Index:

• Corporate Strategy;
• Matrixes for Portfolio Analysis;
  • BCG;
  • GE-McKinsey;

CORPORATE STRATEGY:

-> OBJ: manage financial resources allocation to the portfolio of different Strategic Business Unit the overall company is made of.

-> Key Issue:

1. Analyze and compare the competitive positioning of each business, and of the overall business portfolio;
2. Suggest strategic orientation to each business (that will be further speified at a Business Strategy Level);
3. Define criteria and priorities for financial resource allocation to each business (cash generating vs cash absorbing SBU) looking for an overall portfolio’s financial equilibrium.

Diversification Strategy:

-> DEF: Choice of “hierarchy” that is internalizing a new business within the corporate portfolio.

• Strategy aimed at entering new business areas which the corporation is not currently serving (and create new SBUs to serve such new business area);

-> Diversification is more favorable than other alternatives (e.g. brand franchising) when:

• SCOPE ECONOMIES: scale economies applied to a wider range or family of activities performed;
• 🔺 TRANSACTION COSTs: costs to bear to set up an agreement with the “market”;

History:

-> From the era of diversification (1950-80) to refocusing:

• Emphasis on shareholders value;
• Turbolene -> Specialization;
• Sharing resources and capabilities as real source of advantage;

Creating value:

• Attractiveness test (industry must be attractive);
• The Cost-of-Entry test;
• The better–off test (is the combination the more profitability?);

🔗 Digital Era:

• Industry boundariest are growingly fuzzy;
• More and more business areas may be loosely related.

Corporate Competitive Advantage:

-> Main typpologies of business portfolios exist:

• Non correlated portfolios;
• Correlated portfolios;

-> Usually real-world cases of business portfolios do not strictly belong to one of these categories;

-> Real portfolios are a mix of the two extreme solutions.

MATRIXES for PORTFOLIO ANALYSIS:

-> IDEA: rapresent a diversified company’s BA in a simple graphical model to support Corporate Strategy definition.

-> HP: Long-term (non reversible) profitability tot SBU depends on;

• BA attractiveness;
• SBU competitive positioning in the BA.

-> OBJ

• To analyse the competitive advantage coming from the managing of a SBU’s portfolio
• To support the choice of a business portfolio (Corporate Strategy definition)
• To provide some guidelines to SBUs for the definition of their own strategy
• To analyse the strategies of competitors

Boston Consulting Group (BCG) Matrix:

-> HP:

• Business Area attractiveness can be measured through “Market growth rate”:
  • Price wars are less likely
  • Customer base expands, and offer can catch up with demand
• SBU competitive positioning can be measured through “Relative market share”:
  • SBU can benefit from cost advantages depending on size (for instance, economies of scale and experience, production capacity saturation, etc.)

-> OBJ:

• Verify the “bank effect“
• To shape a business portfolio that is well balanced from a financial point of view
• To define a “virtuous circle” strategy
• To analyse the strategies of competitors

The Matrix:

❓ products with high growth but low share.

-> They require large amounts of cash to mantain the market share and still larger amounts fo gain share.

• Ex: Start Up
• Lot of investment.
• Not a mature market.

🐮 products with high market share and slow growth, which characteristically generate large amounts of cash.

⭐️ high-growth, high-share products which may or not be self sufficient in cash flow;

• Reduced investments (compared with ❓)

🐶 product with low market share and slow growth, which neither generate nor require significant amounts of cash. Mantaining share usually requires the reinvestment of any profits as well as additional capital. These products are often called «cash traps».

•  Market with no opportunity.

📌TIPS:

• Think about the number of treshold.
• RATIO …: ratio between your market shares and the market shares of the competitors.

-> If RATIO > 1 => u r market leader.

The Virtuous Circle

⭐️:	hold or buld share;
🐮:	“milk” for cash;
❓:	Buld Share or Divest;
🐶:	Harvest or Divest.

 

The Balanced Portfolio:

-> All products become cash-cow or dogs!

-> VALUE of product depend upon obtaining the leading share of its market before the growth slows.

-> Balanced Portfolio HAS:

⭐️:	🔺 shares & growth assure the future
🐮:	That supply funds for that future growth
❓:	To be converted into stars
🐶:	They need a dedicated strategies!

GE-McKinsey Matrix:

-> DEF: matrix

• Developed in 1971 by McKynsey for GE;
• Use two dimension market segment attractiveness and business trength;
• It weighting those variables and each business is classified into one of nine cells (3*3 matrix);

-> OBJ: compare investment opportunities.

• Difference (with BCG) multiple measures are used to assess market attractiveness and competitive position.

1. Allocate resources correclty;
2. Choose the business to invest in, to mantain and divest;
3. Analyse the strategies of competitors;

The Nine-Cells Strategy Scheme:

Industry Attractiveness:	Business Strenghts:

Reccomended Strategies:

⭐️We are not interest in positioning but in reasoning about the company.

PREMIUM INVEST/ GROW: -> 🎯 Investment; -> 💪 Strengths; -> 🔺 Returns on investment & CA; -> Are in the attractive market. -> Should receive financial/managerial support to maintain their strong position and long term profitability.	SELECTIVE INVEST/GROW: -> Good Strength in industry loosing its attractiveness; -> Sholud be supported but may be self-supporting in cash flow terms.	PROTECTIVE SELECTIVITY/EARNINGS: -> Strong business; -> Unattractive market; -> Cash generator; -> Investment -> keeping business in dominant position. ⚠Don’t over-invest!
CHALLENGE INVEST/GROW: -> Attractive industries; -> Average Strength; -> Invest => long-term competitive position	PRIME SELECTIVITY/EARNINGS: -> Average Strength; -> Creative segmentation and selective investment -> 🔺 position; -> Segment to differentiate and returns.	RESTRUCTURED HARVEST/DIVEST: -> Average Sterngth; -> Unactractive MKT; -> Use strategy to prevent defeat and to upset competitors.
OPPORTUNISTIC SELECTIVE/EARNINGS: -> Attractive MKT; -> 🔻 Strength; -> No self-founding; -> Disinvest if business can’t improve strength.	OPPORTUNISTIC HARVEST/DISINVEST: -> 🔻 Strength; -> Attractive industries; -> Exit or Disinvest; -> 🔺 MKT shares and business strengths could be expensive and must be donw qith coution.	HARVEST/DIVEST: -> 🔻 Strength; -> 🔻 Attractive industry; -> Exited industry; -> Investments only after found exit.