Text 2. Growth and portfolio theory

In the 1970s much of strategic management dealt with size, growth, and portfolio theory. The Profit Impact of Marketing Strategies (PIMS) study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the PIMS, particularly the effect of market share. The initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale. It also provides experience and learning curve advantages. The combined effect is increased profits. The studies conclusions continue to be drawn on by academics and companies today: " PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom Peters.

The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration, vertical integration, diversification, franchises, mergers and acquisitions, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment.

By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the “hole in the middle” problem. This anomaly would be explained by Michael Porter in the 1980s.

The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous “strategic business units” (SBU's), but with centralized support functions.

One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz and other financial theorists developed the theory of portfolio analysis. It was concluded that a broad portfolio of financial assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a company’s operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi-factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.

Translate into Russian: unambiguous conclusion, learning curve, compelling evidence, regulatory environment, cash cow.

Ex.2. Complete these sentences using a verb from the box in the correct form

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break away from; catch up: cope with; drop out; fall behind with; follow up; look into; put someone through

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1. Blended learning is one way of … more traditional educational methods but not everybody enjoys studying online after a day at work.
2. We’ve really … our training and development in recent years; some of the staff haven’t done any courses for three years now.
3. I couldn’t attend the course last week. Do you mind lending some of your course notes so that I can …?
4. Unless you … every course programme in detail, it’s impossible to tell which ones are the best.
5. I was very disappointed when my mentor … of my programme; it’s so difficult to find a replacement.
6. She was very bright and talented and managed to get a sponsor to … an MBA at a prestigious Parisian business school.
7. The course trainer was excellent; he made us work hard, and we enjoyed learning about techniques for … stress at work.
8. Our HR has always … on the benefits of investment in training by insisting that participants put into practice what they have learnt.

Ex.3. Rewrite the following sentences without changing their meaning. Replace the words in italics with verbs from the list and make any other necessary changes.

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