strategic

1. Chapter -3.
BBA 8th Semester 2014

2. Strategic analysis and choice in
multi-business company
Concept and nature of multi-business company,
rationalizing diversification and
integration, behavioural consideration affecting
strategic choices, building shareholders value, analysis
of external dependence, internal political
consideration.

3. Concept and nature of multi-
business company
 Many large company have various business units,
various product and operate in more than one
location.
 Known as portfolio of the business.
 Various reasons for doing so.
 Products may be at different stages of the product life
cycle- inception, growth, maturity, declining and so on

4. Strategic Business Unit (SBU)
 Each SBU has separate market segment, competitors,
managers and plan
 Focuses on strengthen the market strength and gain
competitive advantages .

5.  Multi-business strategic choice and analysis normally
consists of the
 Portfolio approach
 Synergy approach
 Parenting approach
 Patching approach

6. Portfolio approach
 Tools to evaluate corporate strategic options in MBCs
 Popularized by Boston Consulting Group (BCG)
matrix and McKinsey & Co.
 Portfolio means collection of company shares and
investment decisions in various sectors which are
owned by a single corporate headquarters.

7. BCG Matrix
Dogs
IV
Cash Cows
III
Question Marks
I
Stars
II
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
IndustrySalesGrowthRate
High
+20
Low
-20
Medium
0

8. BCG Matrix
Question Marks
 Low relative market share position yet compete in
high-growth industry.
 Cash needs are high
 Cash generation is low
 Decision to strengthen (intensive strategies) or divest

9. BCG Matrix
Stars
 High relative market share and high industry growth
rate.
 Best long-run opportunities for growth and profitability
 Substantial investment to maintain or strengthen
dominant position
 Integration strategies, intensive strategies, joint
ventures

10. BCG Matrix
Cash Cows
 High relative market share position, but compete in
low-growth industry
 Generate cash in excess of their needs
 Milked for other purposes
 Maintain strong position as long as possible
 Product development, concentric diversification
 If becomes weak—retrenchment or divestiture

11. BCG Matrix
Dogs
 Low relative market share position and compete in
slow or no market growth
 Weak internal and external position
 Decision to liquidate, divest, retrenchment

12. The Industry Attractiveness-
Business Strength Matrix
 Developed by Mckinsey & Co at General Electric.
 Also known as 9 cell matrix
 The position of business is calculated by subjectively
quantifying its rating along the two dimensions of
matrix.

13. Strong Average weak
high Premium- invest
for growth
* Maximize
investment,
diversify n seem
dominate
Selective- invest
for growth
•Invest heavily and
seek attractive new
segment to apply
strength
Protect- selectively
invest for earning
•Defend strength
and refocus to
attractive segment
And monitor for
harvest or
divesture
medium Challenge – invest
for growth
* Build selectively
on strength
Prime-selectively
invest for earning
Restructure- divest
* Shift to more
attractive segment
low Opportunistic-
selectively invest
for earnings
Opportunistic-
preserve for
harvest.
* Minimize
Harvest or divest
* Exit from the
market or product
line
business strengths
Industryattractiveness

14.  Both BCG and Industry attractiveness- business
strength matrix generates similar strategic
recommendations, it improves BCG is followings ways:
 Terminologies are less offensive and understandable
 The multiple measures of various dimensions of
business covers many relevant factors besides the
market share and growth.
 9 cells matrix makes more broad assessment during the
planning process, considering importance in both
strategy formulation and implementation .

15. The BCG Strategic-Environments
Matrix
 MBC adopts strategies according to the type of the
environment a particular business is facing.
 Strategies varies on the feature 0f the industry.
 This matrix helps to MBCs to share the core
competencies and associated competitive advantages
due to similar strategic environments.

16. Fragmented Specialization
Stalemate volume
Size of the competitive advantage
small big
many
few
Sourcesofadvantages

17.  This matrix has two dimensions
 Sources of competitive advantages
 Size of competitive advantages

18. Volume business are those that have few
sources of advantages but the size is large.
 Honda is the example of volume business as it has
expertise with small gasoline engines.
Stalemate business have few sources of
advantage, with most of those small which creates very
competitive situations.
 Operational efficiency, low overhead and cost
management are critical to profiatablity.

19. Fragmented business have many
sources of advantages, they are all small.
 Involves differentiated products with low brand
loyalty, easily replicated technology etc.
 Skills in focused market segments, ability to respond
quickly to changes, low costs are critical in this
environment.
Specialization business have many
sources of advantages and find those advantages
potentially sizable. Skills in achieving differentiation-
product design, branding expertise, innovation.
 Characterized as WINNER

20. Limitations of Portfolio approach
 Merely cash focused ignores building value chain in
each separate business units.
 Offers limited strategic options and ignores the
common competencies and internal synergies among
operating units.
 Unwarranted assumptions to the capital self-
sufficiency thus overlooking the possibility of raising
capital from capital market.

