page 1 managing multi-unit organizations strategic factors i
TRANSCRIPT
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Managing Multi-Unit OrganizationsStrategic Factors I
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Multi-Unit Management
• Decide scope/reach of the organization– In which businesses or industries does our organization operate or compete?
• Develop and leverage synergies across differentiated organization units
Acme Inc.
Product 1 Product 2
Product 3 Product N
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Multi-Unit Management
• Unrelated organization units
General Electric
Light Bulbs
Aircraft Engines
Power Generation Equipment
KitchenAppliances
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Multi-Unit Management
• Related organization units
Procter & Gamble
Soap Food PaperProducts
OTCPharm.
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Multi-Unit Management
• Portfolio focus and rebalancing
PEPSI
20% of total sales
CarbonatedBeverages
Juices,Water,Sportsdrinks
SnackFoods
Fast Food
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Multi-Unit Management
COCA-COLA
CarbonatedBeverages
Juices,Water,Sports drinks
80% of total sales
• Portfolio focus• Near-single business organization
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Diversification/Growth Examples
• Pepsi– Acquired Tropicana juice co.– Acquired Quaker Oats
•Gatorade–Spun-off fast food restaurants (YUM!)– Issued Pepsi Bottling IPO– Reinvest in Frito-Lay
• FedEx– Acquired Mailboxes Plus!– Acquired Kinko’s
• Kraft Foods’ acquisition of Cadbury• Pfizer acquires Wyeth• UKMC acquires Good Samaritan• PNC Bank acquires National City Bank
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M&A in Hospital Industry
• During 2000-2009– 597 mergers and acquisitions– $74.5 billion in deals
• HCA•Community Health Systems•Ascension Health•Capella Healthcare•many more….
Why Diversify??
Winter Spring Summer Fall
DivisionSales
($)
IndustryGrowth
(%)
1960 1970 1980 1990 2000 2010
Snowmobile
Jet Ski
Bulk Chemicals
Pharmaceuticals
Benefits of Diversification
• Reduce earnings volatility• Move organization into attractive markets and market segments
• Growth• Minimize risk• Prolong “life” of the organization• Improve long-term performance• Capture synergies and strategic “fit” between businesses
• Steer corporate resources
Types of Organizational Diversification
• Vertical• Horizontal
– Related– Unrelated
• Global
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Marathon Oil
OilfieldExploration
OilfieldExtraction
Transport
Refining
Wholesaling
RetailStores
GasStations
InstalledOil Shops
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Exxon-Mobil
OilfieldExploration
OilfieldExtraction
Transport
Refining
Wholesaling
RetailStores
GasStations
InstalledOil Shops
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Horizontal DiversificationRelated
Procter & Gamble
Soaps PaperProducts
FoodProducts
LogisticsMarketing
R&DR&D
Mfg.
FinanceFinance
To diversify, or not?To diversify, or not?
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General Electric
AircraftEngines
LightingProducts
Appliances
FinanceFinance
Horizontal DiversificationUnrelated
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Geographic DiversificationInternational Markets
Cola-Cola
US Greece China
Brand & Some Marketing
Finance Finance
Brand & Some Marketing
Local bottling and distribution
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Transformation Through Diversification• Enter new businesses
– Change business portfolio (Monsanto)•Shift from commodity chemicals to
agricultural biotechnology•Molecular biology•GM seed/plant technologies•Branded products
TotalReturn
1994
S&P
MONSANTO
Chemicals (18%)
Biotech (38%)
Today
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TotalReturn
1993
S&P
Nokia
Motorola
Eriksson
Nokia– Founding -1989: Electrical conglomerate
– 1993-today: 90% telecommunications
20091989
Transformation Through Diversification
Strategic Management of Diverse, Multi-Unit Organizations• Turnaround
– Restore competitiveness to poor performers
– New advantages created within portfolio
• Retrenchment– Narrow scope of portfolio–“Stick to your knitting”
• Restructuring– Add new businesses / divest poor performers
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Disney: Capability Leverager
• Films• Videos• Network TV• Cable TV• Hotels• Cruise lines• Merchandise• Brand licensing
• Retail Stores
Toy StoryTV Show
Merchandise
Food Items
Theme Park
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Blue Circle
Dominant-business Diversified Firm
HQ
Cement CementProducts
Core Competence:• Products related to home-building
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HQ
Cement
CementProducts
Core Competence:• Products related to home-building??
Bricks GasStoves
LawnMowers
Blue Circle
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Boddingtons
Vertically Integrated Firm
HQ
BeerBrewing
Pubs
Core Competence:• Hospitality, retailing, property management
BeerWholesaling
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Boddingtons
Related Horizontal Diversified Firm
HQ
Pubs
Restaurants
Hotels HealthClubs
NursingHomes
Core Competence:• Hospitality, retailing, property management
Evaluation of Diversified Firms
Reveal contextual position of corporate portfolio
BCG Growth-share Matrix
Indu
stry
Gro
wth
Rat
e
High
Low
Relative Market Share
1.0< 1.0 > 1.0
BehindMarket Leader
You areMarket Leader
Evaluation of Diversified Firms
BCG Growth-share Matrix
Indu
stry
Gro
wth
Rat
e
High
Low
Relative Market Share
1.0< 1.0 > 1.0
BehindMarket Leader
You areMarket Leader
Categorize different organizational units
CashCows
Stars?
Dogs
Evaluation of Diversified Firms
General Electric
Indu
stry
Gro
wth
Rat
e
High
Low
Relative Market Share
1.0< 1.0 > 1.0
BehindMarket Leader
You areMarket Leader
AircraftEnginesLight
Bulbs
Appliances
Love Your Dogs
Love Your Dogs
• Why?– Dogs are under-appreciated
• Neglected• Same category as “value stocks” Payoffs to investing in and paying greater operational-strategic attention to underperformers better than investing in unproven “stars”
– Dogs need nurturing/attention • “Feed” them (resources, attention)
• Have them “fixed” (new strategy)
• Teach them “new tricks” (innovation)
– “Adopt” someone else’s dogs
Managing Multi-Unit Playing Cards
• Organizational Units– Suit
– Number3, 4, 7, J
• Managing Organizational Units for Value Creation• Positive Outcomes
– Two-, Three-, Four-of-a-kind– Flush– Straight– Full house
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3 4 7
3J
Questions…?
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