Session15: Product Portfolio Strategy

Session15: Product Portfolio Strategy

Dr. Mark H. Mortensen66.490.211 and 212Tues &Thurs 2:00 to 3:15

3:30 to 4:45

Manning School of Business

Mortensen Consulting Group

Today1. Attendance2. Discussion on strategies for managing a portfolio

of products3. Group work on xxx

Read Chapter 5Did Starbucks Assignment


Growth

Organic – grow the businessConcentrationDiversification

Inorganic – acquire new businesses


Concentration Strategies

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Vertical Integration Strategies Vertical integration: When a firm gets involved

in new portions of the value chain Can be very attractive when a firm’s suppliers or

buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense

By entering the domain of a supplier or a buyer, executives can reduce or eliminate the leverage that the supplier or buyer has over the firm

Can create risks Can create complacency

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Vertical Integration Strategies Backward vertical integration: A strategy that

involves a firm entering a supplier’s business Used when executives are concerned that a supplier

has too much power over their firms Forward vertical integration: A strategy that

involves a firm entering a buyer’s business Useful for neutralizing the effect of powerful buyers

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Diversification Strategies

Diversification strategies: Involve a firm entering entirely new industriesRequires moving into new value chains

Three tests for diversification:How attractive is the industry that a firm is

considering entering? How much will it cost to enter the industry? Will the new unit and the firm be better off?

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Related diversification: When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries

Core competency: A skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business 8-10



Unrelated diversification: When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries Most unrelated diversification efforts do not

have happy endings

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Strategies for Getting Smaller

Retrenchment: Reducing the size of part of a firm’s operations, often through laying off employeesFirms following a retrenchment strategy shrink

one or more of their business unitsFirms using this strategy hope to make just a

small retreat rather than losing a battle for survival

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Divestment: Selling off part of a firm’s operations It reverses a forward vertical integration

strategy Spin-off: Creating a new company whose

stock is owned by investors out of a piece of a bigger company

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Diversification discount: The tendency of investors to undervalue the shares of a diversified firm

Liquidation: Shutting down portions of a firm’s operations, often at a tremendous financial loss

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Portfolio Planning and Corporate Level Strategy Portfolio planning: A process that helps

executives make decisions involving their firms’ various industriesOffers suggestions about what to do within

each industry, and provides ideas for how to allocate resources across industries.

It first gained widespread attention in the 1970s and it remains a popular tool among executives today

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Portfolio Planning and Corporate Level Strategy The Boston Consulting Group (BCG)

matrixBest-known approach to portfolio planning Using the matrix requires a firm’s businesses

to be categorized as high or low along two dimensions:

Its share of the market

The growth rate of its industry

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Managing a portfolio of products


Workshop on Product Portfolio

Take the company that your group did a report on, or another company.

See if you can do a quick analysis of the company’s portfolio.

Discuss how you would manage the different products in the matrix.


Thursday

Read Chapter 8


Strategic Management – Spring 2013

Documents

Session15: Product Portfolio Strategy