CORPORATE-LEVEL STRATEGY

THREE KEY ISSUES FACING THE CORPORATION

THE FIRMS ORIENTATION TOWARD GROWTH, STABILITY,
AND RETRENCHMENT (Directional Strategy)

THE INDUSTRIES OR MARKETS IN WHICH THE FIRM
COMPETES (Portfolio Strategy)

THE MANNER IN WHICH MANAGEMENT COORDINATES
ACTIVITIES AND TRANSFERS RESOURCES AND
CULTIVATES CAPABILITIES AMONG PRODUCT LINES AND
BUSINESS UNITS (Parenting Strategy)

Corporate headquarters must play the parent as it deals with its
various lines of business (children).
CORPORATE GROWTH STRATEGIES
CONCENTRATI ON
1. HORIZONTAL INTEGRATION
GEOGRAPHIC EXPANSION
Local, Regional, National, Global
INCREASING THE RANGE OF PRODUCTS and/or SERVICES

2. VERTICAL INTEGRATION
BACKWARD
Long-Term Contracts
Quasi-integration
Tapered Integration
Full Integration
FORWARD

DI VERSI FI CATI ON
1. CONCENTRIC
Related
2. CONGLOMERATE
Unrelated
GROWTH-ENTRY STRATEGIES
DOMESTIC ENTRY
INTERNAL DEVELOPMENT & EXPANSION

EXTERNAL ACQUISITIONS & MERGERS

STRATEGIC ALLIANCES & PARTNERSHIPS
Licensing, Franchises, Joint Ventures

INTERNATIONAL ENTRY
EXPORTING
LICENSING
FRANCHISING
JOINT VENTURES
ACQUISITIONS
GREEN-FIELD DEVELOPMENT
PRODUCTION SHARING
TURNKEY OPERATIONS
MANAGEMENT CONTRACTS
WHEN ARE GROWTH STRATEGIES LOGICAL?
COMPETITIVE POSITION

WEAK STRONG
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
RAPID REFORMULATE HORIZONTAL
HORIZ & VERTICAL INTEGRATION
INTEGRATION
VERTICAL
DIVERSIFICATION INTEGRATION

SELL-OUT/DIVEST CONCENTRIC
DIVERSIFICATION
MARKET - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
GROWTH RATE DIVERSIFICATION INTERNATIONAL
EXPANSION
CAPTIVE FIRM/MERGE
DIVERSIFICATION
ABANDONMENT
SLOW JOINT VENTURE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
WHEN IS DIVERSIFICATION LOGICAL?
DONT DIVERSIFY UNLESS

SYNERGY IS ACHIEVED

SHAREHOLDER VALUE IS BUILT

CONCENTRIC DIVERSIFICATION
FINDING A SYNERGISTIC FIT
Marketing
Operations
Management
MERGING THE FUNCTIONS

CONGLOMERATE DIVERSIFICATION
FIND FIRMS WHOSE ASSETS ARE UNDERVALUED
FIND FIRMS THAT ARE FINANCIALLY DISTRESSED
FIND FIRMS WITH BRIGHT PROSPECTS BUT ARE SHORT ON $$$
CONGLOMERATE (UNRELATED) DIVERSIFICATION
PROS
1--BUSINESS RISK IS SCATTERED OVER MANY INDUSTRIES

2--CAN INVEST CAPITAL IN WHATEVER OFFERS THE BEST PROFIT PROSPECTS

3--PROFITABILITY IS MORE STABLE BECAUSE HARD TIMES IN ONE INDUSTRY CAN BE
PARTIALLY OFFSET BY GOOD TIMES IN ANOTHER

4--IF CORPORATE MANAGERS ARE GOOD AT SPOTTING BARGAIN-PRICED FIRMS WITH
BIG UPSIDE PROFIT POTENTIAL, SHAREHOLDER WEALTH WILL BE ENHANCED

CONS
1--TOP MANAGEMENT COMPETENCE
Can they tell a good acquisition from a bad one?
Can they select good managers to run each business?
Do they know what to do if a business unit stumbles?

2--DIVERSIFICATION DOES NOTHING TO ENHANCE THE COMPETITIVE STRENGTH OF
INDIVIDUAL BUSINESS UNITS
Each business unit is on it own
No corporate synergy can be achieved

3--ARE THE FIRMS PROFITS MORE STABLE?
Do the up and down cycles cancel out?

