STEP 3 - CHECKING THE COMPETITIVE

ADVANTAGE POTENTIAL OF CROSS BUSINESS

STRATEGIC FIT
STEP 4: CHECKING FOR RESOURCE FIT
Financial Resource Fit
State of the internal capital market
Using the portfolio approach:
Cash hogs need cash to develop.
Cash cows generate excess cash.
Star businesses are self-supporting.
Success sequence:
Cash hog Star Cash cow
STEP 4: CHECKING FOR RESOURCE FIT
Does the firm have (or can it develop) the
specific resources and capabilities needed
to be successful in each of its businesses?
Are the firms resources being stretched too
thinly by the resource requirements of one
or more of its businesses?
STEP 5 - RANKING BUSINESS UNIT
PERFORMANCE AND ASSIGNING RESOURCE
ALLOCATION PRIORITIES
Ranking Factors:
Sales growth
Profit growth
Contribution to company earnings
Return on capital invested in the business
Cash flow
Steer resources to business units with the
brightest profit and growth prospects and
solid strategic and resource fit.

8.5 The Chief Strategic and Financial Options for Allocating
a Diversified Companys Financial Resources
STEP 6 - CRAFTING NEW STRATEGIC MOVES
TO IMPROVE OVERALL CORPORATE
PERFORMANCE
Stick with
the Existing
Business
Lineup
Broaden the
Diversification
Base with New
Acquisitions
Divest and
Retrench to
a Narrower
Diversification
Base
Restructure
through
Divestitures
and
Acquisitions
Strategy Options for a Firm
That Is Already Diversified