# Growth Strategy Concept Card: [Company or case name] > A concept card for growth and corporate strategy as it is taught in a first-year MBA strategy core: where to grow > (the Ansoff product-market matrix), whether to diversify and how a corporate parent adds value, how to grow (organic > build, alliances, acquisitions), how to look at a portfolio of businesses (the BCG growth-share matrix), how to balance > today's business with tomorrow's (the three horizons), and how to size the problem with a growth gap analysis. It is > for MBA students preparing a case or exam and for managers who must turn a revenue target into a portfolio of > initiatives. The card explains the idea first, then gives formulas with a notation table, a fully solved growth gap and > portfolio analysis for Corvane Robotics, a half-solved build, borrow or buy decision for Northfield Outdoor Co., an > unsolved three horizons exercise, a self-test and a separate answer key. All companies and numbers are fictional. > Source basis: Ansoff (1957, 1965), Rumelt (1974), Henderson (1970), Porter (1987), Goold, Campbell and Alexander (1994), > Baghai, Coley and White (1999) and Capron and Mitchell (2012), written up in original words and examples. > Replace every [bracketed] value and every row marked *Example*. ## Document control | Field | Value | |---|---| | Course or project | [Strategy core, session 9 / client project / strategic plan] | | Learner or team | [Your name or learning team] | | Company analysed | [Corvane Robotics (fictional) / your company] | | Planning horizon | [FY2026 base, FY2031 target] | | Currency and unit | [USD m] | | Evidence sources | [Board plan, market reports, pipeline data, deal comparables] | | Reviewed by | [Instructor, mentor or finance partner] | | Date | YYYY-MM-DD | | Version | [0.1] | ## When to use it **One-sentence rule:** use this card when a firm must choose where to grow, how to grow and how to balance its portfolio of businesses to reach a target it cannot reach by momentum alone. | Use it when | Use something else when | |---|---| | The board sets a revenue or profit target above the current trajectory | You need to value one project in detail (`mba/mba-npv-irr-card`, `finance/investment-appraisal`) | | A case asks "should the firm enter this market or product?" | The question is whether the core industry is attractive (`mba/mba-five-forces-card`) | | Management weighs an acquisition against building in-house | You need a full deal valuation (`mba/mba-dcf-valuation-card`, `finance/valuation-report`) | | A multi-business firm allocates capital between units | You need integration planning after a deal (`finance/m-and-a-integration-100-day-plan`) | | A firm worries that its core will stall in five years | You need a launch plan (`marketing/go-to-market-plan`) | ## The idea in plain language **Where to grow: the Ansoff matrix.** Ansoff (1957) set out four ways to grow by crossing present and new **products** with present and new **markets** (missions, in his original wording): | | Present products | New products | |---|---|---| | **Present markets** | Market penetration | Product development | | **New markets** | Market development | Diversification | Risk generally rises as the firm moves away from what it knows: market penetration uses existing products, customers and skills; diversification needs new skills on both dimensions at once. Ansoff (1965) developed the idea of **synergy**, the extra value from combining businesses that share resources or skills, as the test of whether a move away from the core makes sense. **Diversification and corporate strategy.