Ashridge Portfolio Matrix

ASHRIDGE PORTFOLIO MATRIX
Presented To: Mr. K.S. Prasad; Faculty, G.H. Patel Institute of Business Management Presented by: Yakshya Thapa; Roll No: 11045; 4th Sem; Div-A; MBA- 2011-13
ASHRIDGE PORTFOLIO MATRIX: Ashridge Portfolio Matrix was developed by Michael Goold and Andrew Campbell. It is used to evaluate the attractiveness of potential acquisition target or existing business to the parent. This matrix has two variable according to which the attractiveness of business is to b judged. Some businesses acts as 'parental developer' acquires other businesses with a view to add value to it by using their resources and capabilities. Ashridge portfolio matrix is used to evaluate the attractiveness of potential acquisition target or existing business to the parent. This matrix has two variable according to which the attractiveness of businesses is to be judged. One is Benefit and the other is feel. In practice, other variables, like previous experience, management attitudes and culture, stakeholders expectations, may also influence the decision regarding potential acquisitions to be included in the portfolio of the business. All the relevant factors need to be considered taking the decision. Let discuss each of the above variables.
BENEFITS: It is the value business can add to potential business by utilizing their resources and competencies. Business may have many resources and capabilities, but only those resources and capabilities are counted towards benefits which the potential business needs to grow. In other words, benefits are the opportunities to help. More the business can help, more it can add value. E.g. If parent has strong finance department than it can help business needs financial services to add value.
FEEL: Feel is the similarity between Parent and the potential business. Similarities can be determined by industry, organization structure, culture and law. There can be many other elements need to be considered. Feel is about critical success factors (CSF) related to the elements stated above. If the business understands how to makes potential businesses successful as it know its CSF, it can use its resources and capabilities more effectively. E.g. (continued), business needs to know how financial services are provided in context of particular industry.
Date: 7th March, 2013

The combination of Benefits and Feels gives the following types of business acquisition targets which vary in attractiveness according to situation.
Alien Businesses: These are the business outside the industry of the business considering takeover or merger proposal, so business has no knowledge of internal and external factors affecting the business operating in that industry, needed to make it successful. It can be said that it has low feel. There are no opportunities for the parent to add value by helping it because potential business has the skills necessary for its success. It can be said that it has low benefits.
Value Trap Businesses: These are the business outside the industry of the business considering takeover or merger proposal. It can be said that it has low feel. There are opportunities for the parent to add value by helping it because the business possess resources and capability to help the potential acquisition target lacks the skills necessary for its success. It can be said that it has high benefits.
Ballast Businesses: These are the business inside the industry of the business considering takeover or merger proposal. It can be said that it has high feel. There are no opportunities for the parent to add value by helping it because potential acquisition target has the skills necessary for its success. It can be said that it has low benefits.
Heartland Businesses: These are the business inside the industry of the business considering takeover or merger proposal. It can be said that it has high feel. There are opportunities for the parent to add value by helping it because potential business lacks the skills necessary for its success. It can be said that it has high benefits.

Figure: Ashridge Portfolio Matrix

PROBLEMS OF ASHRIDGE MATRIX The various problems faced while applying this matrix are as follows: Value or cost of the corporate agent: If the parent is not enhancing the performance of the business units, what is its role? A corporate body has a role to play with regard to purely corporate affairs, such as dealing with financial institutions and negotiating with government. But if its role is
limited to this, the cost of delivering these functions should be low to the business units. A large and costly corporate headquarters that does little to enhance the strategies of its business units can be a great cost burden to them, thus undermining potential marketbased competitive advantage, and so reducing the overall returns for stakeholders
Understanding the value creation at the business-unit level: There is an attempt to ensure that business specific competences are directed at developing successful competitive strategies. The aim is to give the responsibility for developing strategic capability and achieving competitive advantage in markets to the business-unit level to managers who are most closely in touch with their markets. The role of the parent has therefore been increasingly seen as one of facilitation, or of taking a hands-off approach as far as possible.
Understanding value creation at the corporate level: If the corporate parent seeks to enhance the strategies of the business it must be very clear where and how it can add value. It must also avoid undertaking roles that do not enhance strategies at the business-unit level.

