Strategic Business Growth and Portfolio Model Analysis

Limitations of Business Portfolio Models

Business portfolio models are useful for allocating resources among Strategic Business Units (SBUs), but they also have limitations:

• No empirical validation.
• Classification of SBUs is rather subjective.
• Simplification that can be dangerous (based on theoretical assumptions).
• It makes sense for large companies only.
• Analysis is based on cash flows only; there is a need to take into consideration other factors, such as sales margins or ROI.
• They do not consider interrelations among SBUs.

Identification and Selection of New Business Areas

Companies have different possibilities to grow, categorized into two main classifications:

Internal vs. External Growth Strategies

• Internal growth: Based on the company's resources. The company takes advantage of its production plants, shops, personnel, and markets to increase sales. It is usually developed by companies with highly technical products, specific abilities, and internal know-how.
• External growth: Based on external resources, such as mergers, acquisitions, and alliances. Alliances and cooperation agreements allow the company to broaden the scope of its operations and activities.

Intensive Growth and the Ansoff Matrix

Intensive growth involves identifying opportunities for growth within current company businesses or markets. The Ansoff Matrix defines these strategies as follows:

• Market Penetration: Same products, same markets.
• Market Development: Same products, new markets.
• Product Development: New products in the same markets.
• Diversification: New products, new markets.

Integrative Growth Strategies

Integrative growth consists of identifying opportunities to create or acquire businesses related to the current business within its industry. It can be categorized as:

• Backward integration: Involving suppliers.
• Forward integration: Involving distributors.
• Horizontal integration: Involving mergers and alliances.

Evaluating Strategic Alternatives for New SBUs

Every time a company plans new SBUs to grow, it needs to evaluate different alternatives through three criteria:

• Adequacy: Analyze each strategic option according to the company's situation. The most commonly used tool is the SWOT analysis, which determines the best option by assessing the industry and competitive situation (external analysis) and leveraging the resources and capabilities of the company (internal analysis).
• Acceptability: Companies measure the acceptability of strategic alternatives on the basis of:
  1. Returns
  2. Risk assessment
  3. Reaction of stakeholders
• Feasibility: This refers to the extent to which the company has enough resources or capabilities to implement each of the strategic options. The analysis should include:
  • Financial viability: Refers to financial resources.
  • Access to resources.
  • Cultural elements: The set of values and beliefs of the company.