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Evaluating Strategies of Diversified Companies

Evaluating Strategies of Diversified Companies. Evaluation Steps. Identify current strategy Evaluate long-term industry attractiveness Evaluate competitive strengths of business units Identify cross-business strategic fits Determine whether strengths match requirements

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Evaluating Strategies of Diversified Companies

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  1. Evaluating Strategies of Diversified Companies

  2. Evaluation Steps • Identify current strategy • Evaluate long-term industry attractiveness • Evaluate competitive strengths of business units • Identify cross-business strategic fits • Determine whether strengths match requirements • Rank business units on performance and prospects • Decide prospects for resource allocation • Craft strategy to improve corporate performance

  3. Present Corporate Strategy • The extent to which the firm is diversified • Pursuing related or unrelated diversification • Scope- domestic to global • Moves to add new businesses • Moves to divest businesses • Recent moves to boost key businesses • Management efforts to capture synergy • Percentage of resources allocated to each unit

  4. Industry Attractiveness • Evaluate the industries in which the firm is invested from three angles • Each industry in and of itself • In comparison with other industries in the portfolio • The portfolio of industries as a whole

  5. Industry Attractiveness • Market size and growth rate • Intensity of competition • Opportunities and threats • Seasonal and cyclical factors • Resource requirements • Presence of strategic fits • Industry profitability • Social, political, regulatory and environmental factors • Uncertainty and business risk

  6. Competitive Strengths of Business Units • Relative market share • Costs relative to competitors • Ability to match or beat rivals on product attributes • Ability to exercise bargaining leverage • Caliber of partnerships and alliances • Ability to develop synergy • Technology and innovation capabilities • How well business matches industry’s KSF • Brand name recognition and reputation • Profitability relative to competitors

  7. BCG Matrix • A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market • The matrix classifies the types of businesses that a diversified organization can engage as • “Dogs” have small market shares and no growth prospects • “Cash cows” have large shares of mature markets • “Question marks” have small market shares in quickly growing markets • “Stars” have large shares of rapidly growing markets

  8. BCG Matrix

  9. GE Business Screen • A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors • Industry attractiveness • Competitive position (strength) of each firm in the portfolio • In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business

  10. GE Business Screen

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