There are many subsidiaries within NCBT’s diversified business, but this answer will focus on the three in the scenario: Swiftdale Farms, CCB Insurance and Pait Technology.

Swiftdale Farms

Swiftdale Farms appears to have performed well until 2010, when it started to decline. This decline appears to have continued, although we only have the last three years data. The market has fallen 6·91% over the three years (3·64% in 2014–15 and 3·4% in 2015–16). Not only has the market declined, but Swiftdale’s share of it is also falling, from 18·55% in 2014 to 17·58% in 2016. This is as a result of a decline in turnover of 11·76% over the three years. Swiftdale’s decline appears to be gathering pace as it had a much greater fall in turnover (7·22%) in 2016 than in 2015 (4·9%).

Despite that, Swiftdale still appears to have a relatively high market share (18·55%), given the nearest competitor’s share of 15·4%, and so, with market decline and high market share, it may be considered a cash cow on the BCG matrix. If Swiftdale’s market share continues its decline, it may become a dog, as the nearest competitor may overtake it.

Cash cows normally provide high profits to a company, as there is little required expenditure on marketing or product development. However, Swiftdale’s gross profit margin is the lowest of the three NCBT companies mentioned: 11·76% (2014), 7·22% (2015) and 4·44% (2016). The decline is rapid, with the absolute gross profit falling 66·67% over the three years. Therefore, it may be time to divest this subsidiary before it starts to make a loss, particularly if NCBT’s parenting style is that of portfolio manager (as discussed in part b).

NCBT has, in the past, provided financial resources to Swiftdale, but it does not appear to have complementary competencies, being in a high growth technology industry. Therefore, it probably has limited ability to add value. Given the decline of Swiftdale’s home market, there would also seem to be little opportunity to add value. This would make it an alien business in Ashridge’s matrix at this time, even if it was previously situated elsewhere on the matrix.

This conclusion also supports the suggestion to divest the business, as it is unlikely that any value will be gained with its retention. NCBT would be better focusing its attention on subsidiaries which can bring in further value.

CCB Insurance

CCB Insurance is a fairly recent addition to the portfolio, which grew rapidly on acquisition and appears to have successfully maintained a growth in turnover and market share since acquisition. Turnover grew by 20% in 2015 and by 10·71% in 2016, giving a rapid growth of 32·86% over the three years. In doing so, its market share increased from 8·64% to 10·45% over the same time period, showing that CCB Insurance is growing at a faster rate than the market. However, the market itself continues to grow with market turnover increasing by 9·88% over the past three years.

As the growth of the economy in which CCB Insurance operates is 2%, this may be considered a relatively high growth industry. Its market share of 10·45%, although good, is not as high as the market leader, with 12%. Therefore, this could be considered a problem child on the BCG matrix. However, if CCB Insurance continues with its rapid growth, it could well become the market leader and thus move into the star position on the BCG matrix.

When considering the Ashridge matrix, there is clearly an opportunity to add value; the market is growing and CCB is in need of some assistance to help it continue to capitalise on the growth. Its profit margin is falling (from 28·57% in 2014 to 23·66% in 2016) and there could be an opportunity to improve this. NCBT may not have knowledge of the market itself, and therefore lack competencies in the industry, but it does have experience of rapid growth and also has access to resources which could be made available. This would make CCB a heartland business, or possibly edge of heartland.

Both the position in the BCG and Ashridge matrices suggest that NCBT should invest in this business to help add value. As the market share is only 1·55% below the market leader, a good strategy in this situation would be for NCBT to invest in CCB to try to grow its market share further and become a star company in the BCG matrix. CCB has said they are struggling to keep up with growth, so the provision of finance for new premises and staff recruitment would be of benefit. It could be that NCBT may be able to recognise appropriately skilled staff from NCBT’s financial services business, who could be temporarily or permanently relocated to the insurance provider.

Pait Technology

This is a new acquisition but appears to be reaping benefits for NCBT. Its turnover grew 16% in the first year after acquisition and grew a further 18·97% from 2015–16. It has a higher GPP than the other subsidiaries mentioned in this scenario, and has maintained the same level at around 40% in each of the past three years. Indeed, although smaller than the other two subsidiaries in turnover, it provides an absolute gross profit higher than both of them combined in 2016.

The market is also growing rapidly, a growth of 21·21% over the three years. Pait Technology is growing faster than the market, with its share having grown from 15·15% to 17·25% over the same period. This supports the claim that the existing managers are knowledgeable about the customers and the market. The next highest competitor has a market share of 8%, less than half of Pait’s.

On the BCG matrix, this would be a star company. The matrix suggests the need to build further to maintain its star position and be a dominant market leader when the market eventually slows down.

Looking at the Ashridge matrix, NCBT has the knowledge required to be able to add value to this company. However, their opportunity to add value may be low as the company is already performing well and has a good brand name. Thus, Pait Technology may be considered a ballast company. The matrix suggests to leave these alone to run themselves, as interference may actually reduce value.

Thus I would suggest that NCBT leaves Pait Technology to be run autonomously and be open to the provision of resources, if required in the future, to help build the business further.

NCBT is a diversified business with many subsidiaries. Companies which diversify in this way usually have a planned corporate rationale for doing so, such that all acquisitions fit the strategic development of the parent company. Johnson, Scholes and Whittington identified three such corporate rationales: portfolio managers, synergy managers and parental developers.

Portfolio managers

These parent companies look for undervalued companies to add to their portfolio. The parent, usually, is a widely diversified, conglomerate company. Different subsidiaries may be in completely unrelated industries. The parent tends to allow the acquisitions to remain autonomous, given the lack of synergies between the companies, but sets financial targets to ensure that performance is improved and value added.

Synergy managers

Parent companies acting as synergy managers look for economies of scope or synergies between the different companies within the group. They will recognise where resources and competencies can be shared between the subsidiaries and, as such, there are often connections between the subsidiary companies, e.g. they may be at different stages of the same supply chain.

Although NCBT appears to have a few companies related to each other (e.g. farming and fertilisers), there is no indication from the scenario that it currently encourages these to work together or share resources. Therefore it is unlikely that it is a synergy manager. However, should the advice be taken regarding CCB Insurance (moving staff between companies), then it may start to adopt some of the principles of synergy management.

Parental developers

Parental developers seek out subsidiaries which it can use its own competencies to improve and add value. For example, NCBT could use its knowledge of being in a growing consumer electronics market, or of operating in the same country, to assist Pait Technology.

However, it is suggested that Pait Technology, itself, possesses the knowledge required to grow further and therefore the opportunity may not exist for NCBT to act as a parental developer.

NCBT’s corporate rationale

NCBT appears to have all the characteristics of a portfolio manager. Its diversified businesses include insurance, farming, clothing manufacture and consumer electronics, which are not closely related business and unlikely to share many synergies. It has in the past set financial targets for Swiftdale Farms, and withdrawn support when those targets were not met. It has also allowed the subsidiaries to run fairly autonomously, leaving the management teams in place.

It is also implied that many of the subsidiaries were considered undervalued on acquisition; Swiftdale Farms was acquired ‘for a low price’, CCB Insurance was a new listing and share prices grew rapidly after acquisition, and Pait Technology is in a growth market, suggesting there may be further value to be added.

Therefore it could be argued that NCBT is a portfolio manager.