Structure of Operation Portfolio

(1) Positioning of Operation Portfolio

(a) Growth of enterprise

A large number of enterprises are aiming at growth. It is through growth that an enterprise can increase its profits on a long term basis, sustain the active working place, carry out the expansion and provide the chance of promotion and increment to the employees and managers. The directions of growth of enterprise can broadly be classified into two; one is the expansion of existing operations and the other is to diversify into new operations and carry out with multiple number of operations.

There is no absolute answer to the question of finding which one is the correct option. However, any industry has a life cycle and it can be said that diversification is an inevitable process. Let us try to consider the problem of operation portfolio which occurs as a result of diversification.

The operation portfolio, as said earlier, is a list of operations that are carried out under the operation activities of the enterprise or of the total activities. It determines in concrete from what type of operations with what weightage and combination should be conducted within the domain of the enterprise. The following reasons can be attributed to aiming of growth with multiple number of operations by the enterprise.

· Effective use of unused resources
· To cope up with the environmental change
· Economy of the scope
· Risk dispersion
· Activation of the organisation

· Effective use of unused resources
In any enterprise, different management resources keep on appearing which are not sufficient utilised for the existing operations, continuously. A typical example of this type of resources is the information resource. The people, who form an enterprise, have the capability to learn new things, therefore, the information resources are accumulated continuously.

An enterprise can maintain a further effective state by utilising these resources more effectively. Consequently, the enterprise orients itself towards diversification into such operations in which the resources can be utilised effectively, in order to achieve growth.

· To cope up with the environmental changes
The environment in which the enterprise is placed changes continuously and the enterprise cannot expect to survive and grow, unless it copes up with these changes. One of the factors for the ongoing changes in the environment is the life cycle of industry. When an enterprise clings to only one operation, the decline as well as the destiny of the industry get linked to this operation mainly.

Any enterprise can survive and grow through diversification. An earlier mentioned example of fibre industry clearly establishes this fact.

· Economy of scope
In some cases, the total expenses required for carrying out the multiple number of operations simultaneously by one enterprise are less than the total expenses of operations when the same number of operations are carried out by different enterprises. In such a case, it is said that there exists an economy of scope among the operations.

For example, let us compare an example of one company engaged in manufacturing of passenger cars and trucks simultaneously, with tow different companies engaged in manufacturing of passenger cars and trucks independently. The former will certainly have the cost benefit in the operation. This becomes possible due to the common use of management resources like manufacturing equipment and technology as will as the brand image etc. The enterprises advance into multiple number of operations aiming at this type of cost effect.

· Risk dispersion
It becomes difficult to cope up with the unforeseen circumstances in an industry or with regard to a particular product, if a company is engaged in manufacturing of one product or when it belongs to one industry only. Therefore, the enterprises go in for multiple number of operation, to avoid such risk.

One concrete example is the diversification of Ajinomoto. Till 1955, Ajinomoto had a major share in monosodium glutamate. However, in 1956, KYOWA HAKKO KOGYO entered the monosodium glutamate market with a new technology using direct fermentation method. Ajinomoto was suddenly exposed to the menace. However, it used this challenge as a change to diversify into various areas. Further, in 1969, an American scholar came out with the explanation regarding harmful effect of monosodium glutamate. Therefore, Ajinomoto further accelerated the pace of its diversification process. Though, it was later found that the theory of harmful effect of glutamate was not correct, it proved how fragile an enterprise can be against the risk when it is involved in just one operation.

· Activation of the organization
Entry into multiple number of operations can help in extracting more energy from the members of the organization. This is because of the fact that more the number of operations, more will be the requirement for higher posts. Further, the entry into new industry for the sake of growth gives an interesting impetus to the operations and it motivates the employees to carry out the work more vigorously.