4--HOW MUCH DIVERSITY CAN THE FIRM MANAGE SUCCESSFULLY?
How broad should our portfolio be?
COMBINATION DIVERSIFICATION STRATEGIES
ONE MAJOR CORE BUSINESS
With a modest diversified portfolio (1/3 or less)

NARROWLY DIVERSIFIED
With a few (2-5) related core business units
With a few (2-5) unrelated business units

BROADLY DIVERSIFIED
With many related business units
With many business units in mostly unrelated industries

A MULTI-BUSINESS FIRM
With several unrelated groups of related businesses

POST-DIVERSIFICATION STRATEGIES
MAKE NEW ACQUISITIONS
Related or Unrelated?

DIVEST SOME BUSINESS UNITS
Poor Performers?
Poor Strategic Fit?

RESTRUCTURE THE WHOLE PORTFOLIO

NARROW THE DIVERSIFICATION BASE

BECOME A DIVERSIFIED MULTINATIONAL, MULTI-INDUSTRY
COMPANY (DMNC)
CORPORATE STABILITY STRATEGIES
PROFIT
Keep milking the cow, but dont feed it
Artificially supporting profits by cutting costs
Keeping up appearances that everything is still OK
A temporary strategy for a worsening environment

PAUSE
Consolidate after recent rapid growth
A temporary strategy to catch your breath

PROCEED WITH CAUTION
Environment looks scarywait to see what happens

NO-CHANGE
A very predictable environmentnothing uncertain ever happens
Why tamper with success? What firms did before WalMart came
CORPORATE RETRENCHMENT STRATEGIES
OFTEN TRI GGERED BY
DISAPPOINTING PERFORMANCE
ECONOMIC DOWNTURN
EXCESSIVE DEBT
ILL-CHOSEN ACQUISITIONS

TURNAROUND
Help subsidiaries become profitable
Belt-tightening and consolidation

CAPTI VE COMPANY
Give up independence for securitysell mostly to one large customer angel
Can scale back on some functions, like marketing

SELL-OUT/DI VEST
Sell the entire operation to someone as an ongoing business
Divest a healthy firm that doesnt fit our portfolioor a low-producing business

LI QUI DATI ON
The last resortno one wants to buy the entire business
The assets are worth more than the businessso theyre sold piece by piece
EVALUATING DIVERSIFIED PORTFOLIOS
THE BCG GROWTH-SHARE MATRIX (Boston Consulting Group)

DIMENSIONS
Industry Growth Rate
Compared to GDP
Relative Market Share
Uses ratios instead of absolute market shares

CLASSIFICATIONS
Question Marks (or Problem Children or Wildcats)
Stars
Cows
Dogs

ADVANTAGES & IMPLICATIONS
It is quantifiable and easy to use
Easy to remember terms and their meaning when referring to business units
Assumes large market shares => economies of scale => cost leadership
Each business unit moves across the matrix in predictable ways over time
Focuses attention on cash flows and needs
WEAKNESSES IN THE BCG GROWTH-SHARE MATRIX
TOO SIMPLISTICIT ONLY HAS A FOUR-CELL MATRIX
WHERE DO AVERAGE BUSINESSES BELONG?

PREJUDICIAL CLASSIFICATION SCHEME
DOGS & PROBLEM CHILDREN v. STARS & COWSVERY BIASED TERMS
THE TRENDS & MOVEMENTS OF THESE UNITS SEEM MORE IMPORTANT

IS HIGH INDUSTRY GROWTH ALWAYS GOOD?

DOES HIGH MARKET SHARE ALWAYS MEAN HIGH PROFITABILITY?
FIRMS CAN LOSE MONEY WHILE HOLDING A LARGE MARKET SHARE
LOW-SHARE BUSINESSES CAN ALSO BE PROFITABLE

ONLY CONSIDERS RELATIONSHIP TO THE MARKET LEADERWHILE OTHERS
ARE IGNORED
WHAT ABOUT SMALL COMPETITORS WITH FAST-GROWING MARKET SHARES?

