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SESSION 12: CORPORATE LEVEL
STRATEGY: Analysis and Choice in The
Multi-Business Company
Rationalizing Diversification and
Building Shareholder Value
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The Concept of Corporate-Level Strategy
Primary Question - Where to Compete?
Are there other business opportunities?
Entering or exiting Industries
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CL Strategy – Whether to Diversify?

Synergies

Growth Opportunities

Agency Issues – “Empire Building”
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Diversification
• Corporate strategy to enter into a new market or
industry which the business is not currently in,
whilst also creating a new product for that market
When?
Expand into a business activity that doesn’t
negatively react to the same economic downturns as
your current business activity
• Growth potential in present business
• Attractiveness of opportunities to transfer
• Potential cost-savings opportunities
• Availability of adequate resources
• Managerial expertise to cope with complexity
Questions to Ask
1. What can our company do better than any of its
competitors in its current market?
2. What strategic assets do we need in order to succeed
in the new market?
3. Can we catch up to or leapfrog competitors at their
own game?
4. Will diversification break up strategic assets that
need to be kept together?
5. Will we be simply a player in the new market or will
we emerge a winner?
6. What can our company learn by diversifying, and are
we ssufficiently organized to learn it?
Motives for Diversification
• To grow
• To more fully utilize existing resources and
capabilities
• To escape from undesirable or unattractive industry
environments
• To make use of surplus cash flows
Risks & Rewards
• Increased Sales and Revenue
• Dependency Reduction
• Operational Stress
• Brand Damage
Failed
• BP and Exxon: tried to use their knowledge of
exploration, extraction, and large-scale
management capabilities in the mineral business.
• What they didn’t have? Access to deposits
• Coca-Cola: tried to use their intimate knowledge of
consumers, marketing and branding expertise, and
distribution capabilities in the wine business.
• So, what was the problem? They knew nothing about
wine!
Concentric Diversification
• Expanding into market
or products that are
related to current
business
• Related diversification
• Opportunities to
expand product
offerings or expand
into new geographical
areas
• Very complex and
difficult to coordinate
Primary
Industry
A
B
C
Examples
• Pepsi Co.
• Bought
Burger King,
Pizza Hut,
and Frito Lay
• Canon
• Cameras to
Photocopiers
• Johnson &
Johnson
• Baby
shampoo and
Neutrogena
skin care
products
Conglomerate Diversification
Primary Industry
A
B
• Expanding into
industries unrelated to
its current business
• Unrelated
diversification
• Helps the company to
continue to grow after a
core business has
matured or started to
decline
• Company can’t lack
expertise about their
Examples
• General
Electric
• Radios,
fridges, and
wind
turbines
• TV networks
• Financial
service firms
• Oil drilling
• Computer
manufacturin
g
• Samsung
• Phones, TVs,
and tablets
• Military
hardware
• Apartments
• Korean
amusement
park
• Virgin Group
Limited
• Travel and
entertainmen
t
• Financial
services
• Wineries
• Mobie
phones
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Multibusiness Corporations
Corporations comprised of multiple businesses are
often referred to as having a portfolio of
businesses
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By Definition a change in
Corporate Level Strategy
should be reflected in a
change in Mission Statement
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SONY PICTURES STUDIOS
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CADBURY SCHWEPPES, PLC.
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.
DR. PEPPER/SEVEN UP, INC
SNAPPLE
LA CASERA
ORANGINA
CANADA DRY
MOTT’S
HAWAIIAN PUNCH
TRINA
CLAMATO
SOLO
A&W
GINI
SUNKIST
CANADA DRY
SQUIRT
ENERGADE
CRUNCHIE
FRUIT & NUT
MINIHEROES
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The Portfolio Approach to Corporate Level
Strategy

Research Allocation Decisions

How does Corporate Affiliation Provide Value?
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GE and McKinsey

The Concept of The SBU

Corporate Review Capability

Matrices to Facilitate/Illuminate the Resource
Allocation Decision
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To Be Designated an SBU, Businesses had to:
Have a unique mission independent of other
SBUs
 Have a clearly definable set of competitors
 Compete in external markets
 Be able to carry out integrative planning
relatively independent of other SBUs
 Be able to manage resources in key areas
 Be large enough to justify senior management
attention

