Multibusiness Strategy
Chapter 9
McGraw-Hill/Irwin
Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
1.
2.
3.
4.
5.
Understand the portfolio approach to strategic
analysis and choice in multibusiness companies.
Understand and use three different portfolio
approaches to conduct strategic analysis and
choice in multibusiness companies
Identify the limitations and weaknesses of the
various portfolio approaches
Understand the synergy approach to strategic
analysis and choice in multibusiness companies
Evaluate the parent company role in strategic
analysis and choice to determine whether and how
it adds tangible value in a multibusiness company
9-3
The Portfolio Approach
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The portfolio approach is a historical starting
point for strategic analysis and choice in
multibusiness firms
Boston Consulting Group (BCG) pioneered an
approach called portfolio techniques that
attempted to help managers
“balance” the flow of cash
resources among their various
businesses while identifying their
basic strategic purpose within the overall
portfolio
9-4
The BCG Growth-Share Matrix
9-5
The Industry Attractiveness-Business Strength
Matrix
9-6
BCG’s Strategic Environments
Matrix
9-7
BCG’s Strategic Environments Matrix
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Volume businesses are those that have
few sources of advantage, but the size
is large—typically the result of scale
economies
Stalemate businesses have few sources
of advantage, with most of those small
Fragmented businesses have many
sources of advantage, but they are all
small
Specialization businesses have many
sources of advantage and find those
advantages potentially sizable
9-8
Limitations of Portfolio Approach
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It does not address how value is being created across
business units
Truly accurate measurement for matrix classification
was not as easy as the matrices portrayed
The underlying assumption about the relationship
between market share and profitability varied across
industries and market segments
The limited strategic options came to be seen more as
basic strategic missions
It ignored capital raised in capital markets
It typically failed to compare the competitive
advantage a business received from being owned by a
particular company with the costs of owning it
9-9
The Synergy Approach: Leveraging Core
Competencies
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Opportunities to build value via diversification,
integration, or joint venture strategies are usually found
in market-related, operations-related, and management
activities
Strategic analysis is concerned with whether or not the
potential competitive advantages expected to arise from
each value opportunity have materialized
The most compelling reason companies should diversify
can be found in situations where core competencies—key
value-building skills—can be leveraged with other
products or into markets that are not a part of where they
were created
9-10
The Synergy Approach
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Each core competency should provide a
relevant competitive advantage to the
intended businesses
Businesses in the portfolio should be
related in ways that make the company’s
core competencies beneficial
Any combination of competencies must be
unique or difficult to recreate
9-11
The Corporate Parent Role:
Can It Add Tangible Value?
Realizing synergies from shared
capabilities and core competencies is a key
way value is added in multibusiness
companies.
1. Research suggests that figuring out if the
synergies are real and, if so, how to capture those
synergies is most effectively accomplished by
business unit managers, not the corporate parent.
2. How can the corporate parent add value to its
businesses in a multibusiness company?
9-12
The Parenting Framework
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The parenting framework perspective sees
multibusiness companies as creating value by
influencing—or parenting—their businesses
The best parent companies create more value
than any of their rivals do or would if they
owned the same businesses
To add value, a parent must improve its
businesses
9-13
10 Sources of Parenting Opportunities
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Size & Age
Management
Business
Definition
Predictable Errors
Linkages
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Common Capabilities
Specialized Expertise
External Relations
Major Decisions
Major Changes
9-14
The Patching Approach
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Patching is the process by which corporate
executives routinely remap businesses to match
rapidly changing market opportunities
It can take the form of adding, splitting,
transferring, exiting, or combining chunks of
businesses
Patching is not seen as critical in stable,
unchanging markets
When markets are turbulent and rapidly
changing, patching is seen as critical to the
creation of economic value in a multibusiness
company
9-15
Proponents of Patching
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View traditional corporate strategy as creating defensible
strategic positions for business units by acquiring or
building valuable assets, wisely allocating resources to
them, and weaving synergies among them
In volatile markets, they argue, this traditional approach
results in business units with strategies that are quickly
outdated and competitive advantages rarely sustained
beyond a few years
As a result, strategic analysis should center on strategic
processes more than strategic positioning
In these volatile markets, patchers strategic analysis
focuses on making quick, small, frequent changes in parts
of businesses and organizational processes
9-16
Three Approaches to Strategy
9-17