GROWTH RATE IS ONLY ONE ASPECT OF INDUSTRY ATTRACTIVENESS

MARKET SHARE IS ONLY ONE ASPECT OF OVERALL COMPETITIVE POSITION
THE BCG GROWTH-SHARE MATRIX
RELATIVE MARKET SHARE

HIGH 1.0 LOW
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
HIGH STARS QUESTI ON
MARKS
INDUSTRY 1.0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
GROWTH RATE
COWS DOGS
LOW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


RELATIVE MARKET SHARE
Your market share divided by largest rivals share

INDUSTRY GROWTH RATE
Industry growth percentage compared to GDP

SIZE OF CIRCLES
The significance (revenues) of each SBU to the firm
THE GE BUSINESS SCREEN
THE INDUSTRY ATTRACTIVENESS / BUSINESS STRENGTH MATRIX
TWO DIMENSIONS (McKinsey & Co)
Industry Attractiveness
MARKET SIZE & GROWTH RATE
INDUSTRY PROFITABILITY
INTENSITY OF COMPETITION
BARRIERS TO ENTRY / EXIT
SEASONALITY / CYCLICALITY
TECHNOLOGICAL & PRODUCT CONSIDERATIONS
CAPITAL REQUIREMENTS
EMERGING OPPORTUNITIES & THREATS
SOCIAL, ENVIRONMENTAL, & POLITICAL FACTORS
STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS
Business Strength / (Competitive Position)
RELATIVE MARKET SHARE
RELATIVE PRICE, QUALITY, & SERVICE v. RIVALS
PROFIT MARGINS and COST POSITION v. RIVALS
KNOWLEDGE OF CUSTOMERS & MARKETS
TECHNOLOGICAL CAPABILITY & LEADERSHIP
FINANCIAL & PHYSICAL RESOURCES
CALIBER OF MANAGEMENT & STAFF
COMPETENCIES MATCH KEY SUCCESS FACTORS
THE GE BUSINESS SCREEN
BUSINESS STRENGTH / COMPETITIVE POSITION

STRONG AVERAGE WEAK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
HIGH WI NNER WI NNER QUESTI ON
MARK
LONG-TERM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INDUSTRY AVERAGE WI NNER AVERAGE LOSER
ATTRACTIVENESS BUSI NESS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROFI T LOSER LOSER
LOW PRODUCER
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INDIVIDUAL PRODUCT LINES
Identified by letter

SIZE OF EACH CIRCLE
Represents the total revenues in the industry

PIE SLICES
Represents your share of that market
PROS & CONS OF THE GE BUSINESS SCREEN
STRENGTHS
USES MORE COMPREHENSIVE MEASURES / VARIABLES IN ASSESSING INDUSTRY
ATTRACTIVENESS AND BUSINESS STRENGTH / COMPETITIVE POSITION

DOESNT LEAD TO AS SIMPLISTIC CONCLUSIONS AS THE BCG GRID

NINE CELL APPROACH ALLOWS FOR INTERMEDIATE RANKINGS BETWEEN HIGH/LOW AND
STRONG/WEAK

STRESSES CHANNELING OF RESOURCES TO AREAS WITH THE GREATEST PROBABILITY OF
ACHIEVING COMPETITIVE ADVANTAGE AND SUPERIOR PERFORMANCE

WEAKNESSES
PROVIDES NO REAL GUIDANCE ON THE SPECIFICS OF WHAT STRATEGY TO FOLLOW
ITS TOO GENERAL

CANT SPOT UNITS THAT ARE ABOUT TO BECOME WINNERS BECAUSE THEIR INDUSTRIES
ARE ENTERING THE TAKEOFF STAGE

USE OF NUMERIC ESTIMATES SEEMS OBJECTIVE, BUT IS REALLY VERY SUBJECTIVE

SHOULD THE WEIGHTS & FACTORS USED TO ASSESS INDUSTRY ATTRACTIVENESS AND
BUSINESS POSITION BE USED GENERICALLY, OR ADJUSTED DEPENDING ON THE
INDUSTRY UNDER INVESTIGATION?

THE HOFER LIFE-CYCLE MARKET EVOLUTION
MATRIX
TWO DIMENSIONS (Charles Hofer & A. D. Little, Co)
Stage of Industry / Market Evolution
EARLY DEVELOPMENT
RAPID GROWTH / TAKE-OFF
SHAKE-OUT
MATURITY / SATURATION
DECLINE / STAGNATION

Business Strength / (Competitive Position)
SAME DIMENSIONS AS USED IN THE GE BUSINESS SCREEN

ADVANTAGES

Can be used to identify and track developing winners

Illustrates how the firms businesses are distributed across the stages of industry
evolution
THE HOFER LIFE-CYCLE MARKET EVOLUTION
MATRIX
BUSINESS STRENGTH / COMPETITIVE POSITION

STRONG AVERAGE WEAK
EARLY - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DEVELOPMENT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
STAGE OF RAPID GROWTH /
TAKE-OFF
INDUSTRY / MARKET - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SHAKE-OUT
EVOLUTION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
MATURITY /
SATURATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DECLINE /
STAGNATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREEN
Except for the Stage of Market Evolution, this model is identical to the GE Business Screen

IN SUMMARY: USING PORTFOLIO ANALYSIS
PROS AND CONS
STRENGTHS
ENCOURAGES TOP MANAGEMENT TO EVALUATE EACH LINE OF BUSINESS SEPARATELY,
AND TO SET OBJECTIVES AND ALLOCATE RESOURCES TO EACH.

