Managing Diversification

Major Tools for Managing Diversification

Organization structure
A detailed discussion of organization structure is contained in Chapter 12.

Portfolio management techniques

Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

Two important portfolio management techniques

The BCG Matrix The GE Business Screen

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Managing Diversification (contd)

BCG Matrix
A method of evaluating businesses relative to the growth rate of their market and the organizations share of the market. The matrix classifies the types of businesses that a diversified organization can engage as:
Dogs have small market shares and no growth prospects. Cash cows have large shares of mature markets. Question marks have small market shares in quickly growing markets. Stars have large shares of rapidly growing markets.

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Figure 8.3: The BCG Matrix

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Managing Diversification
GE Business Screen
A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors:
Industry attractiveness.

Competitive position (strength) of each firm in the portfolio.

In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.

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Figure 8.4: The GE Business Screen

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