[Solution] Corporate-Level Strategy Implementation
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Author: Emily Carter
As managers approach implementation of corporate-level strategies, they ask key questions about diversification. If the organization is diversifying for the first time, managers need to decide how to migrate from a single-product strategy to a multi-business strategy. When the organization is already diversified, managers need to know how to manage the diversification for best results.
Diversifying for the First Time
Organizations diversify through various avenues:
- Developing new products
- Entering the business of a supplier or customer. A company that begins to make its own supplies is engaged in backward vertical integration. A company that begins to do the same work as one of its customers and then sells to that customer's customers is engaged in forward vertical integration.
- Merging with another company or acquiring another company. A merger occurs when two companies of about the same size combine. An acquisition occurs when a larger organization buys a smaller one. Organizations typically use mergers and acquisitions to enter complementary businesses that have a technology or customers in common, thereby gaining synergy.
Managing Diversification: The BCG Matrix
The Boston Consulting Group (BCG) Matrix is a tool for managing a portfolio of businesses, evaluating each based on market growth rate and relative market share.
BCG Matrix
Stars
High market share in high-growth markets
Strategy: Invest for growth
Question Marks
Low market share in high-growth markets
Strategy: Invest selectively or divest
Cash Cows
High market share in low-growth markets
Strategy: Harvest for cash
Dogs
Low market share in low-growth markets
Strategy: Consider divesting
Managing Diversification: The GE Business Screen
The General Electric (GE) Business Screen is another portfolio management tool that evaluates businesses based on industry attractiveness and competitive position.
GE Business Screen Categories
Winners
Good competitive position and high industry attractiveness
Strategy: Invest for growth
Profit Producers
Good competitive position but low industry attractiveness
Strategy: Maintain competitiveness
Losers
Poor competitive position and low industry attractiveness
Strategy: Consider divestiture
Select the terms that best complete the following sentences.
When an acquisition occurs, a .
View Explanation
In an acquisition, a larger organization buys a smaller one. The result is a single, even larger organization. For example, in 2019 the customer relationship management firm Salesforce acquired the data analytics firm Tableau.
Select the correct response for each of the following questions.
The GE Business Screen guides corporations in managing their portfolio of businesses by rating businesses on which two dimensions?
- Industry attractiveness and competitive position
- Industry attractiveness and opportunities
- Competitive position and strengths
- Strengths and weaknesses
View Explanation
The GE Business Screen rates businesses along the dimensions of overall industry attractiveness and a given business's competitive position in the market.
Opportunities, which are identified during a SWOT analysis, are similar to the factors that make an industry attractive. Strengths and weaknesses are also identified in a SWOT analysis; strengths correspond to elements that give a business a good competitive position, and weaknesses correspond to elements that give a business a poor competitive position.
Match each description with the corresponding category of the BCG Matrix.
Having a large share of a rapidly growing market
Having a large share of a stable market
Having a small share of a shrinking market
Having a small share of a rapidly growing market
View Explanation
In the BCG Matrix tool for portfolio management, a star is a business that enjoys large market share in a rapidly growing industry. Stars have the potential to be highly profitable and thus merit a large investment of resources.
In the BCG Matrix tool for portfolio management, a cash cow is a business that enjoys large market share in a stable industry. Cash cows need little investment to be highly profitable. Profits from cash cows can be invested in stars and, carefully, in question marks.
In the BCG Matrix tool for portfolio management, a dog is a business that enjoys neither large market share nor industry growth. Dogs are not appropriate businesses in which to invest resources, and managers should consider divesting them.
In the BCG Matrix tool for portfolio management, a question mark is a business that has only small market share but is in a rapidly growing industry. If a question mark can gain market share, it can become a highly profitable star. A manager should analyze the business's potential and invest resources if it is promising.
Match each description with the corresponding category of the GE Business Screen.
Good competitive position and high industry attractiveness
A candidate for divestiture
Deserving sufficient investment to maintain its competitiveness
View Explanation
Businesses are winners if they are in any of these three categories of the GE Business Screen: high industry attractiveness and good competitive position, medium industry attractiveness and good competitive position, or high industry attractiveness and medium competitive position. These businesses are likely to reward investment with high profits.
Another category of business that is deserving of further investment is the question marks, which have a poor competitive position but are in a highly attractive industry.
Businesses are losers if they are in any of these three categories of the GE Business Screen: low industry attractiveness and poor competitive position, medium industry attractiveness and poor competitive position, or low industry attractiveness and medium competitive position. Managers should consider selling or divesting these businesses.
Businesses are profit producers according to the GE Business Screen if they are in the category of low industry attractiveness but good competitive position. Managers should keep these businesses and invest enough resources to maintain them.
Another category of business that is deserving of maintenance is the average business, which has a medium competitive position in an industry of medium attractiveness.
