Corporate Strategy and Portfolio Theory Assignment Help
The concept of the corporation as the portfolio of business units with each plotted graphically based on its market share and industry growth rate. It was summarized in the growth-share matrix that is developed by the Boston Consulting Group around 1970. By 1979, one study projected that 45% of the Fortune 500 were using some variation of the matrix in their strategic planning. This framework helps companies to decide where to invest their resources and which business to divest. In 1987, Porter wrote that corporate strategy involves two question: 1) what business should the corporation be in? And 2) how should the corporate office should manage its business units? Porter mentioned four concepts of corporate strategy-
- Portfolio theory– Portfolio theory is a strategy based primarily on diversification through acquisition. The corporation shifts resources among the units and monitors the performance of each business unit and its leaders.
- Restructuring– The corporate office acquires then actively intervenes in a business where it detect potential, often by replacing management and implementing a new business strategy.
- Transferring skills– Important managerial skills and organizational capability are essentially spread to multiple businesses.
- Sharing activities– Ability of the combined corporation to leverage centralized functions such as finance, sales, etc. Thereby reducing costs.
Other techniques were developed to analyse the relationships between elements in a portfolio. The growth-share matrix, a part of B.C.G Analysis, was followed by G.E. multifactorial model. Until the 1980s, Companies continued to diversify as conglomerate, when deregulation and an anti-trust environment led to the view that the portfolio of operating divisions in different industries was worth more as many independent companies, that leads to the break-up of many conglomerates.