** Rumelt (1974) classified firms by how related their businesses are and found that firms diversifying into related businesses, building on a core skill, tended to perform better than unrelated conglomerates. Porter (1987) proposed three tests for any diversification move: the industry entered must be **attractive** (or capable of being made so), the **cost of entry** must not capitalise all future profits, and the new unit must gain an advantage from the link with the corporation, or the corporation from the unit (the **better-off test**). Goold, Campbell and Alexander (1994) asked what the corporate parent adds: a parent creates value only if it makes its businesses better off than they would be under another owner or on their own (**parenting advantage**). Corporate strategy is the answer to two questions: which businesses should we be in, and how does the centre add value to them? **How to grow: build, borrow or buy.** Capron and Mitchell (2012) frame the choice of mode: - **Build (organic):** develop internally. Most control, keeps learning inside, but slow and limited by existing skills. - **Borrow (contracts and alliances):** licensing, joint ventures, partnerships. Faster and cheaper, less control, shared returns, risk of leaking know-how. - **Buy (acquisition):** fastest access to resources and customers, full control, but the buyer pays a premium and must integrate. The price often captures most of the expected synergies; Sirower (1997) described how acquirers that pay a premium for synergies they cannot deliver lose value (the synergy trap). Their rough decision logic: build when internal resources fit the need; borrow when they do not fit but a contract or partner can supply the missing resource; buy when the firm needs deep integration with the target's resources and the target can be integrated. **Portfolio view: the BCG growth-share matrix.** Bruce Henderson of the Boston Consulting Group set out the product portfolio idea in the essay "The Product Portfolio" (1970), building on BCG's earlier experience-curve work (*Perspectives on Experience*, 1968). Each business unit is placed by its **market growth rate** (a proxy for cash need) and its **relative market share** (its share divided by the largest rival's share, a proxy for cost position via the experience curve). The four cells are now called stars (high growth, high share), cash cows (low growth, high share), question marks (high growth, low share) and dogs (low growth, low share). The logic is cash balance: cows fund the investment that turns question marks into stars, which become the next cows. The matrix is a starting point for discussion, not a decision rule: share is not always linked to cost, growth does not equal attractiveness, and "dogs" can be profitable niches. **Balance over time: the three horizons.** Baghai, Coley and White (1999) describe a growing company as managing three horizons at once: **Horizon 1** extends and defends the core businesses that bring today's profit; **Horizon 2** builds emerging businesses that are gaining traction and need investment; **Horizon 3** creates options on future businesses through research, pilots and small stakes. Firms that manage only Horizon 1 stall when the core matures. Each horizon needs different metrics, people and funding rules: Horizon 3 projects judged by Horizon 1 profit targets are killed too early. **Sizing the problem: growth gap analysis.** Compare the target with the momentum case (what the current business delivers with no new initiatives). The difference is the **growth gap**. Then list initiatives, estimate each one's revenue in the target year and its probability of success, and check whether the **risk-adjusted** contributions close the gap. ## Formulas and notation **Target growth rate and momentum:** $$ g^{*} = \left(\frac{R_{T}^{\text{target}}}{R_0}\right)^{1/T} - 1, \qquad R_t^{\text{mom}} = R_0 (1 + g_m)^t $$ **Growth gap and risk-adjusted contribution:** $$ \text{Gap}_T = R_T^{\text{target}} - R_T^{\text{mom}}, \qquad E[\Delta R_i] = p_i \times \Delta