(b) Structure of the operations
In this way, any enterprise tries to have multiple number of operations due to the reasons explained above. However, the problem of how to deal with the structure of overall operations becomes very significant. This includes two problems, namely, the setting of scope and selection of combination.
Scope setting falls within the preview of the area of one’s company and it defines to what extent the operation scope of one’s company can be extended. This has been explained earlier as a definition of domain.
The selection of combination concerns the problems of how to combine various operations within the scope as specified by the domain. It concerns various options like whether the operation

must be carried out in concentrated manner or should the company diversify and have multiple number of operations. Further, in the case of over all diversification, the extent, direction as well as the relationship among the various operations covered under diversification are also the options to be selected.
This is the problem of selection of operation portfolio. This section aims at explaining the theory for the study of these problems.

(2) Selection of Operation Portfolio
The research regarding how to select the operation portfolio of an enterprise and what would be the management result, is being carried out in America as well as in Japan. In this type of research, the operation portfolio of an enterprise is divided into a number of patterns and the performance of each portfolio is compared.

(a) Classification of diversification
It can broadly be classified into five types of standard strategies, depending upon the degree of diversification of operation portfolio, as given below. Further, it can be classified into more fine seven types of strategies depending upon how the resources are linked.

(i) Single exclusive operation Strategy (S: Single).
(ii) Vertical Integrated Strategy (V: Vertical).
(iii) Diversification Strategy with focus on many operations (D: Domain).
· Constructed Diversification Strategy.
(D.C: Domain-Constrained).
· (Diffused Diversification Strategy (DL: Domain Linked)
(iv) Related Diversification Strategy (R: Related).
· Constructed Diversification Strategy
(RC: Related Constraints).
· Diffused Diversification Strategy (RL: Related Linked).
(5) Unrelated Diversification Strategy (U: Un-related).
This classification has been carried out by using Specialisation ratio (SR). It is expressed by the total percentage in the overall sales, which has the maximum sales in the total sales, of the operation field having vertical integrated strategy. Further, it also uses the related ratio (RR) which represents the percentage share of total of maximum related operations in the total sales.

Moreover, besides this type of quantitative criterion, the qualitative criterion like the type of resources linked in the various operations, is also used. The method of linking in the various operations, is also used. The method of linking these types of resources can broadly be classified into two types.

One type is called the constrained model, in which there is a close relationship between various operations and the industry is known as linked or dispersed model, where entry had been made in various new fields with new operations as the stepping stone.

(b) Trends of diversification
What type of operation portfolios are actually selected by the Japanese enterprises. Let us try to understand this with the help of above discussed classification techniques.

(3) Multiplier Effect (Synergy Effect)
The above discussed relationship between diversification and management resources shows why it is necessary to consider the problem of selection of operation portfolio. A proper selection of operation strategy shall certainly determine the management results of the enterprise.

However, it is not an easy task to find an answer to the problem of type of operation portfolio suitable for a particular enterprise. Though, it may be possible to give the guidelines for finding an answer to such problems.

The above analysis showed that a medium level of diversification brings about the maximum profitability for the enterprise, whereas a higher degree of diversification brings about good result on growth aspect. The reason for such a trend is mostly explained through the synergy effect. The synergy effect was advocated as a concept by Anzov in 1965 and was translated as multiplier effect in Japan. Generally, this means that a higher effect like “2+2=5” can be obtained in total when multiple number of operations are handled by one enterprise.

Synergy effect must be differentiated from the mutually supplementing effect. For example, let us take an example of an enterprise engaged in the manufacturing of blankets. The enterprise, when making only blankets, will certainly have some equipments lying idle at some time, therefore, in such cases, this type of enterprise can start manufacturing towels using the equipment, which could not be manufactured on full time basis due to demand or other reasons.

The effective use of resources like this is called mutually supplementing effect because the two different fields could supplement to each other whatever was lacking in the other. This effect can be expressed by “1+1=2”.

On the other hand, this additional operation activity creates a new brand image as a consequence of towel manufacturing. This might increase the sales of blankets also. This is called multiplier effect and can be expressed by “1+1=3”. In this case, the prestige in the form of information management resources can be used simultaneously by two different operations, therefore, this type of effect is generated.

