Page 1 Managing Multi-Unit Organizations Strategic Factors I

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

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

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

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

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

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

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

Why Diversify?? Winter Spring Summer Fall Division Sales ($) Industry Growth (%) Snowmobile Jet Ski Bulk Chemicals Pharmaceuticals

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

Types of Organizational Diversification Vertical Horizontal – Related – Unrelated Global

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Love Your Dogs

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

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 J

Questions…? Page 32