R_i, \qquad \text{Coverage} = \frac{\sum_i E[\Delta R_i]}{\text{Gap}_T} $$ **Relative market share (BCG):** $$ RMS_u = \frac{s_u}{s_{\text{largest rival}}} $$ **Acquisition value to the buyer:** $$ NPV_{\text{deal}} = V_{\text{standalone}} + PV_{\text{synergies}} - PV_{\text{integration}} - \text{Price}, \qquad \text{Premium} = \text{Price} - V_{\text{standalone}} $$ The deal creates value for the buyer only if $PV_{\text{synergies}} - PV_{\text{integration}} > \text{Premium}$. | Symbol | Meaning | Unit | |---|---|---| | $R_0$ | Revenue in the base year | USD m | | $R_T^{\text{target}}$ | Revenue target in year $T$ | USD m | | $T$ | Planning horizon | years | | $g^{*}$ | Compound annual growth rate needed to reach the target | % per year | | $g_m$ | Momentum growth rate of the existing business | % per year | | $R_t^{\text{mom}}$ | Momentum revenue in year $t$ | USD m | | $\Delta R_i$ | Revenue initiative $i$ adds in year $T$ if it succeeds | USD m | | $p_i$ | Probability that initiative $i$ succeeds as planned | 0 to 1 | | $E[\Delta R_i]$ | Risk-adjusted (expected) contribution of initiative $i$ | USD m | | $s_u$ | Market share of unit $u$ | % | | $RMS_u$ | Relative market share of unit $u$ | ratio | | $V_{\text{standalone}}$ | Value of the target as an independent firm | USD m | | $PV_{\text{synergies}}$, $PV_{\text{integration}}$ | Present value of synergies and of integration costs | USD m | ## Assumptions and limits - **Probabilities are judgements.** Use base rates where you can: how often similar launches, market entries or acquisitions met their plan. Ask for ranges. - **Expected revenue is not value.** Revenue from a new market may come with lower margins and more capital. Before committing, value each initiative with NPV (`mba/mba-npv-irr-card`). - **Independence.** Summing expected contributions assumes initiatives do not depend on each other. If they share scarce people or a single product, success is correlated and the plan is riskier than the sum suggests. - **The Ansoff matrix ignores how far "new" is.** A new market can be next door or on another continent. Score distance from the core on several dimensions (customers, channels, technology, regulation). - **BCG proxies can fail.** Relative share links to cost only where experience effects are strong; market growth is only one sign of attractiveness. Define the market carefully: a narrow definition makes everyone a leader. - **Three horizons are not three budgets by formula.** Allocation shares are a check, not a rule; the right mix depends on how fast the core is maturing. - **Acquisition estimates are biased upward.** Synergies are usually overestimated and integration costs underestimated. Haircut revenue synergies more than cost synergies. ## How managers use it in practice 1. **Set the target** and compute the required growth rate. 2. **Build the momentum case** from the existing business, with honest assumptions about market growth and share. 3. **Measure the gap** by year, not only in the final year. 4. **Generate initiatives** across all four Ansoff cells, so the list is not limited to the comfortable ones. 5. **Estimate** revenue in the target year, probability of success, investment and margin for each. 6. **Choose the mode** for each: build, borrow or buy. 7. **Check the portfolio**: BCG positions of units, horizon mix, cash needs against cash generation. 8. **Decide and set milestones**: what evidence by when would raise or lower each initiative's probability? ```mermaid flowchart TD A["Set target and compute required growth rate"] --> B["Build momentum case"] B --> C["Measure growth gap by year"] C --> D["Generate initiatives in all four Ansoff cells"] D --> E["Estimate revenue, probability, investment, margin"] E --> F{"Do internal resources fit the need?"