session15: product portfolio strategy
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Session15: Product Portfolio Strategy
Dr. Mark H. Mortensen66.490.211 and 212Tues &Thurs 2:00 to 3:15
3:30 to 4:45
Manning School of Business
Mortensen Consulting Group
Today1. Attendance2. Discussion on strategies for managing a portfolio
of products3. Group work on xxx
Read Chapter 5Did Starbucks Assignment
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Growth
Organic – grow the businessConcentrationDiversification
Inorganic – acquire new businesses
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Concentration Strategies
8-4
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Concentration Strategies
8-5
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Concentration Strategies
8-6
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Vertical Integration Strategies Vertical integration: When a firm gets involved
in new portions of the value chain Can be very attractive when a firm’s suppliers or
buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense
By entering the domain of a supplier or a buyer, executives can reduce or eliminate the leverage that the supplier or buyer has over the firm
Can create risks Can create complacency
8-7
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Vertical Integration Strategies Backward vertical integration: A strategy that
involves a firm entering a supplier’s business Used when executives are concerned that a supplier
has too much power over their firms Forward vertical integration: A strategy that
involves a firm entering a buyer’s business Useful for neutralizing the effect of powerful buyers
8-8
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Diversification Strategies
Diversification strategies: Involve a firm entering entirely new industriesRequires moving into new value chains
Three tests for diversification:How attractive is the industry that a firm is
considering entering? How much will it cost to enter the industry? Will the new unit and the firm be better off?
8-9
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Diversification Strategies
Related diversification: When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries
Core competency: A skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business 8-10
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Diversification Strategies
Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries Most unrelated diversification efforts do not
have happy endings
8-11
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Strategies for Getting Smaller
Retrenchment: Reducing the size of part of a firm’s operations, often through laying off employeesFirms following a retrenchment strategy shrink
one or more of their business unitsFirms using this strategy hope to make just a
small retreat rather than losing a battle for survival
8-12
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Strategies for Getting Smaller
Divestment: Selling off part of a firm’s operations It reverses a forward vertical integration
strategy Spin-off: Creating a new company whose
stock is owned by investors out of a piece of a bigger company
8-13
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Strategies for Getting Smaller
Diversification discount: The tendency of investors to undervalue the shares of a diversified firm
Liquidation: Shutting down portions of a firm’s operations, often at a tremendous financial loss
8-14
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Portfolio Planning and Corporate Level Strategy Portfolio planning: A process that helps
executives make decisions involving their firms’ various industriesOffers suggestions about what to do within
each industry, and provides ideas for how to allocate resources across industries.
It first gained widespread attention in the 1970s and it remains a popular tool among executives today
8-15
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Portfolio Planning and Corporate Level Strategy The Boston Consulting Group (BCG)
matrixBest-known approach to portfolio planning Using the matrix requires a firm’s businesses
to be categorized as high or low along two dimensions:
Its share of the market
The growth rate of its industry
8-16
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Managing a portfolio of products
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Workshop on Product Portfolio
Take the company that your group did a report on, or another company.
See if you can do a quick analysis of the company’s portfolio.
Discuss how you would manage the different products in the matrix.
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Thursday
Read Chapter 8
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Strategic Management – Spring 2013
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