MANAGING DIVERSIFIED COMPANIES: USE OF MODELS: WHO NEEDS CAPITAL AND WHERE DOES IT COME FROM? PLUS OTHER CONSIDERATIONS ( E.G. SYNERGIES) 1. BCG: USE
MANAGING DIVERSIFIED COMPANIES:
USE OF MODELS:
WHO NEEDS CAPITAL AND WHERE
DOES IT COME FROM? PLUS OTHER
CONSIDERATIONS ( E.G. SYNERGIES)
1. BCG: USES RELATIVE MARKET SHARE AND INDUSTRY GROWTH
- STAR
- CASH COW
- QUESTION MARK/PROBLEM CHILD
- DOG
2. NINE CELL MODEL: USES BUSINESS STRENGTH/COMPETITIVE POSITION AND LONG TERM INDUSTRY ATTRACTIVENESS
3. LIFE CYCLE MODEL: USES STAGE IN LIFE CYCLE AND COMPETITIVE POSITION
PRINCIPLE OF MODELS: USE MORE THAN ONE
FIVE GENERIC STRATEGIES:
1. OVERALL LOW COST
One low-cost provider
2. BROAD DIFFERENTITATION
3. FOCUSED LOW COST
4. FOCUSED DIFFERENTIATION
5. BEST COST PROVIDER
1. OVERALL LOW COST:
- TOUGH TO KNOW COMPETITOR’S COST
- PRINCIPLES OF COST CUTTING
- DON’T CUT INTO KSF
- BENEFITS & RISKS OF LOW COST
- WAYS TO DECREASE COST
Vertically integrate backwards: profit squeeze on supplier (find a cheaper supplier)
Fire staff and replace with AI
Fire people
Outsource globally
HIGH LEVEL INPUT
MORE PRACTICAL
Price parity, low cost guy wins, price war
Differentiation is manageable
A small percent of a large number is a large number!! Revenue/profitability
2. BROAD DIFFERENTIATION:
- WAYS TO DIFFERENTIATE
Should be customer oriented, anything at all important to the customer
Way to stand out in a good way, VALUE FROM CUSTOMER
Competitive advantage, “why should I buy from you opposed to your competition?”
Industry consultants: learn everything about an industry to come up with solutions, short-term employment
- TWO TYPES OF DIFFERENTIATORS
Real vs Perceived
Quality, customer service, price (reasons to buy, differentiators)
Perceived: customer thinks there’s a certain differentiation
Reality follows perception
-If you have a perceived differentiator, make it real
-Customer will eventually realize that it’s a perceived differentiator
- PRINCIPLE OF DIFFERENTIATION
- BENEFITS AND RISKS OF DIFFERENTIATION
Backwards then forward integrate
3 & 4. “FOCUSED” LOW COST AND FOCUSED DIFFERENTIATION:
- SOMETIMES CALLED A NICHE
- CHARACTERISTICS OF A MARKET SEGMENT ATTRACTIVE FOR A NICHE/FOCUSED STRATEGY
- BENEFITS AND RISKS OF A FOCUS STRATEGY
When customer is happy with differentiator, they have a tendency to be brand loyal
REVIEW 4 Ps from marketing
NICHE: subset of larger segment, should be profitable
Must be growth in market segments
5. BEST COST PROVIDER: COMBINATION OF DIFFERENTIATION AND LOW COST
OFFENSIVE AND DEFENSIVE STRATEGIES
USE BOTH
Offensive: attack competitive strength, do not attack market leader strength, proceed cautiously
Grand offensive:
Linear projection: sophistication increases over time
PRINCIPLE OF ORGANIZATIONAL DESIGN
STRUCTURE FOLLOWS STRATEGY
Structure follows strategy, el fine
MANAGING DIVERSIFIED COMPANIES — REVIEW SHEET
I. STRATEGIC ANALYSIS MODELS (PORTFOLIO PLANNING)
These models help determine:
Which business units require capital
Where resources should be allocated
How to create synergies across divisions
Core Principle:
Use more than one model to make well-informed strategic decisions.