} F -- Yes --> G["Build organically"] F -- No --> H{"Can a contract or partner supply the missing resource?"} H -- Yes --> I["Borrow: licence or alliance"] H -- No --> J{"Is deep integration needed and feasible?"} J -- Yes --> K["Buy: acquisition with synergy test"] J -- No --> L["Rethink the initiative or drop it"] G --> M["Check portfolio: BCG positions, horizon mix, cash"] I --> M K --> M M --> N["Decide, set milestones, review quarterly"] ``` ## Worked example A (fully solved): Corvane Robotics growth gap and portfolio **Situation (fictional).** Corvane Robotics expects revenue of about USD 140m in FY2026 (USD 92.0m in 2025, see `mba/mba-strategy-guide`). Its board wants USD 450m by FY2031. The existing businesses are expected to grow at 14% a year without new initiatives. **Step 1: required growth and momentum.** | Item | Value | Excel | |---|---|---| | Required CAGR $g^{*}$ | 26.3% | `=RRI(5, 140, 450)` or `=(450/140)^(1/5)-1` | | Momentum revenue FY2031 | USD 269.6m | `=140*(1+14%)^5` | | Growth gap FY2031 | USD 180.4m | `=450-269.6` (use the unrounded cell) | | Year | Momentum (USD m) | Target path (USD m) | Gap (USD m) | |---|---|---|---| | FY2026 | 140.0 | 140.0 | 0.0 | | FY2027 | 159.6 | 176.8 | 17.2 | | FY2028 | 181.9 | 223.3 | 41.4 | | FY2029 | 207.4 | 282.1 | 74.7 | | FY2030 | 236.5 | 356.3 | 119.8 | | FY2031 | 269.6 | 450.0 | 180.4 | Excel: momentum `=140*(1+14%)^t`, target path `=140*(1+$B$2)^t` with $g^{*}$ in B2. ```vega-lite { "$schema": "https://vega.github.io/schema/vega-lite/v5.json", "description": "Corvane Robotics (fictional): momentum revenue against target path, USD m", "width": 360, "height": 200, "data": {"values": [ {"year": "FY2026", "case": "Momentum (14% a year)", "revenue": 140.0}, {"year": "FY2027", "case": "Momentum (14% a year)", "revenue": 159.6}, {"year": "FY2028", "case": "Momentum (14% a year)", "revenue": 181.9}, {"year": "FY2029", "case": "Momentum (14% a year)", "revenue": 207.4}, {"year": "FY2030", "case": "Momentum (14% a year)", "revenue": 236.5}, {"year": "FY2031", "case": "Momentum (14% a year)", "revenue": 269.6}, {"year": "FY2026", "case": "Target path (26.3% a year)", "revenue": 140.0}, {"year": "FY2027", "case": "Target path (26.3% a year)", "revenue": 176.8}, {"year": "FY2028", "case": "Target path (26.3% a year)", "revenue": 223.3}, {"year": "FY2029", "case": "Target path (26.3% a year)", "revenue": 282.1}, {"year": "FY2030", "case": "Target path (26.3% a year)", "revenue": 356.3}, {"year": "FY2031", "case": "Target path (26.3% a year)", "revenue": 450.0} ]}, "mark": {"type": "line", "point": true}, "encoding": { "x": {"field": "year", "type": "ordinal", "title": null}, "y": {"field": "revenue", "type": "quantitative", "title": "Revenue (USD m)"}, "color": {"field": "case", "type": "nominal", "title": null} } } ``` **Step 2: initiatives, Ansoff cell and risk adjustment** (revenue in FY2031 if successful). | ID | Initiative | Ansoff cell | Revenue if successful | Probability | Risk-adjusted | Excel | |---|---|---|---|---|---|---| | GI-01 *(Example)* | Analytics software upsell to installed sites | Market penetration | 60 | 0.80 | 48.0 | `=D5*E5` | | GI-02 *(Example)* | Enter Germany and Benelux | Market development | 90 | 0.60 | 54.0 | `=D6*E6` | | GI-03 *(Example)* | Piece-picking robotic arm | Product development | 110 | 0.45 | 49.5 | `=D7*E7` | | GI-04 *(Example)* | Hospital logistics robots | Diversification (related) | 120 | 0.25 | 30.0 | `=D8*E8` | | | **Total** | | **380** | | **181.5** | `=SUMPRODUCT(D5:D8,E5:E8)` | Coverage: $181.5 / 180.4 = 100.6\%$ (`=181.5/180.4`). Risk-adjusted plan revenue: $269.6 + 181.5 = 451.1$. Read this carefully. The unadjusted list (USD 380m) looks like it closes the gap twice over; the risk-adjusted list closes it with a margin of only USD 1.1m. Without the diversification move (GI-04) the risk-adjusted shortfall is USD 28.9m. The board should either accept that the target depends on a 25%-probability bet, add initiatives, or lower the target. Probabilities were chosen to fall with distance from the core, as the Ansoff logic suggests. **Step 3: mode for each initiative.