Managing Multi-Unit
Organizations
Strategic Factors I
Page 1
Multi-Unit Management
• Decide scope/reach of the organization
– In which businesses or industries does our
organization operate or compete?
• Develop and leverage synergies across
differentiated organization units
Acme Inc.
Product 1
Product 2
Product 3
Product N
Page 3
Multi-Unit Management
• Unrelated organization units
General Electric
Light
Bulbs
Aircraft
Engines
Power
Generation
Equipment
Kitchen
Appliances
Page 4
Multi-Unit Management
• Related organization units
Procter & Gamble
Soap
Food
Paper
Products
OTC
Pharm.
Page 5
Multi-Unit Management
• Portfolio focus and rebalancing
PEPSI
Carbonated
Beverages
Juices,
Water,
Sports
drinks
Snack
Foods
Fast Food
20% of total sales
Page 6
Multi-Unit Management
• Portfolio focus
• Near-single business organization
COCA-COLA
Carbonated
Beverages
Juices,
Water,
Sports drinks
80% of total sales
Page 7
Diversification/Growth Examples
• Pepsi
– Acquired Tropicana juice co.
– Acquired Quaker Oats
• Gatorade
–Spun-off fast food restaurants (YUM!)
– Issued Pepsi Bottling IPO
– Reinvest in Frito-Lay
• FedEx
– Acquired Mailboxes Plus!
– Acquired Kinko’s
•
•
•
•
Kraft Foods’ acquisition of Cadbury
Pfizer acquires Wyeth
UKMC acquires Good Samaritan
PNC Bank acquires National City
Bank
Page 8
M&A in Hospital Industry
• During 2000-2009
– 597 mergers and acquisitions
– $74.5 billion in deals
• HCA
• Community Health Systems
• Ascension Health
• Capella Healthcare
• many more….
Page 9
Why Diversify??
Jet Ski
Division
Sales
($)
Snowmobile
Winter
Spring
Summer
Fall
Pharmaceuticals
Industry
Growth
(%)
Bulk Chemicals
1960
1970
1980
1990
2000
2010
Benefits of Diversification
• Reduce earnings volatility
• Move organization into attractive markets
and market segments
• Growth
• Minimize risk
• Prolong “life” of the organization
• Improve long-term performance
• Capture synergies and strategic “fit”
between businesses
• Steer corporate resources
Types of Organizational Diversification
• Vertical
• Horizontal
– Related
– Unrelated
• Global
Marathon Oil
Retail
Stores
Gas
Stations
Installed
Oil Shops
Wholesaling
Refining
Transport
Oilfield
Extraction
Oilfield
Exploration
Page 13
Exxon-Mobil
Retail
Stores
Gas
Stations
Installed
Oil Shops
Wholesaling
Refining
Transport
Oilfield
Extraction
Oilfield
Exploration
Page 14
Horizontal Diversification
Related
Procter & Gamble
Soaps
Paper
Products
Finance
R&D
Food
Products
Finance
R&D
Mfg.
Marketing
Logistics
Page 15
Horizontal Diversification
Unrelated
General Electric
Aircraft
Engines
Lighting
Products
Finance
Appliances
Finance
Page 16
Geographic Diversification
International Markets
Cola-Cola
US
Greece
Finance
China
Finance
Brand &
Brand &
Some Marketing Some Marketing
Local bottling and distribution
Page 17
Transformation Through Diversification
• Enter new businesses
– Change business portfolio (Monsanto)
• Shift from commodity chemicals to agricultural
biotechnology
• Molecular biology
• GM seed/plant technologies
• Branded products
Total
Return
MONSANTO
Biotech (38%)
S&P
Chemicals (18%)
1994
Today
Page 18
Transformation Through Diversification
Nokia
– Founding -1989:
Electrical conglomerate
– 1993-today: 90% telecommunications
Total
Return
Nokia
Motorola
S&P
Eriksson
1989 1993
2009
Page 19
Strategic Management of Diverse,
Multi-Unit Organizations
• Turnaround
– Restore competitiveness to poor
performers
– New advantages created within
portfolio
• Retrenchment
– Narrow scope of portfolio
–“Stick to your knitting”
• Restructuring
– Add new businesses / divest poor
performers
Disney: Capability Leverager
•
•
•
•
•
•
•
•
•
Films
Videos
Network TV
Cable TV
Hotels
Cruise lines
Merchandise
Brand licensing
Retail Stores
Toy Story
Page 21
Blue Circle
Dominant-business Diversified Firm
HQ
Cement
Cement
Products
Core Competence:
• Products related to home-building
Page 22
Blue Circle
HQ
Cement
Bricks
Cement
Products
Gas
Stoves
Lawn
Mowers
Core Competence:
• Products related to home-building?
Page 23
Boddingtons
Vertically Integrated Firm
HQ
Pubs
Beer
Wholesaling
Beer
Brewing
Core Competence:
• Hospitality, retailing, property
management
Page 24
Boddingtons
Related Horizontal Diversified Firm
HQ
Pubs
Hotels
Restaurants
Health
Clubs
Nursing
Homes
Core Competence:
• Hospitality, retailing, property
management
Page 25
Evaluation of Diversified Firms
BCG Growth-share Matrix
Industry Growth Rate
Reveal contextual position of
corporate portfolio
High
Low
< 1.0
Behind
Market
Leader
1.0
> 1.0
You are
Market
Leader
Relative Market Share
Evaluation of Diversified Firms
BCG Growth-share Matrix
Industry Growth Rate
Categorize different organizational
units
?
Stars
Dogs
Cash
Cows
High
Low
< 1.0
Behind
Market
Leader
1.0
> 1.0
You are
Market
Leader
Relative Market Share
Evaluation of Diversified Firms
Industry Growth Rate
General Electric
High
Light
Bulbs
Low
Aircraft
Engines
Appliances
< 1.0
Behind
Market
Leader
1.0
> 1.0
You are
Market
Leader
Relative Market Share
Love Your Dogs
Love Your Dogs
• Why?
– Dogs are under-appreciated
• Neglected
• Same category as “value stocks”
Payoffs to investing in and paying
greater operational-strategic attention
to underperformers better than
investing in unproven “stars”
– Dogs need nurturing/attention
• “Feed” them (resources, attention)
• Have them “fixed” (new strategy)
• Teach them “new tricks” (innovation)
– “Adopt” someone else’s dogs
Managing Multi-Unit Playing Cards
• Organizational Units
– Suit


– Number
3, 4, 7, J
• Managing Organizational
Units for Value Creation
• Positive Outcomes
–
–
–
–
Two-, Three-, Four-of-a-kind
Flush
Straight
Full house
3
4
7
J
3
Page 31
Questions…?
Page 32