Executive Summary
This report suggests that mass car market is highly competitive and through proficient operational approach McLaren remained successful in eliminating all barriers to entry in mass car market.The successful merger of McLaren team with Ron Dennis’ Project 4 team in 1981 and itsstrategic alliance with Mercedes-Benz later in 1995 for supplying enginesprovided the group with a golden opportunity to establish itself on the global platform. McLaren was the first company to use carbon-fibre-composite in its road car designs, which has provided the company with a competitive edge in the mass car market. Continuous investments are made in R&D to produce high-performance road cars for its discerning customers. McLaren’s successful establishment in the mass car market signifies the effectiveness of its global business strategy.
McLaren’s diversified business portfolio consists of McLaren Automotives, McLaren Racing, McLaren Electronic Systems, McLaren Marketing, Absolute Taste and McLaren Applied Technologies. McLaren has adopted related diversification to increase its growth rate and market power. There is operational synergy amongst the businesses in McLaren’s business portfolio.Vertical integration has allowed the group to increase its operational efficiency and profitability. McLaren Racing is the most profitable company in the portfolio and all the other companies in the portfolio are also making considerable profits. Core competences are the underpinnings of McLaren’s corporate strategy. The group has maximised its organisational value by adopting performance improving activities.
McLaren Group’s Chairman Ron Dennis and other senior members of the management are continuously striving to incorporate operational strategies that are cost effective in the group’s business plan. The Group aims to reduce the environmental impact of their business activities by being socially responsible.Financial tools are used by the group to measure the operational performance.The McLaren Group has efficiently created value for all the companies in its portfolio through a proficient business plan.

Introduction
McLaren founded in 1963 by Bruce McLaren. In 1964 McLaren team built its first racing car called M1A and the first Formula 1 car was built in 1965. The first Grand Prix was won by McLaren team in 1968 at the Belgian Grand Prix. Can-Am remains the greatest success for the team and they stayed champions for five consecutive years (Lyons, 2004). Since then, success has been following the company. Initially a strategic alliance was made with Trojan to effectively respond to consumer demands for their sports cars; however, increasing competition led to McLaren team’s merger with Ron Dennis’s Project 4 in 1981 (Nye et al., 1991; McLaren History and Heritage, 2011). Ron Dennis’s expert supervision took the company further and with the help of skillful car designers MP4/1 was built. The car was built using carbon–fibre-composite monocoque (Davies, 2012). McLaren is the first company to use carbon-fibre-composite in its car designs. First F1 GTR racing car was produced in 1995, which remained successful in beating its prototypes. McLaren’s merger with Project 4 resulted in improved profit margins and the company strategically expanded its global operations and over the years six companies have been added to the McLaren Group’s business portfolio. To this day, McLaren has won 180 Formula 1 Grand Prix and 20 World Racing Championships.
In order to understand McLaren’s operational strategy to overcome mass car market entry barriers and behind its portfolio diversification in depth, the following questions needs to be answered.
How has McLaren overcome the market entry barriers that are present in the mass car market?
Barriers to entry in mass car market includes economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, potential retaliation and government policies (Besanko and Braeutigam, 2010; Johnson et al., 2012). A company achieves economies of scale when the standard unit cost of its goods is reduced as a result of the increase in its production volume (Kachru, 2009).Economies of scale are barriers to entry and they force new entrants to produce goods on large scales or to operate on a small scale, hence causing them a cost disadvantage. Product differentiation creates barrier to entry by forcing new entrants to spend time, labour and capital on developing product differentiating strategies in order to overcome customer loyalty that has been already attained by the competitors (Montgomery and Porter, 1991). Capital requirements acts as an entry barrier in cases where large capital is an essential requirement to enter the market, high financial risk is associated with this mass car market entry barrier.
