Corporate Level Strategy – Mix and Composition of Business Units, страница 7

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The Strategic Planning Grid, developed by General Electric and McKinsey & Co., the strategy consulting firm, had, by the early 1980s, become the most popular of the multifactor portfolio approaches to strategic planning.  It was developed as part of an attempt to solve the problem of sorting and comparing its 43 separate and distinct major businesses.  This approach was seen as a breakthrough because it provided a partial solution to the problem of finding a common comparative strategic base for businesses that were diverse and disparate in nature.  It was the recognition of this need that led to the planning work that drew these decentralized businesses together under a single strategic umbrella.  Whereas the business units were charged with doing their own planning, strategic decisions concerning issues such as trade-offs and intra-business unit resource allocations were to be made at the corporate level.  The interplay of the two separate functions enabled the functioning of the General Electric system as a whole.  An important aspect of this approach is that it not only considers objective factors (such as sales, profit and return on investment), but it also gives weight to subjectively estimated factors (such as volatility of market share, technology, employee loyalty, competitive stance and social need). Figure C: The Strategic Planning Grid, shows the business units as spheres on the two dimensions, Market attractiveness and relative market dominance.

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Figure C: The Strategic Planning Grid

The planning focus of the Strategic Planning Grid is performance, specifically, future profit, or the future return on investment.  The main thrust of the planning of this approach is the profit implications of short-term additional investment in each business unit.  The main focus of the approach is the balancing of investments.  Still, it cannot be used to effectively answer the compelling question of how to reshape the portfolio.  This is a question that the corporate manager must answer.  But, the model can offer strategic guidelines in the form of generic strategies.  In general, the strategy will be to increase resources to business units with high market attractiveness and strong relative market dominance.  Conversely, business units with low market attractiveness and a weak competitive position will have their resource allocations reduced.

One of the main contributions of this approach was the change in the reward system for managers that it brought in its wake.  General Electric had, until the introduction of the strategic business unit concept, rewarded its managers identically, on the basis of residual earnings: controllable profits minus charges for corporate capital and corporate services rendered.  Switching over to the business unit concept led to a redefining of the compensation schedule for managers based on long-term goals versus short-term goals according to the strategies found to be appropriate.