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Chapter 9
Multibusiness Strategy
Chapter Summary
Recent evolution of strategic analysis and choice has expanded on the core competency notion to
focus on a series of fundamental questions that multibusiness companies should address in order
Learning Objectives
1. Understand the portfolio approach to strategic analysis and choice in multibusiness
2. Understand and use three different portfolio approaches to conduct strategic analysis and
3. Identify the limitations and weaknesses of the various portfolio approaches.
5. Evaluate the parent company role in strategic analysis and choice to determine whether
Lecture Outline
I. Introduction
A. Strategic analysis and choice is complicated for corporate-level managers because they
must create a strategy to guide a company that contains numerous businesses.
1. They must examine and choose which businesses to own and which ones to forgo or
divest.
2. They must consider business managers’ plans to capture and exploit competitive
B. The portfolio approach was one of the early approaches for charting strategy and
allocating resources in multibusiness companies.
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whole or part.
1. It was particularly popular in the 1960s and 1970s, after which corporate
2. Yet while many companies have moved on to use other approaches, the portfolio
C. Improvement on the portfolio approach focused on ways to broaden the rationale
behind pursuit of diversification strategies.
1. This approach centered on the idea that at the heart of effective diversification is
2. This notion of leveraging core competencies as a basis for strategic choice in
D. Recent evolution of strategic analysis and choice in this setting has expanded on the
1. With both the accelerated rates of change in most global markets and trying
2. Finally, as companies have embraced lean organizational structures, strategic
II. The Portfolio Approach: A Historical Starting Point
A. The past 30 years we have seen a virtual explosion in the extent to which single-
1. There are many reasons for this emergence of multibusiness companies:
a) Companies can enter businesses with greater growth potential.
2. As businesses jumped on the diversification bandwagon, their managers soon
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3. Responding to this challenge, the Boston Consulting Group (BCG) pioneered an
B. The BCG Growth-Share Matrix
1. Managers using the BCG matrix plotted each of the company’s businesses
according to market growth rate and relative competitive position.
a) Market growth rate is the projected rate of sales growth for the market
being served by a particular business.
b) Usually measured as the percentage increase in a market’s sales or unit
2. The stars are businesses in rapidly growing markets with large market shares.
a) These businesses represent the best long-run opportunities (growth and
3. Cash cows are businesses with a high market share in low-growth markets or
industries.
a) Because of their strong competitive positions and their minimal reinvestment
requirements, these businesses often generate in excess of their needs.
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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
4. Low market share a low market growth businesses are the dogs in the firm’s
portfolio.
a) Facing mature markets with intense competition and low profit margins, they
5. Question marks are businesses whose high growth rate gives them considerable
appeal but whose low market share makes their profit potential uncertain.
a) Question marks are cash guzzlers because their rapid growth results in high
b) At the corporate level, the concern is to identify the question marks that
c) Where this long-run shift from question mark to star is unlikely, the BCG
C. The Industry Attractiveness-Business Strength Matrix
1. Corporate strategists found the growth-share matrix’s singular axes limiting in
their ability to reflect the complexity of a business’s situation.
a) Therefore, some companies adopted a matrix with a much broader focus.
b) This matrix, developed by McKinsey & Company at General Electric, is
2. The company’s businesses are rating on multiple strategic factors within each axis,
such as the factors described in Exhibit 9.3.
a) The position of a business is then calculated by “subjectively” quantifying its
b) Depending on the location of a business within the matrix as showing in
(1) Invest to grow
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whole or part.
3. Although the strategic recommendations generated by the industry attractiveness-
a) The terminology associated with the industry attractiveness-business strength
b) The multiple measures associated with each dimension of the business
c) In turn, this makes for broader assessment during the planning process,
D. BCG’s Strategic Environments Matrix
1. BCG’s latest matrix offering (see Exhibit 9.5, BCG’s Strategic Environments
Matrix) took a different approach, using the idea that it was the nature of
a) Their idea was that such a framework could help ensure that individual
b) Furthermore, for corporate managers in multiple-business companies, this
2. The matrix has two dimensions.
a) The number of sources of competitive advantage could be many with
b) Complex products offer multiple opportunities for differentiation as well as
3. The second dimension is size of competitive advantage. The two dimensions then
define four industry environments as follow:
a) Volume businesses are those that have few sources of advantage, but the
b) Stalemate businesses have few sources of advantage, with most of those
small.
(1) This results in very competitive situations.
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c) Fragmented businesses have many sources of advantage, but they are all
small.
(1) This typically involves differentiated products with low brand loyalty,
(2) Skills in focused market segments, typically geographic, the ability to
d) Specialization businesses have many sources of advantage and find those
advantages potentially sizable.
(1) Skills in achieving differentiation—product design, branding expertise,
4. BCG viewed this matrix as providing guidance to multibusiness managers to
determine whether they possessed the sources and size of advantage associated
E. Limitations of Portfolio Approaches
1. Portfolio approaches made several contributions to strategic analysis by corporate
a) They helped convey large amounts of information about diverse business
b) They illuminated similarities and differences between business units and
c) They simplified priorities for sharing corporate resources across diverse
d) They provided a simple prescription that gave corporate managers a sense of
e) While these approaches offered meaningful contributions, they had several
(1) A key problem with the portfolio matrix was that it did not address how
operating units.
(2) Truly accurate measurement for matrix classification was not as easy as
the matrices portrayed.
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whole or part.
(a) Identifying individual businesses, or distinct markets, was not
(b) Comparing business units on only two fundamental dimensions
can lead to the conclusion that these are the only factors that really
(3) The underlying assumption about the relationship between market share
(a) Some have no such link.
(4) The limited strategic options, intended to describe the flow of resources
(a) What do we actually “do” if we’re a star? A cash cow?
(b) This becomes even more problematic when attempting to use the
(5) The portfolio approach portrayed the notion that firms needed to be
(6) The portfolio approach typically failed to compare the competitive
(a) The 1980s saw many companies build enormous corporate
2. Constructing business portfolio matrices must be undertaken with these limitations
in mind.
a) Perhaps it is best to say that they provide one form of input to corporate
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whole or part.
b) While limitations have meant portfolio approaches are seen as more
c) Perhaps this foretells a continued use of the portfolio approach to provide
one perspective, recognizing its limitations, to provide a picture of the
“balance” of resource generators and users, to test underlying assumptions
III. The Synergy Approach: Leveraging Core Competencies
A. Opportunities to build value via diversification, integration, or joint venture strategies
are usually found in market-related, operations-related, and management activities.
1. Each business’s basic value chain activities or infrastructure become a source of
portfolio.
a) Some of the more common opportunities to share value chain activities and
2. Strategic analysis is concerned with whether or not the potential competitive
advantages expected to arise from each value opportunity have materialized.
a) Where advantage has not materialized, corporate strategists must take care to
3. Two elements are critical in meaningful shared opportunities:
a) The shared opportunities must be a significant portion of the value chain of
b) The businesses involved must truly have shared needs—need for the same
4. Corporate strategies have repeatedly rushed into diversification only to find
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5. The most compelling reason companies should diversify can be found in situations
a) Where this works well, extraordinary value can be built.