Corporate Level Strategy – Mix and Composition of Business Units, страница 4

Problem Childs or Question Marks compete in a growth market but they have a relatively small market share.  This combination leads to increasing amounts of investments to defend their (small) share of the market and secure survival.  High growth requires cash to support it, but the Question Marks have difficulty generating cash because of their low share.  They are net users of cash, and will probably remain that way unless measures are taken to improve their market share.  There are significant uncertainties about these units: they may be very profitable or not.  Without substantial investment they are very likely to become Dogs.

Dogs are small market-share business units in non-growing industries, condemned to low profits.  Net cash flow is typically small and frequently negative.  Any move to gain market share is forcefully counter-attacked by the dominant competitors.  These Dogs are low-profit business units – frequently losers that require large investments of top management time and skill to keep them alive.

EXAMPLE: In 1994, Viacom Inc. bought out Blockbuster Entertainment Corp. for $8.4 billion.  Using Blockbuster as a “cash cow”, Viacom subsequently acquired Paramount Communications Inc.  But then Blockbuster began its deterioration from “cash cow” to “dog”, and by three years after the acquisition was trading for half the sum it was worth in 1993.  Some saw the shrinking market as the explanation.  Blockbuster had done well when the market was flourishing and margins were fat, but was now having trouble adjusting to less propitious circumstances, even though some of its rivals were still managing to increase sales.  Others sought answers within Blockbuster.  In a period of little over a year Blockbuster had changed its CEO three times, and not just the CEO.  A third of its executives and two-thirds of it staff left when headquarters moved from Fort Lauderdale to Dallas.  Then, Blockbuster’s strategic decision to expand to books, magazines, T-shirts, and toys proved wrong.  That wasn’t the first time that Blockbuster had tried to diversify and failed.  Perhaps Blockbuster’s decision to concentrate on video-rentals will prove to be a better scenario. (Source: Business Week,

1997, " The script doctor is in at Blockbuster-again " July 28, pp. 101-103.)

*

I twice missed the opportunity of participating in the strategic planning process at Tel Aviv University.  On the first occasion I was a very new member of the Faculty, without tenure.  A few months prior to the three-day planning retreat of the university leaders I coauthored a paper entitled “The Decision to Decide”.  It suggested, and discussed, the optimized behavior for a manager deciding which one out of a stream of random decision problems to solve.  Sounds great, doesn’t it?  And very applicable too!  Then they found the paper references what the operation research guys call “the streetwalker dilemma”.  The same problem, though a different application.  I was told my name was “mentioned” a few times during the three-day retreat.  I was sure I would never get tenure.  Twenty years later I attended a weekend retreat to discuss the future of the university.  This time I made a formal presentation suggesting to view the university as a portfolio of faculties, schools, units, and departments.  I spoke about decentralization, and possible alternative options for the mix and composition of large and small, old and new, established and growing departments.  Everyone, from the president of the university to the last participant denounced this suggestion.  They disapprovingly pointed out that an approach that, presumably, might be good for a business organization was certainly not suitable for a reputable university.  I think they resented the idea that their departments might be termed “dogs” or “cash cows”.

*