IT STIMULATES THE USE OF EXTERNALLY-ORIENTED DATA TO SUPPLEMENT
MANAGEMENTS JUDGMENT

RAISES THE ISSUE OF CASH FLOW AVAILABILITY FOR USE IN EXPANSION AND GROWTH

GRAPHICALLY COMMUNICATES THE MIX OF BUSINESSES THE FIRM HAS INVESTED IN

WEAKNESSES
DEFINING PRODUCT / MARKET SEGMENTS IS DIFFICULT

IT SUGGESTS STANDARD STRATEGIES THAT CAN MISS OPPORTUNITIES OR BE IMPRACTICAL

PROVIDES AN ILLUSION OF SCIENTIFIC RIGOR, WHEN POSITIONS ARE REALLY BASED ON
SUBJECTIVE JUDGMENTS

VALUE-LADEN TERMS (cow, dog) LEAD TO SIMPLISTIC STRATEGIES AND SELF-FULFILLING
PROPHESIES

ITS NOT ALWAYS CLEAR WHAT MAKES AN INDUSTRY ATTRACTIVE OR WHERE A PRODUCT IS
IN ITS LIFE CYCLE

NAIVELY FOLLOWING PORTFOLIO PRESCRIPTIONS MAY REDUCE PROFITS DOGS CAN
MAKE MONEY!
HOW TO APPLY PORTFOLIOS IN YOUR ANALYSIS
THE NON-QUANTITATIVE APPROACH
COMPARING INDUSTRY ATTRACTIVENESS
ATTRACTIVENESS OF EACH INDUSTRY IN THE PORTFOLIO
Is this a good industry for our organization to be in?

EACH INDUSTRYS ATTRACTIVENESS RELATIVE TO THE OTHERS
Which industries are the most / least attractive?

ATTRACTIVENRSS OF ALL THE INDUSTRIES AS A GROUP
How appealing is the mix of industries? Is the portfolio a good one?

TO DETERMINE INDUSTRY ATTRACTIVENESS

1--USE GE BUSINESS SCREEN METHODOLOGY

2--SUBJECTIVELY CLASSIFY EACH INDUSTRY FACTOR INTO ONE OF THREE
CATEGORIES
HI GHLY ATTRACTI VE
AVERAGE
NOT ATTRACTI VE
EVALUATING INDUSTRY ATTRACTIVENESS
(UNWEIGHTED)
INDUSTRY FACTOR CLASSIFIED AS

MARKET SIZE & GROWTH RATE AVERAGE

INDUSTRY PROFITABILITY ATTRACTIVE

INTENSITY OF COMPETITION UNATTRACTIVE

BARRIERS TO ENTRY/EXIT UNATTRACTIVE

SEASONALITY/CYCLICALITY AVERAGE

TECHNOLOGY & PRODUCT CONSIDERATIONS AVERAGE

CAPITAL REQUIREMENTS UNATTRACTIVE

EMERGING OPPORTUNITIES & THREATS AVERAGE

SOCIAL, REGULATORY, & POLITICAL FACTORS AVERAGE

STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS ATTRACTIVE

OVERALL EVALUATI ON = AVERAGE
EVALUATING INDUSTRY ATTRACTIVENESS
(NUMERIC, UNWEIGHTED)
ASSIGN A NUMBER TO EACH INDUSTRY FACTOR USING THE FOLLOWING SCHEME
UNATTRACTIVE = 0, 1, 2, 3 AVERAGE = 4, 5, 6 ATTRACTIVE = 7, 8, 9, 10
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INDUSTRY FACTOR ASSIGNED NUMBER

MARKET SIZE & GROWTH RATE 6
INDUSTRY PROFITABILITY 9
INTENSITY OF COMPETITION 2
BARRIERS TO ENTRY/EXIT 3
SEASONALITY/CYCLICALITY 6
TECHNOLOGY & PRODUCT CONSIDERATIONS 5
CAPITAL REQUIREMENTS 1
EMERGING OPPORTUNITIES & THREATS 5
SOCIAL, REGULATORY, & POLITICAL FACTORS 4
STRATEGIC FIT WITH OTHER LINES OF BUSINESS 8