The synergy effect can be achieved by the overlapping use of information management resources after the diversification has progressed to some extent. This increases the profits also. However, an excessive diversification dilutes the management resources and it becomes difficult to make use of resources in an effective manner. Consequently, the profits also get affected.

A company engaged in the manufacturing of blankets could succeed in the towel operation. This does not mean that it can succeed in the manufacturing of handkerchieves or scarfs also. The management resources, which become necessary in such an event, might be totally different also. Further, there may be a possibility that the combination of blankets and handkerchieves or scarfs may end up in a poor image. In such a case, “1+1” becomes less than two. In other words, a negative synergy effect gets generated.

Further, the growth increases in a linear fashion with the progress in the degree of diversification. The adaptability towards the market changes increases as a result of diversification. Therefore, it can be considered that the progress of diversification has a bigger effect on the growth rather that the synergy effect.

In any case, it is necessary to consider such types of multiplier effect while selecting the operation portfolio. It becomes necessary to consider what exactly are the management resources with one’s company and how or in what combination the operations should be performed so that these resources can be properly utilised. Further, it is possible to accumulate the management resources so that further multiplier effect can be expected. It is also necessary to select the operation portfolio which has the possibilities of development, while assuming the possibility of multiplier effect in failure also.

Operation Portfolio and the Resource Distribution

As explained earlier in the precious section, a large number of Japanese enterprises have undergone diversification and are performing multiple number of operations. The view of an enterprise is determined on basis of a very important condition whether the limited management resources can be distributed properly in the multiple operation environment.

The American enterprises which are one step ahead in diversification as compared to Japanese enterprises, have already faced a very serious management problem in 1970’s when it became difficult to manage multiple number of operations as a result of progress in diversification. The distribution of limited resources in the diversified operation scenario became a very big management problem. One of the techniques developed for solving this type of problems is known as PPM (Product Portfolio Management). A large number of methods have been developed in relation to PPM so far. We shall learn the important basis structure here.

(1) PPM
PPM was developed by Boston Consulting Group (BCG). It has already been explained that the management resources comprise men, material, money and information. The PPM lays more emphasis on the capital money, its management resources and especially on the flow of funds. Further, PPM has the experience curve and product life cycle as the pre-requisite conditions and it explains in a vision, how the market share and the market growth and cashflow are linked.

(a) Inflow of funds
Inflow of funds is closely related to the market share. Any enterprise, which is at the position of a leader in the market share obviously produces maximum quantity of products. Therefore, experience curve can progress towards right bottom faster as compared to the other companies and can produce the product a minimum unit cost. Therefore, it has the pre-dominance in the competition and the cash flow is higher. In this way, the cash inflow is determined by the position of the said operation in the market competition.

(b) Cashflow : Outflow of funds
The outflow of the funds related to the growth rate of the market. In a market having higher growth rate, it requires large amount of funds to maintain the market share. Further, the expansion of market share also requires more amount of funds. The cash outflow varies largely depending upon where exactly the operation stands in the overall life cycle. In PPM it is important that the cash inflow and outflow are balanced in overall industry.

In concrete terms, the growth rate of the market and the relative market share (the ratio of market share of one’s own company to the market share of the biggest competitor) are taken as the standards and various products as well as the operations of one’s company are placed in four cells (product portfolio matrix) . The relative market share expresses the competitive strength of the operation and the growth rate of the market expresses the attention of the market.

The PPM provides a tool for striking a balance in the cashflow by clearly defining the required quantity and output quantity of cash for each operation ( it summarises in tabular form) and it suggest what type of strategy must be followed for each operation.

(c) Discrimination of operation unit
First of all, it is necessary to distinguish the operation units, to which the resources are considered for distribution, in order to place various operations in 4 cells and to carry out the distribution of the management resources. Operation units must satisfy the conditions given below.

· It should have an operation mission independent of other operation units.
· Having clearly defined competitors.
· To become an independent competitor in the market.
· To plan and integrate strategy, independent of other operation units concerning the product, market, equipment and organisation.
· The persons responsible for operation unit should be allowed to freely handle within the scope of the plan the technology, manufacturing and marketing, necessary for the success of the operation unit.

