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Managing Multi-Unit Organizations Strategic Factors I

Managing Multi-Unit Organizations Strategic Factors I. Multi-Unit Management. Decide scope/reach of the organization In which businesses or industries does our organization operate or compete? Develop and leverage synergies across differentiated organization units. Acme Inc. Product 1.

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Managing Multi-Unit Organizations Strategic Factors I

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  1. Managing Multi-Unit OrganizationsStrategic Factors I

  2. Multi-Unit Management • Decide scope/reach of the organization • In which businesses or industries does our organization operate or compete? • Develop and leverage synergies across differentiated organization units Acme Inc. Product 1 Product 2 Product 3 Product N

  3. Multi-Unit Management • Unrelated organization units General Electric Light Bulbs Aircraft Engines Power Generation Equipment Kitchen Appliances

  4. Multi-Unit Management • Related organization units Procter & Gamble Soap Food Paper Products OTC Pharm.

  5. Multi-Unit Management • Portfolio focus and rebalancing PEPSI Juices, Water, Sports drinks Snack Foods Carbonated Beverages Fast Food 20% of total sales

  6. Multi-Unit Management • Portfolio focus • Near-single business organization COCA-COLA Juices, Water, Sports drinks Carbonated Beverages 80% of total sales

  7. Diversification/Growth Examples • Pepsi • Acquired Tropicana juice co. • Acquired Quaker Oats • Gatorade • Spun-off fast food restaurants (YUM!) • Issued Pepsi Bottling IPO • Reinvest in Frito-Lay • FedEx • Acquired Mailboxes Plus! • Acquired Kinko’s • Kraft Foods’ acquisition of Cadbury • Pfizer acquires Wyeth • UKMC acquires Good Samaritan • PNC Bank acquires National City Bank

  8. M&A in Hospital Industry • During 2000-2009 • 597 mergers and acquisitions • $74.5 billion in deals • HCA • Community Health Systems • Ascension Health • Capella Healthcare • many more….

  9. Why Diversify?? Jet Ski Division Sales ($) Snowmobile Winter Spring Summer Fall Pharmaceuticals Industry Growth (%) Bulk Chemicals 1960 1970 1980 1990 2000 2010

  10. Benefits of Diversification • Reduce earnings volatility • Move organization into attractive markets and market segments • Growth • Minimize risk • Prolong “life” of the organization • Improve long-term performance • Capture synergies and strategic “fit” between businesses • Steer corporate resources

  11. Types of Organizational Diversification • Vertical • Horizontal • Related • Unrelated • Global

  12. Marathon Oil Retail Stores Gas Stations Installed Oil Shops Wholesaling Refining Transport Oilfield Extraction Oilfield Exploration

  13. Exxon-Mobil Retail Stores Gas Stations Installed Oil Shops Wholesaling Refining Transport Oilfield Extraction Oilfield Exploration

  14. Horizontal DiversificationRelated Procter & Gamble Soaps Paper Products Food Products Finance Finance R&D R&D Mfg. Marketing Logistics To diversify, or not?

  15. Horizontal DiversificationUnrelated General Electric Aircraft Engines Lighting Products Appliances Finance Finance

  16. Geographic DiversificationInternational Markets Cola-Cola US Greece China Finance Finance Brand & Some Marketing Brand & Some Marketing Local bottling and distribution

  17. Transformation Through Diversification • Enter new businesses • Change business portfolio (Monsanto) • Shift from commodity chemicals to agricultural biotechnology • Molecular biology • GM seed/plant technologies • Branded products Total Return MONSANTO Biotech (38%) S&P Chemicals (18%) 1994 Today

  18. Transformation Through Diversification Nokia • Founding -1989: Electrical conglomerate • 1993-today: 90% telecommunications Total Return Nokia Motorola S&P Eriksson 1989 1993 2009

  19. Strategic Management of Diverse, Multi-Unit Organizations • Turnaround • Restore competitiveness to poor performers • New advantages created within portfolio • Retrenchment • Narrow scope of portfolio • “Stick to your knitting” • Restructuring • Add new businesses / divest poor performers

  20. Disney: Capability Leverager Toy Story • Films • Videos • Network TV • Cable TV • Hotels • Cruise lines • Merchandise • Brand licensing • Retail Stores Theme Park TV Show Food Items Merchandise

  21. Blue CircleDominant-business Diversified Firm HQ Cement Cement Products • Core Competence: • Products related to home-building

  22. Blue Circle HQ Cement Bricks Gas Stoves Cement Products Lawn Mowers • Core Competence: • Products related to home-building?

  23. BoddingtonsVertically Integrated Firm HQ Pubs Beer Wholesaling Beer Brewing • Core Competence: • Hospitality, retailing, property management

  24. BoddingtonsRelated Horizontal Diversified Firm HQ Pubs Hotels Health Clubs Restaurants Nursing Homes • Core Competence: • Hospitality, retailing, property management

  25. Evaluation of Diversified Firms Reveal contextual position of corporate portfolio BCG Growth-share Matrix High Industry Growth Rate Low < 1.0 1.0 > 1.0 Behind Market Leader You are Market Leader Relative Market Share

  26. Evaluation of Diversified Firms BCG Growth-share Matrix Categorize different organizational units ? High Stars Industry Growth Rate Cash Cows Low Dogs < 1.0 1.0 > 1.0 Behind Market Leader You are Market Leader Relative Market Share

  27. Evaluation of Diversified Firms General Electric Aircraft Engines High Light Bulbs Industry Growth Rate Appliances Low < 1.0 1.0 > 1.0 Behind Market Leader You are Market Leader Relative Market Share

  28. Love Your Dogs

  29. Love Your Dogs • Why? • Dogs are under-appreciated • Neglected • Same category as “value stocks” Payoffs to investing in and paying greater operational-strategic attention to underperformers better than investing in unproven “stars” • Dogs need nurturing/attention • “Feed” them (resources, attention) • Have them “fixed” (new strategy) • Teach them “new tricks” (innovation) • “Adopt” someone else’s dogs

  30. Managing Multi-Unit Playing Cards • Organizational Units • Suit • Number 3, 4, 7, J • Managing Organizational Units for Value Creation • Positive Outcomes • Two-, Three-, Four-of-a-kind • Flush • Straight • Full house 7 J 4 3 3

  31. Questions…?

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