Multi-Business Strategy

Multi-regional strategy
 Lecture Outline
• What is Portfolio Management
• What is Portfolio Analysis
• Boston Box
• McKinsey/GE Matrix
• AD Little Life-Cycle Matrix
 Portfolio Management
• “enable strategic planners to select the
optimal strategies for the individual
products whilst achieving overall
corporate objectives”
(Mcnamee, 1985)
• Multi-business
• And/or multi-location
Portfolio Analysis
“ the strategic units that make up the company
and the attempts to evaluate current
effectiveness and vulnerabilities” (McDonald
et al, 1992)

– How much of our time and money should we

spend on our best products to ensure that
they continue to be successful?

– How much of our time and money should we

spend developing new costly products, most
of which will never be successful?
 Examples of Portfolios
• Unilever: ice cream, tea, spreads,
• Proctor & Gamble: Detergents, nappies,
• Gillette: batteries, Shaving products
• Virgin; trains, planes, cola, music stores
 Hold Strategy

To enjoy continued
strong cashflow.
Relatively high
market share / low
market growth rate
‘Cash Cow’
opportunities
should be able to
maintain market
share at or around
existing levels
 Build Strategy

To grow the
business.
Relatively low
relative market
share / high market
growth rate
‘Question Mark’
opportunities need
investment in order
to grow.
 Harvest Strategy

To develop short
term cashflow
irrespective of the
long term
damaging effect to
the product or
business. This
strategy is
appropriate for any
weak products
where disposal in
the form of a sale
is unavailable or
not preferred due
to high exit barriers
 Divest Strategy

To change
the capital
of the
business
and allow
resources
to be used
elsewhere
 Boston Box - Uses
• Simplifies complex situations
• Target setting tool
• Encourages strategists to view their
business as a collection of diversified cash
flows and investments
• Success sequences
• Disaster Sequences
 Disadvantages
• Uses 2 factors only
• Many businesses are “Average”
• Dogs -10% mkt share –most fall into this
category
• Can use dogs as a tactical tool- barrier to
entry
• Cash flow? – Why not ROI?
 GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

 General Electric’s Business Screen
C
Winners Winners
A Question
High B Marks

D
Industry Attractiveness

Winners
E Average
Businesses
Medium F
Losers

H
Losers
G
Low
Profit
Producers Losers Source: Adapted from Strategic
Management in GE, Corporate Planning
and Development, General Electric
Strong Average Weak Corporation. Used by permission of
General Electric Company.
Business Strength/Competitive Position
 GE Matrix- uses
• More sophisticated than BCG – uses more
variables
• Condenses much information into 2
variables?
 Limitations
• Complex and Weighty
• The numerical estimates can be
“objective”
• What about new products or business
units in growth industries.
 Uses
• The power of the Life-cycle matrix is the
story it tells about the distribution of the
firm’s businesses across the stages of the
industry evolution
 Limitations
• Limited strategic prescription
• Once defined prescription is limited
• Some businesses “skip” cycles
• Go from Growth to Decline in a short time.
• Duration of “cycles”
• Eg. Mars (1930)
 International Portfolio Analysis
2 Factors:

• Country’s attractiveness
• Market size, rate of growth, regulation

• Competitive strength
• Market share, product fit, contribution
margin, market support
Portfolio Matrix for Plotting Products by Country
Competitive Strengths

High Low

Dominate/Divest

High
Invest/Grow
Joint Venture
Country Attractiveness

Selective
Strategies

Harvest/Divest
Low

Combine/License
 Portfolio Analysis

Advantages:
– Top management evaluates each of
firm’s businesses individually
– Use of externally-oriented data to
supplement management judgment
– Raises issue of cash flow availability
– Facilitates communication
 Portfolio Analysis

Disadvantages:
– Difficult to define product/market
segments
– Standard strategies can miss
opportunities
– Illusion of scientific rigor
– Value-laden terms