As we read in the text book, portfolio analysis is utilized by managers by seeing their product lines and business units as investments that will bring them a profit (Wheelen, T., Hunger, J. & Deresky, H., 2016). Similarly, the BCG Growth-Share Matrix is used as a way to portray, or graph, a corporations' portfolio investments (Wheelen, T., et al, 2016).
The BCG Growth-Share Matrix utilizes four areas (Cash Cow, Dog, Star, and Question Mark) to describe a company's investments based on the ratio between market growth rate and relative market share. This gives management a quick idea of how their investments stack up against the competition and some indication of how they should move forward with those products. There are several advantages to this strategy. It encourages management to evaluate each business unit and earmark resources, it helps management utilize external data to make decisions, it assists communication and recognizes cash-flow availability for use in expansion of the business (Wheelen, T., et al, 2016). However, the growth-share matrix is a bit too simplistic and has limitations. Managers are still unsure of the link between market share and profitability and there are many more aspects of competitive position other than market share. In addition, these investments are only looked at in relation to the market leader, and smaller businesses are completely ignored (Wheelen, T., et al, 2016).
Corporate Parenting, unlike portfolio analysis, observes a company in terms of its resources and capabilities and can be used to build business unit value in addition to producing synergies across business units (Wheelen, T., et al, 2016). Corporate parenting allows managers to create strategies by looking at their capabilities and value created between the parent and its business. By asking which businesses a company should own and what structure, management process, and philosophy will give them the greatest performance, management is better able to determine the best course of action for success (Wheelen, T., et al, 2016).
In relation to a SWOT analysis, corporate parenting asks similar questions about its strengths and weaknesses as well as opportunities and threats in a series of analytical questions. By examining each business unit in terms of strategic factors and performance, management can look for opportunities for improvement as well as their own strengths and weaknesses in terms of resources, skills, and capabilities (Wheelen, T., et al, 2016).
The Concentric (Related) Diversification is when a company expands its product line within a related industry (Wheelen, T., et al, 2016). For example, a software company may partner with a hardware vendor allowing them to gain traction with a target market (Wright, T., n.d.). By utilizing their expertise in a certain area, companies can expand their product line while avoiding the hassle and growing pains of learning an entirely different industry.
On the other hand, Conglomerate (Unrelated) Diversification is when a company expands into an unrelated industry (Wheelen, T., et al, 2016). An example would be an acquisition where one firm buys another in a totally different industry. GE (General Electric) was formed in 1890 as a lighting business. Over the years it has expanded its product line to radios, refrigerators, and wind turbines. It is also the largest manufacturer of jet engines (Hudson, 2017).
I believe the best way for my Strategic Audit Firm to expand would be to use Concentric Diversification. Hasbro has been in the toy industry for many decades and has the ability to create and market a plethora of toys throughout the world. It would be fairly easy to take over or merge with another toy company or expand into different product lines within the toy industry, but I would imagine it would be very difficult for them, a specialist in toy making, to expand into a completely unrelated industry.
The four vertical growth strategies listed in the text are as follows: Full integration, taper integration, quasi-integration, and long-term contracts (Wheelen, T., et al, 2016). Full integration is the process of one firm managing 100% of its supplies and distributors. Large oil companies are a good example of this strategy and well as some smaller companies that do all of their own manufacturing as well as marketing and sales. This strategy allows the firm to have complete control over every aspect of their business decisions.
Quasi-integration is nearly the opposite of full integration in that it does not make any of its supplies but rather purchases everything through outside suppliers. While these companies may end up spending a lot of money by purchasing all of their needs from other companies, it will save money on the manufacturing that would be required if they made everything themselves.
Taper integration is a mix of these two strategies in that they produce some of their own products, but purchase the rest from outside suppliers. As an example listed in the text, Apple sells many of its products in its own retail stores, but also sells through other stores such as Wal-Mart, AAFES, and other independent dealers (Wheelen, T., et al, 2016).
The last strategy is long-term contracts. This is the agreement between two companies to provide goods and services to each other for a specified period of time (Wheelen, T., et al, 2016). A contract, is defined as a written or spoken agreement, especially one concerning employment, sales, or tenacity, that is intended to be enforceable by law. This strategy allows two or more companies the ability maintain a legal relationship by utilizing each other for the purpose of mutual benefit.
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