Switching cost becomes an entry barrier when a new entrant has to pay high incentives to customers for developing its loyal customer base. Access to channels of distribution becomes a barrier when competitors have higher control over logical channels of distribution and as a result new entrants in the market remain unsuccessful in convincing them for distributing their products (Hirschey, 2008). A new entrant can potentially face retaliation from its competitors that might make its entrance in the market difficult. Government policies associated with licensing requirements, legal, operational requirements, access to raw material and environmental standards can also prevent the entry in mass car market. All these identified mass car market entry barriers are relevant to McLaren due to McLaren’s global presence and expertise in road cars.
On the identification of the mass car market entry barriers McLaren developed a strategic business plan to enter the industry and gradually overcame all the barriers. McLaren’s strategic alliances with Project 4 Racing Team and Mercedes Benz enabled the company to effectively overcome entry barriers associated with economies of scale and capital requirements (Russell and Cohn, 2012; McLaren, 2011). Product differentiation was not a major entry barrier for McLaren after its success in Can-Am and as a result company spent less time, labour and capital on developing its product differentiation strategies (Codling et al., 2010; McLaren Documentary, 2011). Being the first company to use carbon-fibre-composite in its road car designs automatically brought it in the limelight and not much effort was required by its marketing team (Philips, 2012). McLaren built hi-tech innovative cars with the help of its skillful work force and remained successful in developing a global consumer base and in eliminating the entry barriers associated with switching costs. The new model MP4-12C was introduced on the road after the new production centre was opened with a new McLaren automotive directive in introducing new cars. The McLaren MP4-12C sports car was designed and marketed that it would target the star stage of the Boston Matrix as a high end product depending on the number of purchases.
McLaren created its own distribution channels to proficiently overcome the mass car market entry barrier associated with the access to distribution channels; however, this strategy limits group’s direct control over selling efforts (Phillips, 2012).Around the globe only few distributors and suppliers are working as a part of the McLaren Group. The company did not face any retaliation from its competitors on an entry in the mass car market probably because of its established presence in the racing world (Codling et al., 2010). In order to eradicate market entry barriers associated with government policies the company proficiently fulfilled all the operational demands so that its business operations remain uninterrupted. McLaren has eliminated all mass car market entry barriers over the years through its strategic operational approach and has further expanded its business portfolio to meet the increasing demands of its business and consumers.

How would you define the level of diversification shown by the McLaren Group? You will need to use appropriate tools to assess the logic of the portfolio to support your conclusion.
The McLaren Group, based in Woking, United Kingdom, has six companies in its business portfolio. These companies were added to portfolio to further maximise the benefits to the image of the company on the global level. The McLaren Technology Centre is the headquarters of The McLaren Group. In order to enhance the efficacy of their production line all the companies in the portfolio works within The McLaren Technology Centre. This strategy has also enhanced the cost effectiveness of McLaren’s business operations. McLaren Racing was founded in 1966 and McLaren Formula 1 team is one of the most successful teams in Grand Prix. McLaren Formula 1 team has won 180 Formula 1 Grand Prix and 20 World Racing Championships (McLaren Racing, 2013). McLaren Automotives was established as a part of McLaren’s long term sustainability plan and was quickly established at the global level with the production of unique and innovative road cars such as the MP4 Series, McLaren F1 Supercar and Mercedes-Benz SLR McLaren (McLaren Automotive, 2013). McLaren Marketing was established to promote the operational activities of The McLaren Group.
McLaren Racing and McLaren Automotives highly rely on electronic systems and as a result McLaren Electronic Systems was established. The company supplies high end electronic systems to not only its Formula 1 team but to other Formula 1 teams across the globe as well. The company is a leading provider of race telemetry and other sensory equipments (McLaren Electronic, 2013). McLaren Applied Technologies was established to provide cost effective performance enhancing technical solutions to different specialist industries including sports industry (McLaren Applied Technologies, 2013). Absolute Taste provides world class hospitality to McLaren employees, its Formula 1 team, guests at Formula 1 races and to its high-end global customers (Absolute Taste, 2013). The company specialises in event catering and party hosting.
