$6.$ Formulating Corporate$-$Level Strategy

Recall that corporate$-$level strategies lay out a plan for meeting an entire organization$$s goals. Often, this may involve decisions about whether to buy or sell a business or business unit. There are three ways to approach developing a corporate level strategy: the portfolio approach, the Boston Consulting Group approach, and the diversification approach.

Portfolio StrategyBoston Consulting Group StrategyDiversification Strategy

One way of managing risk is to diversify, or spread out, your investments. Individual investors do this by having a mix of stocks, bonds, and other investments. Companies do this by having a variety of different strategic business units $($SBUs$).$ Each SBU is likely to have a different mission, product line, competitors, and markets than the other SBUs in the company. General Electric, for example, has multiple business units, including power, aviation, healthcare, and renewable energy. Portfolio strategies set up the ideal mix of SBUs for an organization $$ one that will capitalize on the synergy between the units and the competitive advantages provided by the units.

According to the Boston Consulting Group, a question mark organization has low market share and low market growth.

Managers often consider aportfolio strategy when deciding whether diversification is the right approach for their company.

Businesses should diversify, or acquire other businesses, only under which of the following circumstances?

When the combined business will be more valuable than the two separate businesses alone

When the acquiring business has excess funds available for use

When the business environment is undergoing rapid transformation

When the company being acquired is significantly undervalued