OVERALL EVALUATI ON = 49/10 =4.9 =AVERAGE
EVALUATING INDUSTRY ATTRACTIVENESS
(NUMERIC, WEIGHTED)
1--ASSIGN WEIGHTS TO EACH INDUSTRY FACTOR (Must add up to 100%)

2--THEN ASSIGN NUMBERS TO EACH FACTOR USING THE FOLLOWING SCHEME
UNATTRACTIVE = 0 - 3 AVERAGE = 4 - 6 ATTRACTIVE = 7 - 10

3--MULTIPLY WEIGHTS BY NUMBERS TO DETERMINE THE WEIGHTED SCORE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
WEIGHT INDUSTRY FACTOR ASSIGNED NUMBER

.10 MARKET SIZE & GROWTH RATE 6
.10 INDUSTRY PROFITABILITY 9
.15 INTENSITY OF COMPETITION 2
.05 BARRIERS TO ENTRY/EXIT 3
.05 SEASONALITY/CYCLICALITY 6
.08 TECHNOLOGY & PRODUCT CONSIDERATIONS 5
.12 CAPITAL REQUIREMENTS 1
.10 EMERGING OPPORTUNITIES & THREATS 5
.10 SOCIAL, REGULATORY, & POLITICAL FACTORS 4
.15 STRATEGIC FIT WITH OTHER LINES OF BUSINESS 8

OVERALL EVALUATI ON = 4.87 =AVERAGE
EVALUATING BUSINESS STRENGTH /
COMPETITIVE POSITION
(UNWEIGHTED)
USE THE FOLLOWING SCHEME TO CLASSIFY EACH BUSINESS STRENGTH FACTOR
STRONG
AVERAGE
WEAK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BUSINESS STRENGTH FACTOR CLASSIFIED AS
OUR RELATIVE MARKET SHARE STRONG
OUR RELATIVE PRICE v. RIVALS AVERAGE
OUR QUALITY & SERVICE v. RIVALS AVERAGE
OUR RELATIVE COST POSITION v. RIVALS STRONG
OUR PROFIT MARGINS v. RIVALS STRONG
KNOWLEDGE OF CUSTOMERS & MARKETS AVERAGE
TECHNOLOGICAL CAPABILITY / LEADERSHIP WEAK
FINANCIAL & PHYSICAL RESOURCES AVERAGE
CALIBER OF MANAGEMENT & STAFF STRONG
COMPETENCIES MATCH KEY SUCCESS FACTORS AVERAGE

OVERALL EVALUATI ON = AVERAGE to STRONG
EVALUATING COMPETITIVE BUSINESS STRENGTH
(NUMERIC, UNWEIGHTED)
ASSIGN NUMBERS TO EACH BUSINESS STRENGTH FACTOR USE THE FOLLOWING
WEAK = 0, 1, 2, 3 AVERAGE = 4, 5, 6 STRONG = 7, 8, 9, 10
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INDUSTRY FACTOR ASSIGNED NUMBER

RELATIVE MARKET SHARE 7
RELATIVE PRICE v. RIVALS 5
QUALITY & SERVICE v. RIVALS 6
RELATIVE COST POSITION v. RIVALS 8
PROFIT MARGINS v. RIVALS 8
KNOWLEDGE OF CUSTOMERS & MARKETS 5
TECHNOLOGICAL CAPABILITY & LEADERSHIP 2
FINANCIAL & PHYSICAL RESOURCES 4
CALIBER OF MANAGEMENT & STAFF 8
COMPETENCIES MATCH KEY SUCCESS FACTORS 6

OVERALL EVALUATI ON = 59/10 =5.9 =AVERAGE
EVALUATING COMPETITIVE BUSINESS STRENGTH
(NUMERIC, WEIGHTED)
1--ASSIGN WEIGHTS TO EACH COMPETITIVE FACTOR (Must add up to 100%)

2--THEN ASSIGN NUMBERS TO EACH FACTOR USING THE FOLLOWING SCHEME
WEAK = (0 3) AVERAGE = (4 6) STRONG = (7 10)

3--MULTIPLY WEIGHTS BY NUMBERS TO DETERMINE THE WEIGHTED SCORE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
WEIGHT COMPETITIVE BUSINESS STRENGTH ASSIGNED NUMBER

