SESSION 12: Strategic Analysis and Choice in The Multi-Business Company

1. SESSION 12: Strategic Analysis and Choice in The Multi-Business Company Rationalizing Diversification and Building Shareholder Value

2. The Concept of Corporate-Level Strategy Primary Question - Where to Compete? Are there other business opportunities? Entering or exiting Industries

3. Multibusiness Corporations Corporations comprised of multiple businesses are often referred to as having a portfolio of businesses

4. By Definition a change in Corporate Level Strategy should be reflected in a change in Mission Statement

14. SONY PICTURES STUDIOS

18. The Portfolio Approach to Corporate Level Strategy • Research Allocation Decisions • Evolution of Businesses • Recipe for Diversification

19. GE and McKinsey • The Concept of The SBU • Corporate Review Capability: Full Time Planning Facilitators • Matrices to Facilitate/Illuminate the Resource Allocation Decision

20. To Be Designated an SBU, Businesses had to: • Have a unique mission independent of other SBUs • Have a clearly definable set of competitors • Compete in external markets • Be able to manage resources in key areas

21. BCG Growth-Share Matrix Industry Attractiveness-Business Strength Matrix Life Cycle-Competitive Strength Matrix Balancing Financial Resources: Portfolio Techniques

22. Cash Generation (Market Share) Description of Dimensions High Low Market Share:Sales relative to those of other competitors in market (dividing point is usually selected to have only 2-3 largest competitors in any market fall into high market share region) Growth Rate:Industry growth rate in constant dollars (dividing point is typically GNP’s growth rate) Star Problem Child High Cash Use (Growth Rate) Dog Cash Cow Low BCG Growth-Share Matrix

23. Nature of Competitive Rivalry Bargaining Power of Suppliers/Customers Threat of Substitutes/ New Entrants • Number of competitors • Size of competitors • Strength of competitors’ corporate parents • Price wars • Competition on multiple dimensions • Relative size of typical players • Numbers of each • Importance of purchases from or dales to • Ability to vertically integrate • Technological maturity/stability • Diversity of the market • Barriers to entry • Flexibility of distribution system Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix Industry Attractiveness Factors

24. Economic Factors Financial Norms Sociopolitical Considerations • Sales volatility • Cyclicality of demand • Market growth • Capital intensity • Average profitability • Typical leverage • Credit practices • Government regulation • Community support • Ethical standards Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued) Industry Attractiveness Factors

25. Cost Position Level of Differentiation Response Time • Economies of scale • Manufacturing costs • Overhead • Scrap/waste/rework • Experience effects • Labor rates • Proprietary processes • Promotion effectiveness • Product quality • Company image • Patented products • Brand awareness • Manufacturing flexibility • Time needed to introduce new products • Delivery times • Organizational flexibility Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued) Business Strength Factors

26. Financial Strength Human Assets Public Approval • Solvency • Liquidity • Break-even point • Cash flows • Profitability • Growth in revenues • Turnover • Skill level • Relative wage/salary • Morale • Managerial commitment • Unionization • Goodwill • Reputation • Image Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (concluded) Business Strength Factors

27. Industry Attractiveness Description of Dimensions High Medium Low Invest Grow or Let Go Selective Growth Industry Attractiveness:Subjective assessment based on broadest possible range of external opportunities and threats beyond control of management Business Strength:Subject assessment of how strong a competitive advantage is created by a broad range of a firm’s internal strengths and weaknesses High Selective Growth Harvest Grow or Let Go Medium Business Strength Grow or Let Go Divest Harvest Low Industry Attractiveness-Business Strength Matrix

28. Advantages of the Industry Attractiveness-Business Strength Matrix over the BCG Matrix • Terminology is less offensive and more understandable • Multiple measures associated with each dimension tap many factors relevant to business strength and market attractiveness • Allows for broader assessment during both strategy formulation and implementation for a multibusiness company

29. Stage of Market Life Cycle Description of Dimensions Introduction Growth Maturity Decline Stage of Market Life Cycle:See page 182 Competitive Strength:Overall subjective rating, based on wide range of factors regarding likelihood of gaining and maintaining a competitive advantage Push: Invest Aggressively High Caution: Invest Selectively Moderate Competitive Strength Danger: Harvest Low Fig. 9-5: Market Life Cycle-Competitive Strength Matrix

30. Contributions of Portfolio Approaches Convey large amounts of information about diverse businesses and corporate plans in a simplified format Illuminate similarities and differences among businesses, conveying the logic behind corporate strategies for each business Simplify priorities for sharing corporate resources across diverse businesses Provide a simple prescription of what should be accomplished - a balanced portfolio of businesses