Danaka Corporation: Growth Portfolio Management Harvard Case Solution & Analysis

INTRODUCTION

The chief operating officer of Danaka Corporation, Jeremy Sanders was worried looking at the performance of his company. His company had failed to meet the performance targets for the second quarter in a row and the stock price of the company had fallen by 6 percent. The company was consolidated into four major business units which were agriculture, performance materials, emerging solutions and health care solutions.

The main issue being faced by all the business units was that, were enough resources being devoted to each of the four business units to meet the objectives of the business units and the overall corporate goals. Sanders was concerned that whether the resources deployed in each of the business units were directly proportional to meet the business unit’s and the corporate goals. The company had all the necessary tools to evaluate the deployment of resources and the performance of each business unit. New direction had to be formulated so that the individual goals of business units become congruent with the overall goals of the corporation.

CURRENT ALLOCATION OF RESOURCES & CORPORATE GOALS

The current allocation of resources for each of the four business units has been analyzed. The allocation per project for each of the four divisions has been calculated. The allocations seem to be fair. The allocation per project for performance materials, agriculture, health care solutions and emerging solutions is $ 11.74 per project, $ 9.34 per project, $ 12.91 per project and $ 7 per project respectively.

This seems to be unfair allocation because when we compare the allocation in dollars per project with the average sales growth in each of the divisions, then it shows that those divisions that allocate a huge amount per project have a lower sales growth rate. For example the performance materials business unit has the second highest allocation per project cost but it has the lowest average sales growth rate of only 2%. Exhibit 10 shows that 70% of the projects in performance materials business unit are of Horizon 1 designation. These projects increase the productivity and profit contribution in the business and they are the core projects. However, the sales growth shows that they are not being funded properly or they are not meeting their business unit objectives.

Similarly, if we look at the Emerging Solution business unit, it has the lowest allocation of dollar funds per project and the growth rate is way too high at 38%. Although around 80% of the projects in this business unit are comprised of Horizon 3 category which are the emerging opportunities and these are the seed growth opportunities but still the allocation of the funds seems to be out of line.

NEW RESOURCE ALLOCATIONS

The resource allocations currently distributed among all the four business units seems to be unfair if we look from the point of the number of projects under each of the business units and also on the basis of the sales growth rate for each business divisions. Therefore, if now 10% of the total sales of the business division are allocated to the research and development for the unfunded projects, then the fair allocation would be to allocate the funds proportionately to each of the four divisions on the basis of the number of projects all of these division are undertaking.

Although there is slight difference among the weightage of the projects for each Horizon under each business unit, but it is assumed here that the difficulty level of each project in each of the Horizons is same. The only difference is that some projects generate significant cash for the business while others are a source of growth for the overall business. Therefore, based on the number of projects under each of the business units the new allocations for performance materials, agriculture, health care solutions and emerging solutions is $ 647, $ 859, $ 313 and $ 3 for each of the four business units respectively.

INTERNAL AND EXTERNAL IMPLICATIONS

After the management of Danaka Corporation revises its allocation of funds for each of the four business units, there would be many implications internally and externally for the business. The internal business implications after the new allocation of the research and development funds would be that the management of Danaka would not have................................

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The main obstacle to the growth of large commercial firms more unit is the inability to share critical initiatives to win, both in terms of dollars and people. The basis of the challenge is the conflict between the resources of the current generating enterprises heritage compared with new initiatives, which can not in the short term, provide positive financial results. Most companies do not have a formal process for the portfolio solutions of this fundamental problem. Danaka a fictional company, based on the actual experience of business. The company has strong growth markets as well as markets that are commoditizing. Unfortunately, the latter being a significant part of our business. Framework, taking into account that creates a matrix for the analysis Danaka businesses using their critical financial criteria cash generation and top-line growth. The project is divided into four categories based on how they fit into the matrix, and the distribution of resources, and then analyzed. Students found that the current distribution does not allow Danaka to meet its aggressive growth targets. The case includes an interactive table model, in which students can dynamically change various resource allocation and see the impact on the future top-line growth. The point is how to manage the allocation of resources for multi-business unit of the company, when this provision will not meet future growth targets. "Hide
by Mark Jeffery, Robert Cooper, Debarshi Sengupta Source: Kellogg School Management 16 pages. Publication Date: January 1, 2007. Prod. #: KEL300-PDF-ENG

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