(2) Characteristic features and the strategy for each cell can be compiled as given below

(a) Goose that lays golden eggs
Those operations which have lower market growth rate but higher market share are termed as the goose that lays golden eggs. This type of operation belongs to a market which has already reached maturity stage.

Therefore, the attraction of market growth is poor. However, it has pre-dominance of competition, therefore, the cash outflow is low and cash inflow is more. It generates cash for re-investment which is required for maintaining the market predominance. Therefore, the goose that lays the eggs is major fund resource which shall meet the requirement of funds for the growth of other operations.

The typical strategy takes care of diverting surplus cash inflow to a different product, once a strong position has been ensured.

(b) Popular product (*)

The growth rate of market is high and the share is also large. The operations which fall in this cell are more attractive and the competition strength of the enterprise is also more. The cash inflow quantity is very high because this operation has the pre-dominance of competition. However, it requires large amount of capital in cash for investment by the enterprise to sustain the pre-dominance of the competition for the high growth market. Therefore, the cash outflow is very high. The surplus cash generated by this operation is not very high.

This “popular product” can become “goose that lays golden eggs”, if the operation involved can sustain the high share. Further, it can become a resource for supply of cash for the other operation, which require funds.

(c) Problematic child (?)

Any operation, where market growth rate is very high but the market share is very low, is called problematic child. In most of the cases, this operation, requires too much of cash investment as compared to the cash generated. This is so because the market attraction is more whereas the operation has failed to ensure the pre-dominance in the market competition. It requires large amount of funds to ensure higher market share in the high growth market. The cash outflow is very high but the cash inflow is low.

In the event of its just sustaining the share, it reaches the stage of the underdog once the market growth has stopped, even when the cash supply continues. Therefore, it becomes necessary to select to from among the problematic children an operation in which it is possible to attain the pre-dominance of competition in the high growth market by investing funds. It is also necessary to withdraw from an operation when pre-dominance of competition can not be ensured.

(d) Underdog (X)
A product which has low market growth as well as low market share, is called as underdog. The cash inflow as well as cash outflow are low in such an operation. The industry does not have much attraction for this operation and the competition strength is also very weak. There is no other option but to withdraw when possibility of switch over to a better state is remote.

Considering from the view point of balance of cash flow, the popular product which has high growth and strong competition strength, the goose that lays golden eggs, which can supply cash required for the growth in the future and the problematic child which can be turned into popular product by further investment are necessary for the growth of the enterprise. The underdog is not required.

(3) The Problems and the Limitations of PPM
Various problems and the limitations of PPM have also been pointed out. These have originated mostly because of classification based on simple common standards and due to excessive importance given to positioning.

PPM helps in forecasting the flow of funds in the existing operations. However, a large number of problems are faced when PPM is applied mechanically. There is possibility that an operation which can be switched over to a better state is positioned with undergo and is processed accordingly. The use of PPM in a mechanical manner ends up in giving importance to simple and common standards. This means that the typical characteristics of each operation are not given the due importance.

The standard also varies depending upon the industry. Further, life cycle also varies many times depending upon the industry and is not fixed feature. Variations in experience curve on the basis of industry is also not a rare phenomenon.

Further, in PPM the market share is given importance, therefore, the pre-dominance of competition on the basis of low cost gets emphasised. Pursuing the logic of PPM in analytical manner also results in giving importance to low cost strategy. However, the low cost strategy is not the only strategy that ensures the competitive strength. There are two more strategies which were learnt in previous posts, namely the strategy based on creation of distinction and the strategy based on concentration, besides the low cost strategy, that ensures the competition strategy.

Besides these important aspects there are other problems and limitations of PPM which are given below.

(a) Does not take into account the synergy other than the financial aspect between various operations.

The typical characteristics of individual operations are given less importance in PPM. In addition, the relationship between different operations and the aspects other than the financial part are not given due consideration. The PPM gives a lot of importance to striking an overall balance of cash flow. Therefore, it gives emphasis on mutually supplementing the financial relationship. Whereas, synergy among the operations, ups and downs as well as the effect of operation are not given due importance. Such operations are those which have deeper mutual relationships on technological front and all other aspects like marketing etc.