1. BCG MATRIX (Boston Consulting Group)
Dimensions:
Relative Market Share (competitive strength)
Industry Growth Rate (market attractiveness)
Categories:
Star
High growth, high market share
Requires heavy investment
Potential to become a cash cow
Cash Cow
Low growth, high market share
Generates excess cash
Funds other business units
Question Mark (Problem Child)
High growth, low market share
Uncertain future
Requires decision to invest or divest
Dog
Low growth, low market share
Weak performance
Often divested
2. NINE-CELL MATRIX (GE/McKinsey Model)
Dimensions:
Industry Attractiveness (external factors)
Business Strength / Competitive Position (internal factors)
Purpose:
More detailed than BCG
Helps guide decisions to invest, grow, hold, or divest
3. INDUSTRY LIFE CYCLE MODEL
Stages:
Introduction
Growth
Maturity
Decline
Focus:
Matches strategy to the stage of the industry
Considers the firm’s competitive position at each stage
II. FIVE GENERIC STRATEGIES
These strategies define how a firm competes to achieve a competitive advantage.
1. OVERALL LOW-COST LEADERSHIP
Goal:
Become the lowest-cost producer in the industry
Key Points:
Difficult to know competitors’ costs
Must reduce costs without harming Key Success Factors (KSFs)
Methods to Reduce Costs:
Backward vertical integration (control suppliers or find cheaper ones)
Outsourcing globally
Automation and AI
Workforce reduction
Improving operational efficiency
Important Concepts:
Price parity: lowest-cost firm wins
Price wars are common
Small margins on large volume can generate significant profit
Benefits:
Strong pricing power
Ability to undercut competitors
Risks:
Decline in quality
Strategy can be copied
Overemphasis on cost can reduce value
2. BROAD DIFFERENTIATION
Goal:
Offer unique value that customers perceive as important
Key Question:
Why should customers choose this company over competitors?
Ways to Differentiate:
Product quality
Customer service
Branding
Features and innovation
Types of Differentiation:
Real Differentiation
Tangible differences such as quality or performance
Perceived Differentiation
Customers believe the product is different
Key idea: perception can influence reality, but perceived differences must eventually be supported by real value.
Principles:
Must be customer-oriented
Must provide meaningful value
Should be difficult to imitate
Benefits:
Customer loyalty
Ability to charge premium prices
Risks:
High cost of maintaining differentiation
Customers may not value the differences
Competitors may imitate
3. FOCUSED LOW-COST STRATEGY
4. FOCUSED DIFFERENTIATION STRATEGY
Definition:
Target a specific market segment or niche
Characteristics of an Attractive Niche:
Clearly defined segment
Profitable
Growth potential
Limited competition
Key Concepts:
Customers in niches tend to develop strong brand loyalty
Must align with the 4 Ps of marketing:
Product
Price
Place
Promotion
Benefits:
Reduced competition
Strong customer relationships
Risks:
Market segment may shrink
Larger competitors may enter the niche
5. BEST-COST PROVIDER STRATEGY
Goal:
Combine low cost with differentiation
Value Proposition:
Offer more value for the same or lower price
Challenge:
Balancing efficiency with uniqueness
III. OFFENSIVE AND DEFENSIVE STRATEGIES
Core Principle:
Firms should use both offensive and defensive strategies.
Offensive Strategies:
Target competitors’ weaknesses
Avoid attacking strong competitors directly
Proceed cautiously, especially against market leaders
Types:
Grand offensive strategy: aggressive, large-scale moves
Linear projection: gradual increase in sophistication over time
Defensive Strategies:
Protect current market position
Reduce the likelihood of competitor attacks
IV. ORGANIZATIONAL DESIGN
Key Principle:
Structure follows strategy
Implications:
Organizational structure must align with strategic goals
Changes in strategy require changes in structure
Examples:
Diversified firms often use divisional structures
Low-cost leaders emphasize efficiency-focused structures
V. KEY TAKEAWAYS
Use multiple models for better decision-making
Competitive advantage comes from cost leadership, differentiation, or focus
Strategy must align with both external conditions and internal capabilities
Execution is critical to success
Organizational structure must support the chosen strategy
QUICK STUDY SUMMARY
BCG: market share and growth
Nine-cell: strength and attractiveness
Life cycle: stage determines strategy
Low cost: efficiency and scale
Differentiation: unique customer value
Focus: niche targeting
Best cost: balance of value and cost
Structure follows strategy
If you want, I can compress this into a one-page cheat sheet or turn it into a practice exam with answer explanations.