Answer to Question 1
Answer: When an organization's corporate strategy encompasses a number of businesses, managers can manage this collection, or portfolio, of businesses using a tool called a corporate portfolio matrix. This matrix provides a framework for understanding diverse businesses and helps managers establish priorities for allocating resources.
The first portfolio matrixthe BCG matrixwas developed by the Boston Consulting Group and introduced the idea that an organization's various businesses could be evaluated and plotted using a 2 2 matrix to identify which ones offered high potential and which were a drain on organizational resources. The horizontal axis represents market share (low or high) and the vertical axis indicates anticipated market growth (low or high). A business unit is evaluated using a SWOT analysis and placed in one of the four categories: dogs, cash cows, stars, and question marks.
a. Dogs - They should be sold off or liquidated as they have low market share in markets with low growth potential.
b. Cash Cows - These have low anticipated growth rate but high market share. Managers should milk them for as much as they can, limit any new investment in them, and use the large amounts of cash generated to invest in stars and question marks with strong potential to improve market share.
c. Stars - These have high anticipated growth rate and high market share. Heavy investment in stars will help take advantage of the market's growth and help maintain high market share. The stars eventually develop into cash cows as their markets mature and sales growth slows.
d. Question Marks - These have high anticipated growth rate but low market share. The hardest decision for managers relates to the question marks. After careful analysis, some will be sold off
and others strategically nurtured into stars.
Answer to Question 2
Answer: Organizations grow by using concentration, vertical integration, horizontal integration, or diversification.
An organization that grows using concentration focuses on its primary line of business and increases the number of products offered or markets served in this primary business. For instance, Bose Corporation of Framingham, Massachusetts, which focuses on developing innovative audio products has become one of the world's leading manufacturers of speakers for home entertainment, automotive, and pro audio markets with sales of more than 2 billion by using this strategy.
A company also might choose to grow by vertical integration, either backward, forward, or both. In backward vertical integration, the organization becomes its own supplier so it can control its inputs. For instance, eBay owns an online payment business that helps it provide more secure transactions and control one of its most critical processes. In forward vertical integration, the organization becomes its own distributor and is able to control its outputs. For example, Apple has more than 287 retail stores worldwide to distribute its product.
In horizontal integration, a company grows by combining with competitors. For instance, French cosmetics giant L'Oreal acquired The Body Shop.
Finally, an organization can grow through diversification, either related or unrelated. Related diversification happens when a company combines with other companies in different, but related,
industries. For example, American Standard Cos., based in Piscataway, New Jersey, is in a variety of businesses including bathroom fixtures, air conditioning and heating units, plumbing parts, and pneumatic brakes for trucks. Although this mix of businesses seems odd, the company's strategic fit is the efficiency-oriented manufacturing techniques developed in its primary business of bathroom fixtures, which it has transferred to all its other businesses. Unrelated diversification is when a company combines with firms in different and unrelated industries. For instance, the Tata Group of India has businesses in chemicals, communications and IT, consumer products, energy, engineering, materials, and services. In this case, there is no strategic fit among the businesses.
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