The diversification of an enterprise includes acquiring of new management resources and it is the process of accumulation also. These management resources help in strengthening the competitive power of existing operations and sometimes these resources provide the capabilities which form the basis for conducting new operations. There is a high risk that such important aspects of operations may not be given due importance in PPM.

(b) Does not touch upon raising of funds from outside sources.
The balance of cash flow is given important in PPM. However, it is also possible to raise the funds from outside sources. It may not always be necessary to strike a balance of cash flow in the event of raising funds from outside sources.
(c) Little concern of psychological aspect of the constituting member.
Similar to the direction of the operation, the energy required for moving the members constituting the organisation from inside is also important for any action of the enterprise. It is closely related to the psychological status of the people, who form the organisation and to the policy which must be adopted. In PPM, sufficient funds are not distributed to the operations which are positioned as goose that lays golden eggs and the underdog.
It is not possible to expect growth in future for the operations that are positioned as underdog or the goose that lays golden eggs. Therefore, it is difficult to motivate the inhouse members. It is necessary to give due consideration to the inhouse morale and motivation.
(d) PPM can hardly become a tool helpful for new operations.

It is difficult to position absolutely new operation through PPM.

There are many cases where the limited the management resources are distributed to a large number of operations which amount to tips for all or where large amount of management resources are distributed to strong operations. The PPM was adopted by many large enterprises in America as it allocates positions to large number of operations on the basis common standards and provide index for rationalisation of management resources and for reasoning of withdrawal.

However, considering the various problems and limitations of PPM it is dangerous to distribute the management resources by totally depending on PPM. It is necessary to understand that PPM is one of the logics for resource distribution. The logic of PPM forms the guiding principles for actual distribution of resources only on proper combination with the logic of domain.

PPM can also be used on a very limited basis. It is possible to obtain the information necessaryPPM can also be used on a very limited basis. It is possible to obtain the information necessary for formulation of strategy. For example, the directions of changes in portfolio and the relatives strong as well as the weak points of one’s company vis-a-vis the rival company by comparing with the operation portfolio with the other company by analysing the operation portfolio on time series.

This was the basic structure with main focus on PPM as developed by Boston Consulting Group (BCG). However, there are various other techniques of PPM which have been developed besides this basic structure. Most of these techniques are based on upgradation of BCG matrix.

One typical technique is the business screen as developed jointly by McKinsey and G.E. (General Electric). It is formed on two axis, namely degree of attraction of industry and the operation unit. These two axis are not divided equally into high and low only, but a third measure is also added. Further, the degree of attraction of industry and the position of operation unit are not evaluated only on the basis of single standard like market share or the growth rate of the industry. These are evaluated on the basis of multiple number of standards. Various operations are positioned in 9 different cells on the basis of many standards through which the position of the operation unit can be evaluated.

Definition of Domain

Domain is a word which expresses the order of operation in which the enterprise carries out its activities. In simple terms, it is an answer to the question as to what are the operation of our company and what exactly our company deals in. This is an important aspect which must be defined properly at the initial stage of formulation of all types of strategies. Furthermore, it is a particularly difficult problem.

(1) Why is it necessary to define the Domain?
For any enterprise, the effects given below can be expected by deciding the domain.

· The focus of attention gets restricted
The focus of attention and care which must be paid by the managers and all other persons responsible for decision making gets restricted and concentrated. As a result, the dispersion of management resources can be prevented.
· The index of accumulation of management resources can be obtained
By defining domain, it helps in not only clearly defining the type of management resources that need to be accumulated, it also clearly displays the management results that are required in the future.
· Helps in realisation of synergy
It clearly defines the possibilities of realisation of synergy showing what type of synergy today exists among the various operations. Further, the directions of realisation and synergies also start appearing.
· Gives birth to a feeling of oneness in the organisation
It helps in making all the individual members of the enterprise feel themselves a part of one body and makes it easy to seek the overall cooperation in the organisation and also to achieve the economic status within the scope.

