Planning New Businesses Downsizing Older Businesses

Corporate management often desires higher sales and profits than indicated by the projections for the SBU portfolio. The question then becomes how to grow much faster than the current businesses will permit. One option is to identify opportunities to achieve further growth within the company's current businesses (intensive growth opportunities). A second option is to identify opportunities to build or acquire businesses that are related to the company's current businesses (integrative growth opportunities). A third option is to identify opportunities to add attractive businesses that are unrelated to the company's current businesses (diversification growth opportunities).

^ Intensive growth. Ansoff has proposed the product—market expansion grid as a framework for detecting new intensive growth opportunities.11 In this grid, the company first considers whether it could gain more market share with its current products in current markets (market-penetration strategy) by encouraging current customers to buy more, attracting competitors' customers, or convincing nonusers to start buying its products. Next it considers whether it can find or develop new markets for its current products (market-development strategy). Then it considers whether it can develop new products for its current markets (product-development strategy). Later it will also review opportunities to develop new products for new markets (diversification strategy).

^ Integrative growth. Often a business's sales and profits can be increased through backward integration (acquiring a supplier), forward integration (acquiring a distributor), or horizontal integration (acquiring a competitor).

^ Diversification growth. This makes sense when good opportunities exist outside the present businesses. Three types of diversification are possible. The company could seek new products that have technological or marketing synergies with existing product lines, even though the new products themselves may appeal to a different group of customers (concentric diversification strategy). Second, the company might search for new products that appeal to its current customers but are technologically unrelated to the current product line (horizontaldiversification strategy). Finally, the company might seek new businesses that have no relationship to the company's current technology, products, or markets (conglomerate diversification strategy).

Of course, companies must not only develop new businesses, but also prune, harvest, or divest tired, old businesses in order to release needed resources and reduce costs. Weak businesses require a disproportionate amount of managerial attention; managers should therefore focus on growth opportunities rather than wasting energy and resources trying to save hemorrhaging businesses.

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