21. 2. Synergy Approach
 Leveraging the core competencies to create added value.
 Assumptions:
 Value building opportunities are found in market-related,
operations-related and management-related activities
 Diversification, integration or joint venture is used to build
greater value.
 Value chain activities of one business creates synergy
 Core competencies are leveraged to diversify into multiple
businesses.
 Common opportunities are sought in the value chain activites
 Business has common need.

22.  Concerned with weather or not the potential,
competitive advantages expected to arise from each
value opportunity is realised.

23. Value building
opportunities
Competitive advantage Impediments
(difficulties )
-market related oppor..
-common activities,
office n sales
- common brand name
- Common promotion n
distribution
-Lower selling cost, better
market coverage
- stronger brand image,
brand loyalty
-Cheaper promotion and
higher bargaining power
-Different buying habits,
sales person
ineffectiveness
-Down with company
reputation if quality is
lowered.
Operations related oppo..
-Joint procurement of
purchased units
-Common manufacturing
and assembling process
-Common admin support
-Lower input costs,
improved input quality
-Capacity utilization
-Reduced cost of product
-Decrease in the admin
and operating overheads
-Different input needs
-Increase in changeover
costs
-Different locations for
different plants
-Differentiation requires
different plants or
technology
Management- related
opportunities
-common management,
know-how, operating
skills and proprietary
information
- Effective transfer can
create distinctive
capability
Misuse of technology
transfer , possibility of
information leakage

24. 3. Parenting Approach
 Parent is known as guardian, responsible for leading to
the intended direction by sharing wisdom, insight and
suggestions.
 This approach has identified 10 places to look for
parenting opportunities

25.  Size and age
 Management
 Business definition
 Predictable errors
 Linkages
 Common capabilities
 Specialized expertise
 External relations
 Major decisions
 Major changes

26. 4. Patching approach
 Corporate executives routinely remap business to match
rapidly changing market opportunities
 Assumes that the role and ability of the parent company is
necessary to create value in MBCs
 This approach believes that traditional corporate strategy
merely creates defensive strategic positions for business
units by acquiring or building valuable assets.
 This approach proves effective in volatile market because it
focuses on the strategic processes which make quick, small,
frequent changes in parts of business and organizational
process.

27. Rationalizing Diversification and
Integration
 While moving toward growth comes along two basic
issues to be considered.
 Whether to Integrate or Diversify.
 Integrate within its current industry or diversify into
other industries.

28. Diversification and Integration
1. Are opportunities for sharing infrastructure and
capabilities forthcoming?
2. Are we capitalizing on our core competencies?
3. Does the company’s business portfolio balance
financial resources?
4. Does our business portfolio achieve appropriate
levels of risk and growth?

29.  Integration is the growth internally by expanding its
operations both globally and domestically.
 Horizontal and vertical growth are the two wings of
integration.
 Done to reduce cost and build value chain relationship
 Increasing the company`s scale of operations and
market share,
 Expanding the company`s geographic coverage,
 Reducing the market rivarly and enhancing the
company`s flexibility and dynamic capabilities

30.  Diversification is producing new products for new
markets involving quite different skills, processes and
technologies from those associated with the present
products, services and processes.
 Views business in two ways
 Business Related
 Business Unrelated

31.  The concept of related business assumes that there is
close relationship between value chain activities of
different businesses, resources and capabilities that
each business needs to perform.
 Unrelated businesses means that it is almost
impossible to establish cross business relationship.

32. Behavioral Considerations
Affecting Strategic Choice
 Role of current strategy
 Degree of firm’s external dependence
 Attitudes toward risk
 Managerial priorities different from stockholder
interests
 Internal political considerations
 Competitive reaction

33.  Role of current strategy
 – What is the amount of time and resources invested in
previous strategies?
 – How close are new strategies to the old?
 – How successful were previous strategies?
 Degree of firm’s external dependence
 – How powerful are firm’s owners, customers, competitors,
unions, and its government?
 – How flexible is firm with its environment?
 Attitudes toward risk
 – Industry volatility and industry evolution affect managerial
attitudes
 – Risk-oriented managers prefer offensive, opportunistic
strategies
 – Risk-averse managers prefer defensive, conservative
strategies

34.  Managerial priorities different from stockholder interests
 – Agency theory suggests managers frequently place their own interests
above those of their shareholders
 Internal political considerations
 – Major sources of company power are CEO, key subunits, and key
departments
 – Power can affect corporate decisions over analytical considerations
 – The content of strategic decisions and the process of arriving at such
decisions are politically charged
 Competitive reaction
 – Probable impact of competitor response must be considered during
strategy design process
 – Competitor response can alter the success of strategy

35. Value analysis of external
dependence
 Owners, suppliers, customers, government,
competitors and unions.
 Strategic choice is the power of the external
environmental element supporting the decision.
 Higher the dependency lower will be the competitive
advantages.

36. Internal Political Considerations
 Strategy formulation as a political process
 where strategic aspirations are disputed, conflict exists
 managers compete for scarce resources
 the internal political dynamic
 the dynamic between the organization and its stake
holders
 conflict and consensus co-exist
 Process of negotiating action is central.