** | ID | Mode | Reason | |---|---|---| | GI-01 | Build | Uses Corvane's own data and software team; customers already installed | | GI-02 | Borrow, then build | A distribution and service partner in Germany for two years gives local service capacity fast; build own team when volume justifies it | | GI-03 | Build or buy | Corvane has gripper patents (see `mba/mba-resource-based-view-card`); buy a small arm start-up only if internal development slips by more than a year | | GI-04 | Borrow | A joint pilot with a hospital logistics provider tests demand before committing; hospital regulation and procurement are new to Corvane | **Step 4: portfolio check (BCG, FY2026).** Thresholds: market growth 10%, relative market share 1.0. | Unit | Revenue (USD m) | Market growth | Own share | Largest rival share | RMS | Cell | Excel (RMS) | |---|---|---|---|---|---|---|---| | AMR fleet robots *(Example)* | 82 | 25% | 9% | 24% | 0.38 | Question mark | `=D2/E2` | | Fleet software subscriptions *(Example)* | 31 | 30% | 18% | 12% | 1.50 | Star | `=D3/E3` | | Field service and spares *(Example)* | 21 | 6% | 14% | 10% | 1.40 | Cash cow | `=D4/E4` | | Conveyor retrofits *(Example)* | 6 | 2% | 3% | 20% | 0.15 | Dog | `=D5/E5` | Cell formula: `=IF(C2>=10%,IF(F2>=1,"Star","Question mark"),IF(F2>=1,"Cash cow","Dog"))`. ```vega-lite { "$schema": "https://vega.github.io/schema/vega-lite/v5.json", "description": "Corvane Robotics (fictional) growth-share matrix, FY2026: bubble size is revenue", "width": 360, "height": 260, "layer": [ { "data": {"values": [ {"unit": "AMR fleet robots", "rms": 0.38, "growth": 25, "revenue": 82}, {"unit": "Fleet software", "rms": 1.50, "growth": 30, "revenue": 31}, {"unit": "Field service", "rms": 1.40, "growth": 6, "revenue": 21}, {"unit": "Conveyor retrofits", "rms": 0.15, "growth": 2, "revenue": 6} ]}, "layer": [ { "mark": {"type": "circle", "opacity": 0.6}, "encoding": { "x": {"field": "rms", "type": "quantitative", "title": "Relative market share (log scale, high share on the left)", "scale": {"type": "log", "domain": [0.1, 4], "reverse": true}}, "y": {"field": "growth", "type": "quantitative", "title": "Market growth (% a year)", "scale": {"domain": [0, 35]}}, "size": {"field": "revenue", "type": "quantitative", "title": "Revenue (USD m)", "scale": {"range": [100, 2000]}} } }, { "mark": {"type": "text", "dy": -18}, "encoding": { "x": {"field": "rms", "type": "quantitative", "scale": {"type": "log", "domain": [0.1, 4], "reverse": true}}, "y": {"field": "growth", "type": "quantitative"}, "text": {"field": "unit", "type": "nominal"} } } ] }, { "data": {"values": [{"rms": 1.0}]}, "mark": {"type": "rule", "strokeDash": [4, 4]}, "encoding": {"x": {"field": "rms", "type": "quantitative"}} }, { "data": {"values": [{"growth": 10}]}, "mark": {"type": "rule", "strokeDash": [4, 4]}, "encoding": {"y": {"field": "growth", "type": "quantitative"}} } ] } ``` Reading the portfolio: 58.6% of revenue (USD 82m of 140m) sits in a question mark. The robot business grows fast but Corvane is not the share leader, so it needs heavy investment to reach leadership; the software star and the service cash cow help fund it. The conveyor retrofit unit is small and barely growing: harvest or sell. On the three horizons, GI-01 and the core robot fleet are Horizon 1, GI-02 and GI-03 Horizon 2, GI-04 Horizon 3. **Step 5: recommendation.