Benefits:

builds on established strategic capabilities

means the organisation’s scope is unchanged leads to greater market share and
increased power vis-à-vis buyers and suppliers

provides greater economies of scale and experience curve benefits.

Constraints: Market penetration

Retaliation from competitors e.g. price wars

Legal constraints e.g. restrictions imposed by regulators

Portfolio Strategies
Consolidation(Focus defensivley on current market) and retrenchment (withdrawal
marginal activity to concentrate on valuable segements and products)
Vertical integration
involves varying degrees of related diversification (in terms of products)
Backward integration
can be expensive and high risk
Vertical integration
Forward integration
Directional Strategies
may require new strategic capabilities
Product Development
typically involves project management risks.
The decision to integrate or subcontract rests on the balance between two distinct
increase customer loyalty factors:

product development (e.g. packaging or service) Relative strategic capabilities: Does the subcontractor have the potential to do the
work significantly better or cheaper ?
new users (e.g. extending the use of aluminium to the automobile industry)
Outsourcing Risk of opportunism: Is the subcontractor likely to take advantage of the relationship
new geographies (e.g. extending the market to new areas – international markets over time?
being the most important) Market development never outsouorce core competencies
meeting the critical success factors of the market

new strategic capabilities (e.g. in marketing).

provide clear vsiion and path to BUs.

Facilitating synergies; Economies of Scope

Related diversification Value-adding activities Coaching managers and capabilities

Providing central services

possible lowers financing costs Intervening to ensure performance

increase reputation of the group

Corporate Strategy and Adding management costs
Diversification Value-destroying activities Adding bureaucratic complexity
Potential costs arise because there are no obvious ways to Conglomerate (unrelated) diversification
generate additional value Parenting Strategies manuplating financial performance

The portfolio manager: invest and intervene, make CEO has high dregree of autonomy
i chose conglomerate when i face obsolte or decline in demand mainly
Challanges:

Exploiting economies of scope benefit shoud outweight cost

The synergy manager : increase business value by synergy.
Stretching corporate management competences /applying these competences across Corporate rationales overcome BUs managers self interests
a portfolio of businesses accuratly estimate skills and resources and not over estimate.
Exploiting superior internal processes (Primary Value Chain Activities). Challanges
Drivers for diversification
Increasing market power via mutual forbearance(Working together) or cross Focus to add parental values.
subsidisation. The parental developer
avoid crown jewel problem: divest in succesful business due to parental not adding
Synergy (2+2=5) value in it.

fast Responding to market decline , bad decisions can be made Problems with the BCG matrix:

Spreading risk (Financial Diversification) Value-destroying diversification Definitional vagueness

Managerial ambition. with no right reason drivers BCG (or growth/share) matrix
Capital market assumptions

Motivation problems (in ‘dogs’)

Self-fulfilling prophecies

Ignores commercial linkages.

Portfolio matrices Directional policy (GE–McKinsey) matrix

Heartland: Opp & Skills

Ballast: avoid bureacuracy

Parenting matrix
Value-trap

Alien