Chapter 13, 14,


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  • 1. The move towards divisonalisation started in the 1950’s although the Divisional form had been pioneered in General Motors much earlier. This phase coincided with the era of the classical theory of strategy. McKinsey made their business by divisionalising the major companies both sides of the Atlantic. 2. During the decade of the 60’s, growth through diversification was common - the golden era of the conglomerate - ITT, BOC, Litton Industries. 3. The 1970’s were dominated by Portfolio Planning techniques introduced particularly by the Boston Consulting Group. The focus was the use of cash to ‘balance’ the portfolio. 4. The 1980’s saw a swing towards simplification and rationalisation - a reaction to over diversification and a reaction to the success of the Japanese. ‘Stick to the knitting’ was a catchphrase from ‘In Search of Excellence’ - published in 1982. Demergers appeared.
  • Chapter 13, 14,

    1. 1. Strategy Content Part IV Business and Corporate Strategies
    2. 2. The form of strategy <ul><li>Typical form might include: </li></ul><ul><ul><li>Select the right business to be in </li></ul></ul><ul><ul><li>Understand what drives success </li></ul></ul><ul><ul><li>Constantly innovate </li></ul></ul><ul><ul><li>Maintain financial flexibility to seize opportunities </li></ul></ul><ul><ul><li>Measure success in creating shareholder value </li></ul></ul>Source Mahoney and McCue (1999)
    3. 3. Definitions <ul><li>Corporate Strategy </li></ul><ul><ul><li>Nature and scope of the enterprise as a whole </li></ul></ul><ul><ul><li>Outlines general purposes and core values </li></ul></ul><ul><ul><li>Main activities or the principles on which activities are chosen </li></ul></ul><ul><li>Business Strategy </li></ul><ul><ul><li>One for each business activity within the enterprise </li></ul></ul><ul><ul><li>Describes how that business will compete in its marketplace </li></ul></ul><ul><ul><li>No distinction from corporate strategy in single business enterprises </li></ul></ul><ul><li>Functional Strategies </li></ul><ul><ul><li>One for each major function </li></ul></ul><ul><ul><ul><li>e.g. Marketing, Human resources, Information technology </li></ul></ul></ul><ul><ul><li>Coherent with corporate and business strategies </li></ul></ul>
    4. 4. Figure 13.2 Examples of Strategy Documentation Corporate Plan Corporate Strategy One Only Scope, Nature, Purpose Choice of Businesses Business Strategies One for each ‘business’ Products or offerings Markets Sources of competitive advantage Functional Strategies One for each major function Business Plans Functional Plans Budgets
    5. 5. Content of a business strategy document <ul><li>Statement of strategic intent </li></ul><ul><li>Principal findings of strategic assessment </li></ul><ul><li>Strategic choices mad and rationale </li></ul><ul><li>Statement of goals and objectives </li></ul><ul><li>Outline of strategic initiatives </li></ul>
    6. 6. Major drivers of Business Strategy <ul><li>Meeting the real needs of customers </li></ul><ul><li>Exploiting genuine competence of the enterprise </li></ul><ul><li>Providing sustainable competitive advantage </li></ul><ul><li>Laying the ground for implementation </li></ul>
    7. 7. <ul><li>1990s Defining the core Dominant logic Manageable Portfolio </li></ul><ul><li>business Core competencies Linked portfolios </li></ul><ul><ul><ul><li>Lasting basis for Parenting advantage Managing portfolio to </li></ul></ul></ul><ul><ul><ul><li>corporate strategy maximize value creation </li></ul></ul></ul><ul><li>2000s Shareholder value Exceeding cost of capital Focus on value/divest </li></ul><ul><ul><ul><ul><ul><li>in all businesses if value being destroyed </li></ul></ul></ul></ul></ul>Figure 15.1 How Concepts of Corporate Strategy have Developed <ul><ul><ul><ul><li>Issues Concepts Corp. Strategies </li></ul></ul></ul></ul><ul><li>1950 Overload at centre Decentralization Divisionalization </li></ul><ul><li>1960 Quest for growth General Mgmt. skills Diversification </li></ul><ul><li>1970 Resource Allocation Portfolio Planning ‘Balanced Portfolios’ </li></ul><ul><li>1980s Value gaps/raiders Value based planning Restructuring </li></ul><ul><ul><ul><li>Poor performance “Stick to the knitting” </li></ul></ul></ul><ul><ul><ul><li>of diversification </li></ul></ul></ul>Adapted from: Goold,M., Campbell,A & Alexander, M. (1994) Corporate-level Strategy Wiley
    8. 8. Impact of financial markets on corporate strategy <ul><li>Shareholder value is key measure </li></ul><ul><li>Share price a key element of shareholder value </li></ul><ul><li>Analysts’ views (based on perceptions) influence p/e ratios and hence share value </li></ul><ul><li>Result is pressure for mergers (and to a lesser extent demergers) </li></ul><ul><li>Corporate strategies often become dominated by mergers and acquisitions </li></ul>
    9. 9. Documenting corporate strategy <ul><li>Strategic intent and values </li></ul><ul><li>Business scope </li></ul><ul><li>Structure, systems, and processes </li></ul><ul><li>How the corporate centre is to add value </li></ul>