This can be better understood by considering a case where clear domain does not exist or by imagining an activity carried put under wrong domain. The management resources gets dispersed and invested in under such a stage. The directions in which enterprise must progress becomes vague and the group of the organisation members become weak.

(2) Defining of Operation
While defining the domain, it is necessary to clearly distinguish it with the definitions various operations levels. The definition of operations shall form the definition of domain also, if an enterprise continues to operate only one operation without going in for diversification. However, today most of the companies are engaged in multiple number of operations, therefore, the definition of operation cannot be used as it is, as the definition of overall company domain.

However, the concept of defining individual operations forms the starting point for the definition of overall domain of the company. A proper understanding of this concept shall provide large number of suggestions. Therefore, let us first try to consider the definition of operation.

(a)Physical definition and functional definition
Traditionally, the definition of operation has always been provided in relation to the product.

For example, it is often said that “the operation of our company is the computer operation” or “our company deals in computer”. This type of definition can be called as physical definition which is based upon the physical characteristics of the product. This type of definition of operation does not provide for expecting continuous growth, so long as there exists a life cycle of the of product.

Therefore, T. Rebitt emphasised the necessity of functional definition on the basis of customer’s needs, besides the normal physical definition on the basis of product. He pointed out that the decline in the America Railway Company was because of their self imposed physical definition that they were engaged in Railway operations. He explained the necessity of defining the operation very broadly on the basis of customer needs. According to him, operation should be defined not by the product, but by the functions which are provided to the customers.

It is necessary to consider, that for what the customer has been paying the money actually? In other words, the railways company should have defined their operation as the “transportation” operation rather the “railway” operation.
However, the term “transportation” operation is also excessively ambiguous and it does not clearly define the exact operation. Further, a simple and wider definition also does not server the purpose . An excessively wide definition of operation without clear directions may end up in dispersion of management resources.

Three dimensional definitions
D.F. Eibell has carried out a detailed analytical study of definition of operation. And, he has attempted to define the operation from three dimensions, namely the customer layer, customer function and technology as against the two dimensional definition based on product and market, which has been prevalent so far.

The customer layer is classification based on the other person, in other words, who is to be satisfied. Precisely, it means the classification on the basis of identity. The identity dimension can be the region, sex, age or personality. For example, the target for a particular product may be unmarried male persons in the age group of 20’s in city.

Customer function deals with the problem of pursuing the requirement of customer and what needs to be satisfied. It can also be called as the functions fulfilling the product or the services provided to the customers. In the case of railway operations, transportation and leisure are the customer functions.

Technology is the method of performing a specific function of the customer. For example, the method of accomplishing the transportation can be the railways, bus, taxi, or the ship etc., whereas the method for accomplishing the function of entertainment can be the film and television or dram etc.

Growth and Diversification of the Enterprise

(1) Growth Vector

The growth strategy of any enterprises can be divided into two, strategy of diversification brought about by the development of new operations and the strategy of expansion for the existing operations. The direction of enterprise growth is given by growth vector.

. Market penetration This growth strategy pursues increase in sales with the existing technology and the market. It becomes possible either by increasing the sales quantity for the existing customers or by finding new customers.
· Market development Market development is strategy to search for new needs with the help of existing technology only.
· Technology development Technology development is a strategy which helps in developing the new technology in place of existing technology while maintaining the existing needs.
· Diversification Diversification is strategy that pursues absolutely new aspects both on technology and need fronts for an enterprise.

The market penetration, market development and technology development can be considered as a part of operation strategy as described in the previous chapter. However, the diversification strategy has the characteristics different from the other three growth strategies. The strategy of market penetration, market development and technology development make use of the marketing resource like technology, finances, merchandise similar to those of the existing products, whereas the diversification strategy to generally requires new technology and equipment as well as new skills. As a result, it brings about a physical organisation reform in almost natural manner and forms the central topic for the overall strategy of the company.

