Describe the differences between the directional, portfolio, and parenting strategies. In addition, describe when you would use these major types of strategies.
The directional, portfolio, and parenting strategies are all different approaches to strategic management, each with its own focus and purpose.
1. Directional Strategy:
The directional strategy involves making decisions and taking actions to steer the organization in a specific direction. It focuses on defining and achieving the organization's goals and objectives. This strategy is all about developing a clear vision, setting long-term objectives, and devising a plan to achieve them. Directional strategies can include expansion into new markets, diversification of products or services, market penetration, or retrenchment.
When to use directional strategy:
- When there is a need to change the overall direction of the organization.
- When entering new markets or expanding into new areas.
- When responding to changes in the competitive landscape.
2. Portfolio Strategy:
The portfolio strategy involves managing a collection of business units, products, or services as a portfolio to maximize overall performance. It focuses on resource allocation, investment decisions, and balancing the portfolio to achieve the desired risk and return. This strategy requires assessing the performance, growth potential, and strategic fit of each business unit or product within the portfolio.
When to use portfolio strategy:
- When an organization operates multiple business units or offers a diverse range of products/services.
- When there is a need to allocate resources efficiently and effectively.
- When evaluating profitability, growth potential, and strategic fit of each business unit or product.
3. Parenting Strategy:
The parenting strategy involves managing and nurturing individual business units within a company's portfolio to enhance their performance and value. It focuses on providing support, guidance, and resources to the business units to improve their strategic fit and competitiveness. Parenting strategies can include transferring best practices, sharing resources, facilitating collaboration, or restructuring the business units.
When to use parenting strategy:
- When there is a need to improve the strategic fit of a business unit with the overall portfolio.
- When a business unit is underperforming and requires intervention or restructuring.
- When leveraging synergies among business units to achieve competitive advantage.
In summary, directional strategy deals with the overall direction and goals of the organization, portfolio strategy focuses on managing a collection of business units or products, and parenting strategy involves managing and nurturing individual business units within a portfolio. The choice of strategy depends on the specific goals, circumstances, and needs of the organization.