Diversification

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Strategy Formulation:

Strategy Formulation Strategies for Growth and Diversification

Identifying Growth Strategies:

Identifying Growth Strategies Define the industry Analyze options for growth

What Is Our Industry?:

What Is Our Industry? Defining the industry in new ways can present new opportunities. Examples: Disney IBM

Business-Level Strategies For Growth:

Business-Level Strategies For Growth Market Penetration Strategy Product Development Strategy Market Development Strategy Diversification Strategy Existing New Domain (i.e., Industry Market Product/Service Existing New

BCG Growth-Share Matrix:

BCG Growth-Share Matrix Dimensions: Industry growth rate Relative market share position of the businesses SBUs plotted as circles with area proportional to their contribution to overall corporate sales

PowerPoint Presentation:

BCG Business Portfolio Matrix High Low High Low “Stars” “Cash Cows” “Question Marks” “Dogs” Industry Growth Rate Relative Market Share Position

BCG Matrix -- Strengths:

BCG Matrix -- Strengths Encourages strategists to view a diversified firm as a collection of cash flows & cash requirements (** its major strategic implication **) Explains why priorities for corporate resource allocation differ from SBU to SBU Demonstrates the progression of an SBU -- from Q-mark ===>Star ===>Cash Cow

BCG Matrix -- Weaknesses:

BCG Matrix -- Weaknesses Over-simplifies market growth & market share issues 4 simple categories are neat, but trends are more valuable Doesn’t directly identify which SBUs offer the best investment opportunities Considers only 2 variables

G.E. 9-Cell Matrix:

G.E. 9-Cell Matrix Dimensions: Long-term industry attractiveness Business strength/Competitive position SBUs plotted as circles with area proportional to the size of the industry, & a sector within each circle representing the SBUs market share in its industry

PowerPoint Presentation:

Strong Average Weak H M L GE 9-Cell Matrix Business Strength/Competitive Position Long-Term Industry Attractiveness

Strategic Implications of the G.E. 9-Cell Matrix:

Strategic Implications of the G.E. 9-Cell Matrix SBUs in 3 upper left cells get top investment priority SBUs in 3 middle diagonal cells merit steady investment to maintain & protect their industry positions SBUs in 3 lower right cells are candidates for harvesting or divestiture

Advantages of G.E. 9-Cell Matrix:

Advantages of G.E. 9-Cell Matrix Allows for intermediate rankings between high & low and between strong & weak Incorporates a wider variety of strategically relevant variables than the BCG matrix Stresses the channeling of corporate resources to SBUs with the greatest potential for competitive advantage & superior performance

Weaknesses of G.E. 9-Cell Matrix:

Weaknesses of G.E. 9-Cell Matrix Provides no guidance on specifics of SBU strategy Only suggests general strategic posture -- aggressive expansion, fortify-&-defend, or harvest/divest Doesn’t address the issue of strategic coordination across related SBUs Tends to obscure SBUs about to “take off” or “crash & burn” -- static, not dynamic

Life-Cycle Portfolio Matrix:

Life-Cycle Portfolio Matrix Dimensions: Industry stage in the life cycle SBU’s competitive position Area of each SBU circle is proportional to size of the industry; sectors denote SBU’s market share in its industry This matrix displays the distribution of the firm’s businesses across the various stages of industry evolution

PowerPoint Presentation:

Strong Average Weak SBUs Competitive Position Life-Cycle Portfolio Matrix Introduction Growth Early Maturity Late Maturity Decline Life-Cycle Stages

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