McLaren’s analysis through Ansoff’s Growth Matrix suggested that the company has expanded its business portfolio through market penetration and related diversification (Kumar, 2012). The company has diversified in the business industry through Absolute Taste, McLaren Marketing, McLaren Applied Technologies and McLaren Electronic Systems. McLaren has penetrated the mass car industry with the establishment of McLaren Automotives. The companies in the business portfolio are in operational synergy suggesting that the establishment of each company was triggered as a result of the increasing requirements of the others (Couldwell,2010).McLaren Group successfully increased its market power by exploiting economies of scope. According to Hirschey (2008) economies of scope are crucial for translating an organisation’s expertise in a particular production line into unique benefits in the generation of a complementary production line. However, despite of all the efforts McLaren Automotives recorded a post tax loss of about £54 million in 2011 but the company claims to have met all the internal sales targets.

Graph 1: Showing McLaren Group turnover in the last 10 years (Source: McLaren)
The analysis of McLaren’s corporate strategy using Porter’s Value Chain Theory revealed that the company expanded itself through forward vertical integration (Hamillton, 2012). According to Hill and Jones (2007), a company can proficiently support its core business model and enhance its existing organisational value by entering new business industries for developing correlating business activities through forward vertical integration. Other advantages of forward vertical integration to the group includes the development of entry barriers for new entrants, reduction in transaction costs, better control of operations and spreading of costs over different products (Hittet al., 2012). The limitations of this vertical integration to McLaren’s include occurrence of potential transaction costs due to unsold products and the loss of technological flexibility. However, these limitations also appear to be null and void in the case of McLaren due to their production line efficacy and technological development in other industries. Graph 1 showing the group turnover for the last 10 years show that the diversification strategy has worked well and despite of economical tightness the group has generated a generous amount of profit.
In order to understand the effectiveness of McLaren’s business portfolio BCG theory was applied. It was found out through analysis that McLaren Racing is the cash cow of the group having the largest share of about 20% in saturated markets. McLaren Automotives can be regarded as the star because of its 14% share in emerging markets. Absolute Taste, McLaren Marketing, McLaren Electronic Systems and McLaren Applied Technologies are the question marks with average shares in emerging markets (McLaren, 2011). They could successfully be turned into stars by investments in R&D. In conclusion McLaren is a strategically diversified company with extraordinary performance.
How does the McLaren approach to diversification reflect the historical perspective on corporate diversification as discussed by Goold and Luchs (1993)?
Goold and Luchs (1993) pointed out that available theoretical evidence contradicts the assumption that companies can only proliferate through related diversification. This suggests that it is not crucial for all the companies to diversify in interrelated business industries. They argued that a company is strategically diversified if all the businesses in the portfolio are effectively generating beneficial results through their performance in the market under the present management in comparison to their potential performance under the competitors of the same management. They further pointed out that the presence of conglomerates with a clear mission and a sound rationale can positively contribute towards the attainment of synergy in businesses within the portfolio. A sustainable competitive advantage can be effectively attained by an organisation on making a strategic use of its core competencies, available resources and operational abilities. They presented a number of evidences from the literature suggesting that related diversifications have seen to be highly successful in comparison to unrelated diversifications (Singh and Montgomery, 1987; Markides and Williamson, 1994).However, it is still unclear up to what extent should a company diversify through related diversification to yield beneficial outcomes.
McLaren has skillfully diversified in business industries that bear operational synergy with its core business theory through related diversification strategy. The core competences are at the heart of all the companies in the portfolio (Henry, 2008). Ron Dennis’s operational vision of being the best at what they do is shared by each and every employee of the group. Adoption of cost effective business strategy has further enhanced the overall operational value of the organisation (Couldwell, 2012). Performance levels are measured using financial tools to competently eliminate all value damaging operational activities. McLaren’s operational industries are highly competitive and through intelligent business approach the group is generating benefits from all the companies in the portfolio.

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