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3/26/2020 Evaluating Business Attractiveness

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Evaluating Business Attractiveness

Markides (1997) suggested that when evaluating business attractiveness, an

organization should ask six questions:

What could the organization do better than any of its competitors in its

existing markets?

What are the strategic resources required to succeed in the new market?

Can the organization leapfrog or catch the competition?

Would diversification break up the organization's strategic assets that may

need to be kept together?

Will the organization be a winner in the new business or just another

player?

And finally, what can the organization learn by entering into the new

business, and will it be able to learn from it?

The economist and business strategist Michael Porter summarized the above

questions in the form of three tests that an organization should use when

entering into a new business (de Kluyver & Pearce II, 2012, p. 168):

the attractiveness test—Is the industry that the organization wants to enter

fundamentally attractive from a competitive, growth, and profitability

perspective, or can the organization make it favorable?

the cost of entry test—Are the costs of entry into the new business

reasonable? Is the time frame needed to achieve profitability acceptable?

Are the associated risks tolerable?

the better-off test—Does the new business improve the organization's

overall business portfolio performance and competitiveness?

References

de Kluyver, C. A., & Pearce II, J. A. (2012). Strategy: A view from the top (4th ed.).

Upper Saddle River, NJ: Prentice Hall–Pearson.

Markides, C. C. (1997). To diversify or not to diversify. Harvard Business Review,

75(6), 93–99. Retrieved from www.hbr.org

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