** (1) Approve GI-01 to GI-03 with milestones (pilot sales of the arm by FY2028, first 20 German sites by FY2028). (2) Fund GI-04 as a small-stake option with a decision gate after the pilot. (3) Tell the board plainly that the USD 450m target has close to zero buffer on a risk-adjusted basis and propose either a target range of USD 420m to 450m or two more initiatives. (4) Sell the conveyor retrofit unit and redeploy its engineers to GI-03. ## Worked example B (half solved): Northfield Outdoor Co. build, borrow or buy **Situation (fictional).** Northfield Outdoor Co. wants to enter the market for repaired and resold outdoor gear (market development and a new service line). Three routes, discount rate 9%, USD m: - **Buy** a repair and resale start-up (here "the start-up"): price 24.0, standalone value 17.0, PV of synergies 10.0, PV of integration costs 2.5. - **Borrow:** an alliance in which the start-up runs repairs for Northfield stores. Northfield's share of profit is 0.9 a year for 8 years; set-up cost 0.6 today. - **Build:** invest 3.0 in year 1 and 3.0 in year 2, then receive 2.2 a year in years 3 to 10. | Item | Value | Excel | |---|---|---| | Buy: premium paid | [ ] | `=24-17` | | Buy: $NPV_{\text{deal}}$ | [ ] | `=17+10-2.5-24` | | Buy: PV of synergies needed to break even | 9.5 | `=24-17+2.5` | | Borrow: PV of profit share | 4.98 | `=PV(9%, 8, -0.9)` | | Borrow: NPV | [ ] | `=PV(9%, 8, -0.9)-0.6` | | Build: NPV | [ ] | `=NPV(9%, -3, -3, 2.2, 2.2, 2.2, 2.2, 2.2, 2.2, 2.2, 2.2)` | 1. Which route has the highest NPV? [ ] 2. Why is the buy NPV so close to zero, and what does it say about the price? [ ] 3. Name two factors outside the NPVs that could change the choice (speed, control, learning, risk). [ ] 4. Recommend a route with one sentence of reasoning: [ ] ## Exercise C (unsolved): three horizons budget for Corvane Robotics Corvane's FY2027 discretionary investment budget is USD 40m, proposed as follows (USD m): | Project | Proposed spend | |---|---| | Robot fleet efficiency release | 9.0 | | Field service tooling and spare-parts logistics | 7.5 | | Fleet software feature releases | 6.0 | | Sales capacity in current markets | 4.5 | | Piece-picking arm development | 5.0 | | Germany and Benelux entry | 3.5 | | Hospital logistics pilot | 2.5 | | Outdoor yard robot research | 2.0 | 1. Classify each project as Horizon 1, 2 or 3. 2. Compute the spend and share of the budget for each horizon (Excel: `=SUMIF(range, "H1", spend)/SUM(spend)`). 3. Nagji and Tuff (2012) reported that a 70/20/10 split between core, adjacent and transformational initiatives was associated with better performance in the firms they studied, while stressing that the right mix differs by industry and firm. Compare Corvane's split with it. 4. Given the growth gap in Worked example A, should Corvane move money towards Horizons 2 and 3? Argue both sides. 5. Propose one metric for each horizon that the board should track. ## Connections to other cards - `mba/mba-resource-based-view-card`: grow where your VRIO resources travel; Penrose's unused resources are a source of growth. - `mba/mba-competitive-advantage-card`: growth without an advantage in the new space dilutes returns; check ROIC against WACC per initiative. - `mba/mba-five-forces-card`: Porter's attractiveness test for a new industry. - `mba/mba-npv-irr-card` and `finance/investment-appraisal`: value each initiative before you commit. - `mba/mba-dcf-valuation-card` and `finance/valuation-report`: standalone value of an acquisition target. - `mba/mba-opportunity-assessment-card` and `mba/mba-market-sizing-drills`: size new markets before estimating revenue. - `finance/m-and-a-integration-100-day-plan`: what happens after "buy". ## Common mistakes and misconceptions 1. **No momentum case.** Without it, nobody knows how much of the target depends on new initiatives. 2. **Summing unadjusted revenue.** Plans "close the gap" on paper because every initiative is assumed to succeed. 3. **Calling a far move "related".** Shared customers or shared technology make diversification related; a shared logo does not. 4. **Paying away the synergies.