1. A principal consideration in evaluating a diversified company’s business makeup and the caliber of its strategy is the attractiveness of the industries in which it has business operations. Answers to several questions are required:
a. Does each industry the company has diversified into represent a good business for the company to be in?
b. Which of the company’s industries are most attractive and which are least attractive?
c. How appealing is the whole group of industries in which the company has invested?
2. Calculating Industry Attractiveness Scores for Each Industry into Which the Company Has Diversified: A simple and reliable analytical tool involves calculating quantitative industry attractiveness scores, which can then be used to gauge each industry’s attractiveness, rank the industries from most to least attractive, and make judgments about the attractiveness of all the industries as a group.
a. Market size and projected growth rate
b. The intensity of competition
c. Emerging opportunities and threats
d. The presence of cross-industry strategic fits
e. Resource requirements
f. Seasonal and cyclical factors
g. Social, political, regulatory, and environmental factors
h. Industry profitability
i. Industry uncertainty and business risk
3. There are two hurdles to using this method of evaluating industry attractiveness:
a. Deciding on the appropriate weights for the industry attractiveness measures
b. Getting reliable data for use in assigning accurate and objective ratings
4. Nonetheless, industry attractiveness scores are a reasonably reliable method for ranking a diversified company’s industries from most to least attractive – quantitative ratings tell a valuable story about just how and why some of the industries a company has diversified into are more attractive than others.
5. Interpreting the Industry Attractiveness Scores: Industries with a score much below 5.0 probably do not pass the attractiveness test. For a diversified company to be a strong performer, a substantial portion of its revenues and profits must come from business units with relatively high attractiveness scores.
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