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Session15: Product Portfolio Strategy

Manning School of Business. Session15: Product Portfolio Strategy. Dr. Mark H. Mortensen 66.490.211 and 212 Tues &Thurs 2:00 to 3:15 3:30 to 4:45. Today. Read Chapter 5 Did Starbucks Assignment. Attendance Discussion on strategies for managing a portfolio of products

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Session15: Product Portfolio Strategy

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  1. Manning School of Business Session15: Product Portfolio Strategy Dr. Mark H. Mortensen 66.490.211 and 212 Tues &Thurs 2:00 to 3:15 3:30 to 4:45

  2. Today Read Chapter 5 Did Starbucks Assignment • Attendance • Discussion on strategies for managing a portfolio of products • Group work on xxx

  3. Growth • Organic – grow the business • Concentration • Diversification • Inorganic – acquire new businesses

  4. Concentration Strategies 8-4

  5. Concentration Strategies 8-5

  6. Concentration Strategies 8-6

  7. Vertical Integration Strategies Vertical integration:When a firm gets involved in new portions of the value chain Can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense By entering the domain of a supplier or a buyer, executives can reduce or eliminate the leverage that the supplier or buyer has over the firm Can create risks Can create complacency 8-7

  8. Vertical Integration Strategies Backward vertical integration:A strategy that involves a firm entering a supplier’s business Used when executives are concerned that a supplier has too much power over their firms Forward vertical integration:A strategy that involves a firm entering a buyer’s business Useful for neutralizing the effect of powerful buyers 8-8

  9. Diversification Strategies Diversification strategies:Involve a firm entering entirely new industries Requires moving into new value chains Three tests for diversification: How attractive is the industry that a firm is considering entering? How much will it cost to enter the industry? Will the new unit and the firm be better off? 8-9

  10. Diversification Strategies Related diversification: When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries Core competency:A skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business 8-10

  11. Diversification Strategies Unrelated diversification:When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries Most unrelated diversification efforts do not have happy endings 8-11

  12. Strategies for Getting Smaller Retrenchment: Reducing the size of part of a firm’s operations, often through laying off employees Firms following a retrenchment strategy shrink one or more of their business units Firms using this strategy hope to make just a small retreat rather than losing a battle for survival 8-12

  13. Strategies for Getting Smaller Divestment:Selling off part of a firm’s operations It reverses a forward vertical integration strategy Spin-off: Creating a new company whose stock is owned by investors out of a piece of a bigger company 8-13

  14. Strategies for Getting Smaller Diversification discount: The tendency of investors to undervalue the shares of a diversified firm Liquidation:Shutting down portions of a firm’s operations, often at a tremendous financial loss 8-14

  15. Portfolio Planning and Corporate Level Strategy Portfolio planning: A process that helps executives make decisions involving their firms’ various industries Offers suggestions about what to do within each industry, and provides ideas for how to allocate resources across industries. It first gained widespread attention in the 1970s and it remains a popular tool among executives today 8-15

  16. Portfolio Planning and Corporate Level Strategy The Boston Consulting Group (BCG) matrix Best-known approach to portfolio planning Using the matrix requires a firm’s businesses to be categorized as high or low along two dimensions: Its share of the market The growth rate of its industry 8-16

  17. Managing a portfolio of products

  18. Workshop on Product Portfolio Take the company that your group did a report on, or another company. See if you can do a quick analysis of the company’s portfolio. Discuss how you would manage the different products in the matrix.

  19. Thursday Read Chapter 8

  20. Strategic Management – Spring 2013

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