Regarding the directions of diversification, there are two types of diversifications; one which is related to the existing operations in some way and the other which has almost no relation with the existing operation. A detailed explanation about the directions of diversifications is given 3.3.

(2) Life Cycle of an Industry and the Diversification
Generally, any industry has a life cycle and most of the industries pass through a life cycle of introduction, growth, maturity and decline similar to that of the life cycle of the operations. It is normally not possible that any industry shall continue to grow for many decades.

The life cycles of an industry is not a fixed type of cycle. There may be some industries which face the decline in a very short duration, while there may be the other which carry on with the growth over a long period. Further, the life cycle of any industry may not necessarily follow only one direction. There are some industries which have entered the growth period once again after passing through the maturity period. Further, it may also be possible to continue to grow by pouring in new ideas in the same business.

However, in most of the cases, there is a limit to the maximum growth and the duration of growth as well as maturity period. Looking at the post-war history of the Japanese industries, it can be said that the diversification is essential for the long term growth of an enterprise, surpassing the life cycle of the industry. Let us try to understand it further through the example of the fibre industry.

(3) Experience of the Fibre Industry
It is interesting to note from the post-war history of Japanese economy that the industry which played the major role in the Japanese economy kept on changing a number of times. It was the fibre industry and the steel industry that provided the lead the Japanese economy after the second world war and after the automobile industry and the electrical appliances industries took over the lead of the Japanese economy from the fibre industry and steel industry.

The changes in the position of fibre industry in the overall manufacturing industry in terms of total amount of the manufactured and dispatched goods (according to industrial statistical chart) shows that the relative position of fibre industry had continued to decline. In 1955, the fibre industry captured about 19% share of the overall manufacturing companies which came down to about 12% in 1965, 7.4% in 1975 and 5% in 1985.

The growth rate of fibre industry and other industries showed a very big gap. The growth rate of fibre industry during 1950 and 1982 was about 16.4 times. However, the growth rate of automobile industry during this period was about 749.8 times. The growth rate in the industries showed on overwhelming opening.

Introduction

It is necessary to maintain a certain rate of growth for the sake of survival of any enterprise. However, no industry in which an enterprise can carry out the operation strategy can have an unlimited growth. The stage of maturity confronts every industry and finally it faces the decline also. Consequently, it becomes necessary to carry out the reconstruction of the operations in harmony with the life cycle of the industry, in order to continue to survive and develop.

The most basic aspect to be taken care of in such an event is the decision regarding the operation portfolio and the selection of domain. These are, in fact, the problems concerning the renewal or metabolism of operations and acquiring as well as distribution of necessary management resources required for it.

The overall strategy of the company is also known as the strategy of operation structure and the relevant problem here is how to acquire and develop the management resources required for the operation of one’s own enterprise in the future. The management resources, particularly the knowhow, technology, brand image, trust, the enterprise image as built up outside the enterprise and other information resources are highly specific to the respective enterprise and are very difficult to procure or obtain from the market. On the other hand, these information resources are accumulated through the day-to-day operations, therefore, these are very closely related to the strategic decisions like what type of operations are to be carried out by one’s company and upto what extent.

In this chapter, we shall learn about the growth and diversification of enterprise. This will be followed by a better understanding about the definition of domain structure of operation portfolio. The major aspect covered in this chapter is the operation portfolio and the resource distribution. Any enterprise can make use of only a limited management resource at any given time. The resource development strategy is a basic policy which decides how to distribute the management resources. The techniques like PPM analysis as developed by consulting companies like McKinsey, BCG etc can be used for making the decision the regarding management resource distribution in a rational manner. Here, we shall take up the PPM and its limitations.

In this chapter, the resource development strategy has been explained with the help of examples. One of the keys of the resource development strategy is the problem related to the management resources that are required for the growth, whether these should be developed and accumulated within the enterprise or acquired from outside. Generally, the former is known as in- house growth and the latter is known as the growth from outside. M&A as well the strategic cooperation are taken up as the comparing it with in-house growth. The strategic cooperation has been explained with main focus on information resources.