1. Page 1 Managing Multi-Unit Organizations Strategic Factors I

3. Page 3 Multi-Unit Management Decide scope/reach of the organization – In which businesses or industries does our organization operate or compete? Develop and leverage synergies across differentiated organization units Acme Inc. Product 1Product 2Product 3Product N

4. Page 4 Multi-Unit Management Unrelated organization units General Electric Light Bulbs Aircraft Engines Power Generation Equipment Kitchen Appliances

5. Page 5 Multi-Unit Management Related organization units Procter & Gamble SoapFoodPaper Products OTC Pharm.

6. Page 6 Multi-Unit Management Portfolio focus and rebalancing PEPSI 20% of total sales Carbonated Beverages Juices, Water, Sports drinks Snack Foods Fast Food

7. Page 7 Multi-Unit Management COCA-COLA Carbonated Beverages Juices, Water, Sports drinks 80% of total sales Portfolio focus Near-single business organization

8. Page 8 Diversification/Growth Examples Pepsi – Acquired Tropicana juice co. – Acquired Quaker Oats Gatorade –Spun-off fast food restaurants (YUM!) – Issued Pepsi Bottling IPO – Reinvest in Frito-Lay FedEx – Acquired Mailboxes Plus! – Acquired Kinko’s Kraft Foods’ acquisition of Cadbury Pfizer acquires Wyeth UKMC acquires Good Samaritan PNC Bank acquires National City Bank

9. Page 9 M&A in Hospital Industry During 2000-2009 – 597 mergers and acquisitions – $74.5 billion in deals HCA Community Health Systems Ascension Health Capella Healthcare many more….

10. Why Diversify?? Winter Spring Summer Fall Division Sales ($) Industry Growth (%) 1960 1970 1980 1990 2000 2010 Snowmobile Jet Ski Bulk Chemicals Pharmaceuticals

11. Benefits of Diversification Reduce earnings volatility Move organization into attractive markets and market segments Growth Minimize risk Prolong “life” of the organization Improve long-term performance Capture synergies and strategic “fit” between businesses Steer corporate resources

12. Types of Organizational Diversification Vertical Horizontal – Related – Unrelated Global

13. Page 13 Marathon Oil Oilfield Exploration Oilfield Extraction Transport Refining Wholesaling Retail Stores Gas Stations Installed Oil Shops

14. Page 14 Exxon-Mobil Oilfield Exploration Oilfield Extraction Transport Refining Wholesaling Retail Stores Gas Stations Installed Oil Shops

15. Page 15 Horizontal Diversification Related Procter & Gamble SoapsPaper Products Food Products Logistics Marketing R&D Mfg. Finance To diversify, or not?

16. Page 16 General Electric Aircraft Engines Lighting Products Appliances Finance Horizontal Diversification Unrelated

17. Page 17 Geographic Diversification International Markets Cola-Cola USGreeceChina Brand & Some Marketing Finance Brand & Some Marketing Local bottling and distribution

18. Page 18 Transformation Through Diversification Enter new businesses – Change business portfolio (Monsanto) Shift from commodity chemicals to agricultural biotechnology Molecular biology GM seed/plant technologies Branded products Total Return 1994 S&P MONSANTO Chemicals (18%) Biotech (38%) Today

19. Page 19 Total Return 1993 S&P Nokia Motorola Eriksson Nokia – Founding -1989: Electrical conglomerate – 1993-today: 90% telecommunications 20091989 Transformation Through Diversification

20. Strategic Management of Diverse, Multi-Unit Organizations Turnaround – Restore competitiveness to poor performers – New advantages created within portfolio Retrenchment – Narrow scope of portfolio –“Stick to your knitting” Restructuring – Add new businesses / divest poor performers

21. Page 21 Disney: Capability Leverager Films Videos Network TV Cable TV Hotels Cruise lines Merchandise Brand licensing Retail Stores Toy Story TV Show Merchandise Food Items Theme Park

22. Page 22 Blue Circle Dominant-business Diversified Firm HQ Cement Products Core Competence: Products related to home-building

23. Page 23 HQ Cement Products Core Competence: ? Products related to home-building ? BricksGas Stoves Lawn Mowers Blue Circle

24. Page 24 Boddingtons Vertically Integrated Firm HQ Beer Brewing Pubs Core Competence : Hospitality, retailing, property management Beer Wholesaling

25. Page 25 Boddingtons Related Horizontal Diversified Firm HQ Pubs Restaurants HotelsHealth Clubs Nursing Homes Core Competence : Hospitality, retailing, property management

26. Evaluation of Diversified Firms Reveal contextual position of corporate portfolio BCG Growth-share Matrix Industry Growth Rate High Low Relative Market Share 1.0< 1.0> 1.0 Behind Market Leader You are Market Leader

27. Evaluation of Diversified Firms BCG Growth-share Matrix Industry Growth Rate High Low Relative Market Share 1.0< 1.0> 1.0 Behind Market Leader You are Market Leader Categorize different organizational units Cash Cows Stars ? Dogs

28. Evaluation of Diversified Firms General Electric Industry Growth Rate High Low Relative Market Share 1.0< 1.0> 1.0 Behind Market Leader You are Market Leader Aircraft Engines Light Bulbs Appliances

29. Love Your Dogs

30. Why? – Dogs are under-appreciated Neglected Same category as “value stocks” Payoffs to investing in and paying greater operational-strategic attention to underperformers better than investing in unproven “stars” – Dogs need nurturing/attention “Feed” them (resources, attention) Have them “fixed” (new strategy) Teach them “new tricks” (innovation) – “Adopt” someone else’s dogs

31. Managing Multi-Unit Playing Cards Organizational Units – Suit – Number 3, 4, 7, J Managing Organizational Units for Value Creation Positive Outcomes – Two-, Three-, Four-of-a-kind – Flush – Straight – Full house Page 31 3 4 7 3 J

32. Questions…? Page 32