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Balancing Financial Resources: Portfolio Techniques
BCG GrowthShare Matrix
Industry
AttractivenessBusiness Strength
Matrix
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Life CycleCompetitive
Strength Matrix
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BCG Growth-Share Matrix
Cash Generation (Market Share)
High
Low
Description of
Dimensions
Cash Use (Growth Rate)
Market Share: Sales
High
Star
Problem
Child
relative to those of other
competitors in market
(dividing point is usually
selected to have only 2-3
largest competitors in
any market fall into high
market share region)
Growth Rate: Industry
Low
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Cash Cow
Dog
growth rate in constant
dollars (dividing point is
typically GNP’s growth
rate)
© 2000 The McGraw-Hill Companies, Inc.
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Factors Considered in Constructing an Industry
Attractiveness-Business Strength Matrix
Industry Attractiveness Factors
Nature of Competitive
Rivalry
Bargaining Power of
Suppliers/Customers
Threat of Substitutes/
New Entrants
• Number of
• Relative size of
• Technological
competitors
typical players
• Size of competitors
• Numbers of each
• Strength of
• Importance of
competitors’
corporate parents
• Price wars
• Competition on
purchases from or
dales to
• Ability to vertically
maturity/stability
• Diversity of the
market
• Barriers to entry
• Flexibility of
distribution system
integrate
multiple dimensions
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Fig. 9-3: Factors Considered in Constructing an Industry
Attractiveness-Business Strength Matrix (continued)
Industry Attractiveness Factors
Economic Factors
• Sales volatility
• Cyclicality of
demand
• Market growth
• Capital intensity
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Financial Norms
• Average
profitability
• Typical leverage
• Credit practices
Sociopolitical
Considerations
• Government
regulation
• Community
support
• Ethical standards
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Fig. 9-3: Factors Considered in Constructing an Industry
Attractiveness-Business Strength Matrix (continued)
Business Strength Factors
Cost Position
• Economies of scale
• Manufacturing costs
Level of
Differentiation
• Promotion
effectiveness
Response Time
• Manufacturing
flexibility
• Overhead
• Product quality
• Time needed to
• Scrap/waste/rework
• Company image
introduce new
products
• Experience effects
• Patented products
• Delivery times
• Labor rates
• Brand awareness
• Organizational
• Proprietary
flexibility
processes
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Fig. 9-3: Factors Considered in Constructing an Industry
Attractiveness-Business Strength Matrix (concluded)
Business Strength Factors
Financial Strength
Human Assets
Public Approval
• Solvency
• Turnover
• Goodwill
• Liquidity
• Skill level
• Reputation
• Break-even point
• Relative
• Image
• Cash flows
• Profitability
wage/salary
• Morale
• Managerial
• Growth in
commitment
revenues
• Unionization
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Fig. 9-4: Industry Attractiveness-Business Strength Matrix
Industry Attractiveness
High
Medium
Low
Description of
Dimensions
Industry Attractiveness:
Business Strength
High
Medium
Low
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Invest
Selective
Growth
Grow or
Let Go
Selective
Growth
Grow or
Let Go
Harvest
Grow or
Let Go
Harvest
Divest
Subjective assessment
based on broadest
possible range of external
opportunities and threats
beyond control of
management
Business Strength:
Subject assessment of
how strong a competitive
advantage is created by a
broad range of a firm’s
internal strengths and
weaknesses
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Advantages of the Industry Attractiveness-Business
Strength Matrix over the BCG Matrix

Terminology is less offensive and more
understandable

Multiple measures associated with each
dimension tap many factors relevant to business
strength and market attractiveness

Allows for broader assessment during both
strategy formulation and implementation for a
multibusiness company
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Fig. 9-5: Market Life Cycle-Competitive Strength Matrix
Stage of Market Life Cycle
Competitive Strength
Introduction
High
Moderate
Low
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Growth
Maturity
Decline
Description of
Dimensions
Stage of Market Life
Cycle: See page 182
Competitive Strength:
Overall subjective
rating, based on wide
range of factors
regarding likelihood of
gaining and
maintaining a
competitive advantage
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Contributions of Portfolio Approaches
Convey large amounts of information about diverse
businesses and corporate plans in a simplified format
Illuminate similarities and differences among businesses,
conveying the logic behind corporate strategies for each
business
Simplify priorities for sharing corporate resources across
diverse businesses
Provide a simple prescription of what should be
accomplished - a balanced portfolio of businesses
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Limitations of Portfolio Approaches
Does not address how value is created across business units
Accurate measurement for matrix classification not as easy as
matrices implied
Underlying assumption about relationship between market share
and profits varies across different industries and market segments
Limited strategic options viewed as basic strategic missions
Portrays notion that firms need to be self-sufficient in capital
Fails to compare competitive advantage a business receives from
being owned by a particular company with costs of owning it
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