Evaluating Strategies of Diversified Companies

Evaluation Steps1. Identify current strategy2. Evaluate long-term industry attractiveness3. Evaluate competitive strengths of business units4. Identify cross-business strategic fits5. Determine whether strengths match requirements6. Rank business units on performance and

prospects7. Decide prospects for resource allocation8. Craft strategy to improve corporate performance

Present Corporate StrategyThe extent to which the firm is diversifiedPursuing related or unrelated diversificationScope- domestic to globalMoves to add new businessesMoves to divest businessesRecent moves to boost key businessesManagement efforts to capture synergyPercentage of resources allocated to each unit

Industry Attractiveness

Evaluate the industries in which the firm is invested from three angles

Each industry in and of itselfIn comparison with other industries in the portfolioThe portfolio of industries as a whole

Industry AttractivenessMarket size and growth rateIntensity of competitionOpportunities and threatsSeasonal and cyclical factorsResource requirementsPresence of strategic fitsIndustry profitabilitySocial, political, regulatory and environmental factorsUncertainty and business risk

Competitive Strengths of Business Units

Relative market shareCosts relative to competitorsAbility to match or beat rivals on product attributesAbility to exercise bargaining leverageCaliber of partnerships and alliancesAbility to develop synergyTechnology and innovation capabilitiesHow well business matches industry’s KSFBrand name recognition and reputationProfitability relative to competitors

BCG Matrix

A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the marketThe matrix classifies the types of businesses that a diversified organization can engage as

“Dogs” have small market shares and no growth prospects“Cash cows” have large shares of mature markets“Question marks” have small market shares in quickly growing markets“Stars” have large shares of rapidly growing markets

BCG Matrix

GE Business ScreenA method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors

Industry attractivenessCompetitive position (strength) of each firm in the portfolio

In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business

GE Business Screen