Diversification Lecture Product and R

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Diversification Lecture Product and RD
DiversificationMgt 455 Summer, 07

• Craig Galbraith, Ph.D.

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Brand Diversification

• Responsibility product/stock market portfolio
  managers
• Tie-in benefits (form of synergy)
• Replace brands (trend management)
• Blocking or congestion strategies
• When shelf space is limited

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The BCG Growth-Share Business Portfolio Matrix
Circle Size proportion of total revenue
business contributes to corp.
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Constructing a GEAttractiveness/Strength Matrix

• Use quantitative measures of industry
  attractiveness and business strength to plot
  location of each business in matrix
• Each business unit appears as a circle
• Area of circle is proportional to size of
  business as a percent of company revenues
• (Or area of circle can represent relative size
  of industry with pie slice showing the companys
  market share)

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Procedure Rating the Relative Attractiveness
of Each Industry

• Step 1 Select industry attractiveness factors
• Step 2 Assign weights to each factor (sum of
  weights 1.0)
• Step 3 Rate each industry on each factor (use
  scale of 1 to 10)
• Step 4 Calculate weighted ratings sum to get
  an overall industry attractiveness rating for
  each industry

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Example Rating Industry Attractiveness
Rating Scale 1 Unattractive 10 Very
attractive
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Rating the Competitive Strength of Each
Business

• Step 1 Select competitive strength factors
• Step 2 Assign weights to each factor (sum of
  weights 1.0)
• Step 3 Rate each business on eachfactor (use
  scale of 1 to 10)
• Step 4 Calculate weighted ratings sum to get
  an overall attractiveness rating for each business

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Example Rating a Business Units Competitive
Strength
Bargaining leverage
Rating Scale 1 Weak 10 Strong
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General Electrics Industry Attractiveness-Busines
s Strength Matrix
Business Strength

• Relative Costs
• Profit Margins
• Fit with KSFs

• Relative Market Share
• Reputation/ Image
• Bargaining Leverage
• Ability to Match Quality/Service

Industry Attractiveness
Average
Strong
Weak
10.0
1.0
3.3
6.7

• Market Size
• Growth Rate
• Profit Margin
• Intensity of Competition
• Seasonality
• Cyclicality
• Resource Requirements
• Social Impact
• Regulation
• Environment
• Opportunities Threats

High



6.7
Medium



3.3
Low
1.0
Rating Scale 1 Weak 10 Strong
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RD Portfolio Diversification

• RD decisions at large corporations made formally
• Stage-Gate Model (or variation)

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RD Portfolio Diversification

• Responsibility RD manager (RD firms) or
  product portfolio manager (consumer products)
• Logic for RD decisions and diversification
• Synergy
• Consistent with corporate strategy
• Future improvement/substitutes products
• Spillover effects (cascading technologies)
• Wrap-around intellectual property
• Block other competitive development
• Patent trolling
• Can license technology for income flows
• No need to actually build
• Corporations usually have more RD
  diversification than product diversification

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RD Portfolio Diversification

• Key issues
• risk versus return short-term versus long-term
  across various markets, business arenas and
  technologies
• Methods
• Typical methods used to reveal balance include
  bubble diagrams, histograms and pie charts