changes

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 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

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

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 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.

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 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

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 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

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 Patching (contd.)

• Strategic Processes
– 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.

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Ex. 9.11 Three Approaches to
Strategy

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

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

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