Manage Five Strategic Business Units (SBUs/LOBs) Based On Gr

Manage Five Strategic Business Units (SBU/LOBs) Based on Growth and Contribution

You are the CEO of a firm with five distinct SBU/LOBs, and it is your responsibility to determine how to manage them strategically. The economic environment is characterized by an 8% GNP growth rate. Each SBU/LOB has different characteristics regarding industry position, growth potential, and contribution to the overall portfolio. Based on these factors, you need to develop a management model to optimize their strategic positioning and resource allocation. Additionally, provide a brief commentary on your recommended actions for each SBU/LOB according to the model.

Paper For Above instruction

Developing an effective strategic management model for an organization with diverse SBU/LOBs requires a systematic approach that considers industry growth, market share, competitive positioning, and contribution to overall corporate performance. Portfolio analysis models like the BCG Growth-Share Matrix provide a useful framework to evaluate each business unit based on these factors. Applying such models helps prioritize resource allocation, growth strategies, and divestment decisions in alignment with the firm’s long-term objectives.

The BCG Growth-Share Matrix classifies SBUs into four categories: Stars, Question Marks, Cash Cows, and Dogs. Stars are high-growth and high-market-share units requiring significant investment to sustain growth; Question Marks are high-growth markets with small market shares, needing strategic focus to grow; Cash Cows are mature, low-growth units with high market share, generating steady cash flow; Dogs are low-growth, low-market-share units that may drain resources without sufficient return.

Applying this framework to the five SBUs/LOBs, considering their industry growth rates, market share, and contribution, yields the following insights:

SBU/LOB A: New Product in a Growing Industry

SBU/LOB A is a new product line in an industry with growth potential faster than the GNP, and it has a relatively modest contribution of 5%. Given that the industry is expanding rapidly, despite competition from larger incumbents, this SBU might be classified as a Question Mark or a potential Star if strategic investments are made to gain market share. It holds the promise of significant future growth, especially since the industry’s growth exceeds the broader economy.

Strategically, I would allocate substantial resources to market development, R&D, and competitive positioning to capitalize on growth potential. The goal would be to transform this Question Mark into a Star by increasing market share through aggressive marketing and innovation, leveraging the firm's competitive advantages.

SBU/LOB B: Declining Product with Little Industry Growth

SBU/LOB B is in the decline phase, with competitors exiting due to low growth prospects, and contributing only 5%. Industry growth is stagnant or negative, and this product likely functions as a Dog within the portfolio. Maintaining investment in such an SBU is inefficient unless it serves strategic purposes like fulfilling customer needs or maintaining market presence.

I would consider divestment or harvesting strategies, minimizing further investment while extracting residual value. If the product serves a strategic niche or supports cross-selling, it might be maintained temporarily but should be phased out as part of portfolio rationalization.

SBU/LOB C: Established Product with Dominant Market Share in a Mature Industry

SBU/LOB C commands a 25% share versus competitors holding 50%, 20%, and 5%, and contributes 65%, indicative of a Cash Cow in a stable, mature industry with almost no growth. Its large market share ensures steady cash flow that can be used to fund other strategic initiatives.

My approach would focus on maintaining efficiency and maximizing cash flow from this Cash Cow. Limited investment is required unless repositioning or diversification opportunities emerge. The firm should consider using the surplus cash to finance growth in Question Marks and Stars elsewhere in the portfolio.

SBU/LOB D: Market Leader in a Slow-Growth Industry

With a 15% contribution and leading industry position in a 5% growth environment, SBU/LOB D exemplifies a Leadership position in a Cash Cow. The industry’s slow growth requires the firm to focus on operational efficiencies, cost leadership, and defending market share.

Strategic priorities would include reinforcing competitive advantages, expanding profitability through process optimization, and preventing competitors from eroding market share. The goal is to sustain this leadership while generating cash to fund other units.

SBU/LOB E: Industry Pioneer with High Growth and Potential

LOBE is a pioneer, holding the largest market share, with industry growth at an impressive 20% and a contribution of 10%. Its potential for unlimited value suggests it is a Star with significant growth prospects. Early dominance provides strategic leverage to capture a larger share of a rapidly expanding market.

Investment in innovation, marketing, and capacity expansion would be vital to sustain its leadership position, maximize growth, and realize its full potential as a Star. The firm should continuously monitor emerging competitors and market trends to maintain its competitive edge.

Overall Strategic Recommendations

Based on this analysis, my strategic management model emphasizes resource prioritization for Stars and Question Marks to foster growth, while maintaining or harvesting Cash Cows to sustain cash flow. Dogs should be divested or wound down to conserve resources. Regular portfolio reviews are essential to adapt to industry dynamics and optimize overall organizational performance.

Conclusion

In conclusion, a balanced and dynamic management approach guided by portfolio analysis ensures the firm capitalizes on growth opportunities, efficiently manages mature businesses, and divests underperforming units. For each SBU/LOB, tailored strategies aligned with their growth stage, market position, and contribution help maximize the firm’s long-term value and competitive advantage.

References

• Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99–120.