Sufficient feel: If the corporate parent does, indeed, seek to enhance business strategies, it needs to consider the number of business units for which it can sensibly do so. For this parent has to have sufficient feel for the business, so the number cannot be great unless they are similar businesses in terms of technology, products or capabilities, or in similar markets.
Reviewing the portfolio: The corporate parent should also assess which business should most sensibly be within its portfolio given these considerations.

CASE STUDY
THE MORRISONS AND SAFEWAY MERGER In 2003, Wm Morrison, a relatively small but profitably supermarket based in the North of England, launched a 3bn bid for Safeway, a supermarket four times its size with particular strength in Scotland the South of England. The announcement of the bid drove up Morrisons share price to an all time high as investors believed that the merger was bound to be successful: Both businesses were supermarkets, so the merged company could apply greater pressure to suppliers. Back-office, distribution and marketing costs could be cut because of economies of scale. Morrisons had a reputation for being very tightly run with good cost controls and these skills could be applied to the much larger Safeway. The merger went through in early 2004 and within the next 15 months, or so, Morrisons had to issue five profit warnings. In the year to the end of January 2006, the group made a pre-tax loss of around 300m compared to combined profit of about 650m before the merger. Profits have now greatly improved (655m to end of January 2009) and the companys performance is now very strong, but there were severe problems for a couple of years. What caused those problems to occur in the merger which seemed to be such a good idea initially? Here are some of the reasons frequently given: Morrisons was run by Ken Morrison, the 72-year-old son of the founder and who had been with the business for around 50 years. As is perhaps often the case where the CEO shares his name with that of the firm, the CEO had a reputation for being autocratic and doing things very much his way. Morrisons was the only company on the FTSE to have no non-executive directors until investors forced the issue in May 2004. As was reported at the time2, at an initial meeting with 300 Safeway staff at their head office, Mr. Morrison derided the Safeways performance and profit record, severely damaging morale.

Safeways operations director and trading director resigned and Morrisons failed to persuade many Safeway staff to move north to the groups headquarters. Other key Safeway staffs were removed soon after the takeover, particularly those with expertise in the Safeway IT system.
Morrisons was very much a cost leader, delivering very good value products to a market, based in the north of England, which it knew well. Safeways was a more up market chain with many branches in the wealthier south of England. Almost overnight, Safeway stores began stocking Morrison-branded products and pursuing a national pricing policy. Consumers were confused and margins were damaged. The stores no longer accurately addressed what their customers wanted and many customers moved elsewhere.
It was very difficult to integrate the two companys IT systems and this meant that duplicate systems had to be run for much longer than expected. As the company said: The performance of the group overall remains heavily impacted by the temporary dual running costs of distribution, administration and IT functions necessary to the conversion process.

Goold and Campbell1 suggest that this arises because corporate executives too often presume synergy when more objective analysis might cast doubt on this. Synergy, they say, is overpredicted because of four biases:
The synergy bias: Executives tend to assume that part of their function is to find and utilize synergy. Therefore, to show that they are doing a worthwhile job, they seek to find synergy at all costs.
The parenting bias: A belief that synergy will result only by forcing business units to cooperate. However, often business units will already be cooperating if it is in their interest to do so. If cooperation has to be imposed (and executives often do so to prove they are doing their job), it might be evidence that the solution is flawed.
The skills bias: The belief that the skills needed to achieve synergy are present in the organization. However, often those skills will not be within the organisation and tasking someone with inadequate skills to implement, say, a company-wide approach to logistics is probably doomed to fail.
The upside bias: Managers concentrate so hard on the potential benefits of synergy that they overlook the possible downside risks. This bias goes hand in hand with the parenting bias: a presumption that globalization, uniformity and centralization can only yield benefits.

Ashridge Portfolio Matrix

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ASHRIDGE PORTFOLIO MATRIX

Date: 7th March, 2013