Strategic Management PEARCE & ROBINSON

1. CHAPTER 8 Strategic Analysis and Choice in the Multibusiness Company: Rationalizing Diversification and Building Shareholder Value

3. The Portfolio Approach BCG Growth-Share Matrix Industry Attractiveness-Business Strength Matrix Life Cycle-Competitive Strength Matrix BCG’s Strategic Environments Matrix

4. Ex. 8-1: The BCG Growth-Share Matrix Star Problem Child Cash Cow Dog Cash Generation (Market Share) High Low High Low Cash Use (Growth Rate) Description of Dimensions Market share: sales relative to those of other competitors in the market (dividing point is usually selected to have only the two-three largest competitors in any market fall into the high market share region) Description of Dimensions Growth Rate: Industry growth rate in constant dollars (diving point is usually the GNP’s growth rate)

9. Ex. 8-4: The Industry Attractiveness-Business Strength Matrix High Medium Low Industry Attractiveness High Low Business Strength Medium Invest Selective Growth Grow or Let Go Harvest Divest Grow or Let Go Harvest Selective Growth Grow or Let Go Description of Dimensions Industry Attractiveness : Subjective assessment based on broadest possible range of external opportunities and threats beyond the strict control of management Business Strength : Subjective assessment of how strong a competitive advantage is created by a broad range of the firm’s internal strengths and weaknesses

11. Ex. 8-5: The Market Life Cycle-Competitive Strength Matrix Caution: Invest Selectively Push: Invest Aggresively Danger: Harvest Stage of Market Life Cycle Introduction Growth Maturity Decline High Low Competitive Strength Description of Dimensions Stage of Market Life Cycle : See p. 146 Competitive Strength : Overall subjective rating, based on a wide range of factors regarding the likelihood of gaining and maintaining a competitive advantage

12. Ex. 8-6: BCG’s Strategic Environments Matrix Fragmented apparel, house building, jewelry retailing, sawmills Specialization pharmaceuticals, luxury cars, chocolate confectionery Stalemate basic chemicals, volume-grade paper, ship owning, wholesale banking Volume jet engines, supermarkets, motorcycles, standard microprocessors Many Few Small Big Size of Advantage Sources of Advantage

25. Ex. 8-10: Three Approaches to Strategy Key processes and unique simple rules Unique, valuable, inimitable resources Unique, valuable position with tightly integrated activity system Source of advantage How should we proceed? What should we be? Where should we be? Strategic question Jump into the confusion Keep moving Seize opportunities Finish strong Establish a vision Build resources Leverage across markets Identify an attractive market Locate a defensible position Fortify and defend Strategic logic Simple Rules Resources Position

26. Ex. 8-10 (contd.) Growth Long-term dominance Profitability Performance goal Managers will be too tentative in executing on promising opportunities Company will be too slow to build new resources as conditions change It will be difficult to alter position as conditions change Risk Unpredictable Sustained Sustained Duration of advantage Rapidly changing, ambiguous markets Moderately changing, well-structured markets Slowly changing, well-structured markets Works best in

27. Ex. 8-11: Simple Rules, Summarized (Adapted) They help managers decide when to pull out of yesterday’s opportunities. Exit rules They synchronize managers with the pace of emerging opportunities and other parts of the company. Timing rules They help managers rank the accepted opportunities. Priority rules They focus managers on which opportunities can be pursued and which are outside the pale. Boundary rules They spell out key features of how a process is executed – “What makes our process unique?” How-to rules Purpose Type