** If the premium is larger than the net present value of synergies, the deal destroys value for the buyer even if the target is a good business. 5. **Defaulting to acquisitions.** Buying is fast but expensive and hard to integrate; check build and borrow first. 6. **Using BCG labels as decisions.** A "dog" can be a profitable niche; a "question mark" may never become a star. 7. **Defining the market to suit the answer.** A narrow market definition makes any unit a share leader. 8. **Judging Horizon 3 by Horizon 1 metrics.** Options are judged by learning milestones, not current profit. 9. **Ignoring cash.** Fast growth consumes working capital and capex; check that cash generators can fund the plan. 10. **Treating the Ansoff matrix as a ranking.** Penetration is not always better; a saturated core may make it the riskiest option. ## Self-test questions 1. Name the four cells of the Ansoff matrix and give one example for a company you know. 2. A firm has revenue of USD 200m and a five-year target of USD 350m. What CAGR is required? Give the Excel formula. 3. In question 2, momentum growth is 6% a year. What is the growth gap in year 5? 4. State Porter's (1987) three tests for diversification. 5. What is parenting advantage (Goold, Campbell and Alexander 1994)? 6. A target's standalone value is USD 50m, the price is USD 65m, PV of synergies USD 18m and PV of integration costs USD 4m. What is the NPV of the deal to the buyer? 7. Unit A has 12% share and the largest rival 30%; its market grows 4% a year. Where is it in the BCG matrix? 8. Describe the three horizons and one suitable performance metric for each. 9. When does the build, borrow or buy logic point to an alliance rather than an acquisition? 10. Why does summing risk-adjusted contributions understate risk when initiatives depend on the same team? ## My notes and next steps | Date | Note or action | Done | |---|---|---| | YYYY-MM-DD | *Example:* Build the momentum case for the company in next week's case before class | [ ] | | YYYY-MM-DD | *Example:* Ask our finance team for base rates of past initiatives meeting plan | [ ] | | YYYY-MM-DD | [Your action] | [ ] | ## Sources and further reading - Ansoff, H. I. (1957). Strategies for diversification. *Harvard Business Review*, 35(5), 113-124. - Ansoff, H. I. (1965). *Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion*. McGraw-Hill. - Penrose, E. T. (1959). *The Theory of the Growth of the Firm*. Basil Blackwell. - Henderson, B. D. (1970). The product portfolio. *BCG Perspectives*. Boston Consulting Group. - Rumelt, R. P. (1974). *Strategy, Structure, and Economic Performance*. Division of Research, Graduate School of Business Administration, Harvard University. - Porter, M. E. (1987). From competitive advantage to corporate strategy. *Harvard Business Review*, 65(3), 43-59. - Goold, M., Campbell, A., and Alexander, M. (1994). *Corporate-Level Strategy: Creating Value in the Multibusiness Company*. John Wiley and Sons. - Sirower, M. L. (1997). *The Synergy Trap: How Companies Lose the Acquisition Game*. Free Press. - Baghai, M., Coley, S., and White, D. (1999). *The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise*. Perseus Books. - Capron, L., and Mitchell, W. (2012). *Build, Borrow, or Buy: Solving the Growth Dilemma*. Harvard Business Review Press. - Nagji, B., and Tuff, G. (2012). Managing your innovation portfolio. *Harvard Business Review*, 90(5), 66-74. - Textbooks (further reading, by name only): Grant, *Contemporary Strategy Analysis*; Besanko, Dranove, Shanley and Schaefer, *Economics of Strategy*; Koller, Goedhart and Wessels, *Valuation* (chapters on mergers and acquisitions). - Open resource: OpenStax, *Principles of Management* (CC BY-NC-SA 4.0), chapters on strategy, https://openstax.org/details/books/principles-management. ## Answer key **Worked example B.