.08 RELATIVE MARKET SHARE 7
.08 RELATIVE PRICE v. RIVALS 5
.15 QUALITY & SERVICE v. RIVALS 6
.12 RELATIVE COST POSTION v. RIVALS 8
.06 PROFIT MARGINS v. RIVALS 8
.15 KNOWLEDGE OF CUSTOMERS & MARKETS 5
.05 TECHNOLOGICAL CAPABILITY / LEADERSHIP 2
.10 FINANCIAL & PHYSICAL RESOURCES 4
.06 CALIBER OF MANAGEMENT & STAFF 8
.15 COMPETENCIES MATCH KEY SUCCESS FACTORS 6

OVERALL EVALUATI ON = 5.93 =AVERAGE
COMPARING BUSINESS UNIT PERFORMANCE
WHI CH BUSI NESS UNI TS HAVE THE BEST/WORST PERFORMANCE?
ASSESS THE TRENDS RE:
Sales Growth
Profit Growth
Contribution to Company Earnings
Return on Capital Invested in the Business (ROA)
Cash Flow Generated

STRATEGIC FIT ANALYSIS
STRATEGI C ATTRACTI VENESS
Does this business have cost-sharing or skills-transfer opportunities?
FI NANCI AL ATTRACTI VENESS
Does this business contribute to corporate performance objectives?

RANK THE BUSINESS UNITS ON INVESTMENT PRIORITY
Which units should get the highest priority regarding financial support?
COMPARING BUSINESS UNIT PERFORMANCE
A SIMPLE EXAMPLE
UNIT A UNIT B UNIT C UNIT D

SALES GROWTH .018 .068 .102 .071
GROWTH IN PROFITS .032 .062 .103 .044
CONTRIBUTION TO CORP
EARNINGS (Omit 000s) $ 70 $554 $ 29 $237
RETURN ON ASSETS .072 .124 .088 .096
GENERATED CASH FLOWS $234 $611 $ 28 $342
(Omit 000s)



STRATEGI CALLY ATTRACTI VE No Yes Yes No

FI NANCI ALLY ATTRACTI VE Yes Yes No Yes

I NVESTMENT PRI ORI TY 4 1 2 3
CRAFTING A CORPORATE STRATEGY
BY EVALUATING YOUR PORTFOLIO MATRIX
1. DOES THE PORTFOLIO HAVE ENOUGH BUSINESSES IN
ATTRACTIVE INDUSTRIES?

2. DOES THE PORTFOLIO CONTAIN TOO MANY MARGINAL
BUSINESSES OR QUESTION MARKS?

3. DOES THE CORPORATION HAVE ENOUGH CASH COWS TO
FINANCE THE STARS AND EMERGING WINNERS?

4. DO THE CORE BUSINESSES GENERATE DEPENDABLE PROFITS OR
CASH FLOWS?

5. IS THE PORTFOLIO VULNERABLE TO SEASONAL OR
RECESSIONARY INFLUENCES?

6. DOES THE PORTFOLIO CONTAIN BUSINESSES THAT THE
CORPORATION DOESNT NEED TO BE IN?

7. IS THE CORPORATION BURDENED WITH TOO MANY BUSINESSES
IN AVERAGE-TO-WEAK COMPETITIVE POSITIONS?

8. DOES THE MAKEUP OF THE PORTFOLIO PUT THE CORPORATION
IN A GOOD POSITION FOR THE FUTURE?
STEPS IN THE STRATEGIC ANALYSIS OF
DIVERSIFIED FIRMS
A SUMMARY
1. IDENTIFY THE PRESENT CORPORATE STRATEGY

2. CONSTRUCT BUSINESS PORTFOLIO MATRICES

3. PROFILE THE INDUSTRY AND COMPETITIVE ENVIRONMENT OF
EACH BUSINESS UNIT

4. EVALUATE THE COMPETITIVE STRENGTH OF EACH INDIVIDUAL
BUSINESS

5. COMPARE PERFORMANCE RECORDS OF EACH BUSINESS UNIT

6. HOW WELL DOES EACH BUSINESS UNIT FIT WITH CURRENT
CORPORATE STRATEGY?

7. RANK THE UNITS FROM HIGHEST TO LOWEST IN INVESTMENT
PRIORITY

8. CRAFT A SERIES OF MOVES TO IMPROVE OVERALL CORPORATE
PERFORMANCE