The Logic and Extent of Diversification for Wesfarmers’s Corporate Portfolio
For every corporate to conduct its core business and forge forward strategically in future, there is need to have a more vibrant corporate portfolio that is designated to propel it in the operating environment. Usually, the environment is characterized with stiff competition. Nonetheless, a concern for most organizations especially those that are in multi business like Wesfarmers, is how to strategically align plans of its different units so that its conglomeration can work harmoniously as one whole unit.
For this reason, Wesfarmers’s corporate portfolio follows specific guidelines in respect to strategic management. These principles include; Ansoff Matrix which according to Morden (2007) involves a classic analysis of the market based on a matrix comprising of four major variables of existing markets, new markets, existing products and new products. In addition, Ansoff Matrix also considers five market–product development alternatives in its strategic alignment which are consolidation, penetration, market development, product development and diversification. Moreover, Wesfarmers Corporate portfolio is also tailored based corporate parenting, portfolio matrix and diversification.
Nonetheless, from the case study analysis of the Wesfarmers, it is evident that the corporate also follows portfolio matrix in its corporate portfolio. According to Johnson, Whittington and Scholes (2011), portfolio matrix ensures that there is linkage between business growth rate and the competitive position of the organization which is usually determined by its market share. For instance, its investment strategies are determined by the ‘Net Profit Value’ which is usually based on the discounted cash flow.
In addition, another portfolio matrix that Wesfarmers follows in its corporate portfolio is the familiarity of the industry in terms of its risk level, geographical location and the business that the industry is operating. For this reason, according to Johnson, Whittington and Scholes (2011), the basic objective of using portfolio matrix in shaping corporate portfolio is to ensure that the organization is only investing in markets which are highly promising and attractive both in the current times and in the future. Additionally, portfolio matrix also ensures that investments which are done on mature markets becomes self reliant by being self financing in addition of producing cash flow which can also be invested in other productive business areas.
Nevertheless, from the case study, it is relative to acknowledge that Wesfarmers also employ corporate parenting strategies in its corporate portfolio. For that matter, according to Koontz and Heinz (2008), corporate parenting usually views an organization in terms of its capabilities and available resources that can help it build a vibrant business division value that can be able to generate synergies from other business divisions.
Nonetheless, this is accomplished through focusing on competencies of the parent organization and the core values that are usually derived from the interrelationship between business divisions and the parent organization. According to the Wesfarmers business operation, its operations are diversified into several business entities that drew their guidelines from the parent’s origination. For instance, the executive bodies at divisional levels are mandated to come up with their annual strategic plans but with the approval of the parent organization.
Furthermore, Wesfarmers also appreciates and use diversification strategies of strategic planning and management in its corporate portfolio. Corporate units are at liberty to venture into new business entities provided their new ventures comply with the stipulated threshold given by the parent organization. Nonetheless, this is taken to ensure that shareholders interests are taken into account by ensuring that the value of corporate share on the stock market is competitively maintained in order to guarantee these shareholders value in terms of dividends.
Summary of Main Points of the Report
Use of Portfolio Matrix in the Corporate Portfolio
- According to Johnson, Whittington and Scholes (2011), portfolio matrix ensures that there is linkage between business growth rate and the competitive position of the organization which is usually determined by its market share.
- Portfolio matrix also ensures that investments which are done on mature markets becomes self reliant by being self financing in addition of producing cash flow which can also be invested in other productive business areas.
Employ Corporate Parenting Strategies in its Corporate Portfolio
- According to Koontz and Heinz (2008), corporate parenting usually views an organization in terms of its capabilities and available resources that can help it build a vibrant business division value that can be able to generate synergies from other business divisions
Diversification Strategies of Strategic Planning and Management in its Corporate Portfolio
- This is taken to ensure that shareholders interests are taken into account by ensuring that the value of corporate share on the stock market is competitively maintained in order to guarantee these shareholders value in terms of dividends.
References
Mordem, T. (2007) Principles of Strategic Management, England, Ashgate.
Johnson, G., Whittington, R., & Scholes, K. (2011) Exploring Strategy: Text& Cases. 9th ed. Prentice Hall, Sydney.
Koontz, H & Heinz, W. (2008) Essentials of Management: An International Perspective. 7th ed. New Delhi, Tata McGraw-Hill.