** Premium = 24.0 - 17.0 = USD 7.0m. Buy NPV = 17.0 + 10.0 - 2.5 - 24.0 = USD 0.5m. Borrow NPV = 4.98 - 0.6 = USD 4.38m. Build NPV = USD 4.97m. (1) Build has the highest NPV, with borrow close behind. (2) The price already pays the seller for most of the synergies: net synergies of 7.5 against a premium of 7.0 leave only 0.5 for Northfield, and any synergy shortfall turns the deal negative. (3) Speed (build gives no cash for two years and has execution risk not in the NPV), control and learning (the alliance keeps the know-how at the start-up), scale (the three routes deliver different sizes of business, so the NPVs are not like-for-like), and integration risk for buy. (4) Example: start with the alliance for speed and learning, with an option to buy or build once Northfield understands repair economics; do not pay a 7.0 premium now. **Exercise C.** (1) H1: fleet efficiency, field service tooling, software releases, sales capacity. H2: piece-picking arm, Germany and Benelux. H3: hospital pilot, outdoor yard robots. (2) H1 USD 27.0m (67.5%), H2 USD 8.5m (21.25%), H3 USD 4.5m (11.25%); total USD 40.0m. (3) Very close to 70/20/10. (4) For a shift: the risk-adjusted plan depends on Horizon 2 and 3 initiatives and has no buffer, so under-funding them risks the target. Against: the core robot business is still a question mark that needs investment to reach share leadership, and Horizon 1 funds the cash for the rest. A reasonable answer moves 2 to 4 million towards Horizon 2 with milestones. (5) H1: ROIC and revenue growth of the core; H2: revenue ramp and customer count of new businesses; H3: learning milestones (pilot results, technical feasibility) and option value decisions at gates. **Self-test.** 1. Market penetration, market development, product development, diversification (examples vary). 2. $(350/200)^{1/5} - 1 = 11.84\%$; `=RRI(5, 200, 350)`. 3. Momentum $200 \times 1.06^5 = 267.6$; gap $350 - 267.6 = 82.4$ (USD m). Excel: `=350-200*(1+6%)^5`. 4. Attractiveness test, cost-of-entry test, better-off test. 5. A parent has parenting advantage when it adds more value to its businesses than any rival parent or the businesses on their own could, through its skills, resources and influence. 6. $50 + 18 - 4 - 65 = -1$: USD -1m. The premium (15) exceeds net synergies (14). 7. RMS $= 12/30 = 0.40$ and growth 4%: a dog (low growth, low relative share). 8. H1: extend and defend the core (ROIC, margin, share). H2: build emerging businesses (revenue growth, customer acquisition, unit economics). H3: create options for the future (learning milestones, pilots, option value). 9. When internal resources do not fit, a partner can supply the missing resource through a contract or alliance, and deep integration with the partner's resources is not needed. 10. Shared dependencies make outcomes correlated: if the team fails, several initiatives fail together, so the distribution of outcomes is wider than independent probabilities suggest, even if the expected sum is unchanged. ## Revision history | Version | Date | Author | Change summary | |---|---|---|---| | 0.1 | YYYY-MM-DD | [Your name] | First draft from the template | | 0.2 | YYYY-MM-DD | [Your name] | *Example:* Updated probabilities after the arm pilot; GI-03 raised from 0.45 to 0.55 | ## Standard and licence note Based on the published strategy literature on growth and corporate strategy (Ansoff 1957 and 1965; Henderson 1970; Rumelt 1974; Porter 1987; Goold, Campbell and Alexander 1994; Baghai, Coley and White 1999; Capron and Mitchell 2012). The growth-share matrix and the three horizons are described in own words; the text, examples and numbers are original. The card has no affiliation with any school, consulting firm, publisher or author named. Check the original works when you cite them. Template licence: MIT.