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  • 1. MANAGING CORPORATE STRATEGY (MGPO-639) Creating value across businesses – 3 credits Section-033, CRN 1495 July 17-27 2006 McGill MBA, McGill-MBA-Japan and McGill Executive Institute Instructor: Jan Jörgensen : +1 514 398-4027 Fax: +1 514-398-3876 Office Hours: by e-mail appointment Office: Bronfman 383 E-mail: Secretary: Karen Robertson : +1 514 398-8144 Office: Bronfman 559 E-mail: Course Description This course focuses on corporate strategy in the multi-business firm. What are the motives for corporate diversification? What is the evidence for performance of diversified firms? How can value be created by corporate diversification strategies? How should one determine the appropriate size (scale) and scope of a firm? How can headquarters add value to a subsidiary? During the course, participants will examine issues and challenges in managing diversified firms, especially approaches to value creation that enable a firm to build and sustain corporate advantage across multiple businesses. Corporate strategy is embodied in a firm’s choices involving scope, structure, and ownership to build and use its resources for current and future contexts. Pre-requisites  None. Learning Outcomes  By following the course, students should be able to do the following: 1. Classify diversification strategies along various typologies; 2. Explain the requirements and logic for value creation in several diversification strategies; 3. Assess the performance of diversified firms over time, by various measures, in relation to intended corporate strategy; 4. Contrast alternative approaches to internal control/coordination; 5. Evaluate the effectiveness of systems and mechanisms for corporate governance: 6. Assess the trade-offs in modes of entering new businesses; 7. Compare alternatives for refocusing the scope of the firm (alliances, acquisitions, internal ventures, divestitures, spin-offs); 8. Appreciate the interaction of scope, structure, ownership, and resources in building corporate advantage. MGPO 639 Managing corporate strategy 1
  • 2. Concept Map Students are expected to understand the readings and case material in order to integrate and apply the knowledge to a variety of business situations. Readings: The required course readings include both readings and cases from the accompanying course package. Students must come to class having read all readings and cases being discussed that day. MGPO 692-020 Topics Strategic Management 3 cases and readings package. (please note course number on course package differs from official course number) Important note regarding academic integrity McGill University values academic integrity. Therefore all students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Code of Student Conduct and Disciplinary Procedures (see for more information). McGill Senate resolution, January 29, 2003 MGPO 639 Managing corporate strategy 2
  • 3. Requirements for the course A) Individual participation and professionalism (20%): You are expected to conduct yourself as professionals in this program just as you do in your work. In this course, this means attending on-time, being well prepared, having completed the readings and preparing yourself for the case discussion questions, so that you are ready to contribute to each class, just as you would for business meetings. Students may be called upon at random to initiate and/or contribute to the discussion of the readings or cases. Your classroom participation will be assessed continuously. Facilitative and integrative interventions that build on the contributions of others are as important as contributions on new topics. Brevity, tact and staying on topic are hallmarks of quality participation. Naturally, it is impossible to participate without attending class. B) Individual case (40%) Students are required to prepare an analysis for one of the major cases discussed in class during the course. The case can be one of the following: 1) Newell Company: Corporate strategy (hint: using reading will help you with case) 2) Philips versus Matsushita- A new century 3) Celulosa Arauco: Forward integration or horizontal expansion? 4) Eastman Kodak In doing the analysis, students will respond to questions (see below, in the class outline) using a maximum of 5 pages, allocating space to each question as they see fit, but not exceeding the 5 page limit (double-spaced, single-sided, 8.5 x 11 inches (or A4 if you prefer), 12 point font, 1 inch (2.5 cm) margins, and a maximum of 2 appendices (table or graph, not text). The case analysis is due at the beginning of the class in which the case is to be discussed. Students will be evaluated on their understanding of the concepts covered in class or the required readings for that and any previous sessions as well as their ability to apply them appropriately to answer questions about concrete business situations. C) Group Project (40 %) on Corporate Diversification: Each group of approximately people is required to analyze a firm’s diversification strategy over time to explore changes and continuity in the firm’s scale and scope. There are two sub-options: a) Analysis of a firm’s diversification strategy over time, exploring the logic of the firm’s diversification strategy and key changes in its scale and scope over approximately five years as well as evaluation of its performance. What changes, what remains the same, and what are results? b) Analysis of a major shift in a firm’s scope through merger, acquisition, divestiture or breakup, including the logic for the change, key challenges or alternatives, and evaluation of the outcome. Length: 15 pages double-spaced, plus executive summary, references [footnotes, endnotes, or in text references], bibliography of sources used & exhibits. Pages must be numbered. The group project is due Sunday, September 10, 2006, to the instructor by e-mail with subject line MGPO-692 Group Corporate Diversification Project. MGPO 639 Managing corporate strategy 3
  • 4. Class Schedule Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Mon. 1 Introduction: Corporate diversification motives and performance debate; and value July 17 creation strategies 13:30-1 • Collis, David J., and Cynthia A. Montgomery. "Creating corporate 7:00 advantage." Harvard Business Review 76, no. 3 (May-June 1998): 70-83, Reprint 98303.* - single business competitive strategy; multi-business corporate strategy; - vertical integration; horizontal mergers; conglomerates; - value-creation; value-destruction; synergies - cross-border mergers; industry convergence - related versus unrelated diversification - corporate performance measures (accounting measures, market value, strategic) - Diversification motives: regulation, risk diversification; portfolio balance; counter-cyclical; supply chain; excess resources; industry attractiveness (or home industry unattractive); relatedness/fit with existing business; scope economies across businesses; unique resources that yield competitive advantage); - modes of diversification and their trade-offs (internal development / venturing; acquisition; joint venture / alliance; licensing); - dimensions of scope (value chain, technology, geography, product/customer) Case: Asahi Glass Company HBS Case 794-113** 1. How successful have Asahi Glass Company's diversifications been? 2. Did the company need to diversify? Why or why not? a. If so, did it choose appropriate businesses? b. Appropriate modes of diversification? 3. What should AGC do with its electronics business? 4. Are there differences between AGC’s and a typical North American firm's corporate strategy? * These readings are in the course package. ** These cases are found in the course package. MGPO 639 Managing corporate strategy 4
  • 5. Mon. 2 Value creation through corporate parenting July 17 • Campbell, Andrew, Michael Goold, & Marcus Alexander (1995) 18:00-2 "Corporate strategy: The quest for parenting advantage" HBR (March- 1:30 April): 120-132. Reprint 95202.* - parenting advantage; value-added of HQ; outcome control versus behavior control; acquisition screening; ways of achieving synergies; market power; scope economies of brand sharing - corporate strategy triangle (Collis): Resources, businesses, organization, control, coordination, competitive advantage - dimensions of relatedness; general vs. specialized resources - sharing versus transferring resources;; financial vs. operating control systems; narrow versus wide scope - coordination costs; opportunity costs Case: Newell Company: Corporate Strategy HBS 799-139 ** 1. Does Newell have a successful corporate-level strategy? How does it add value to the businesses within its portfolio? 2. What are Newell’s distinctive resources? 3. Evaluate Newell’s performance in the past and going forward. 4. Evaluate whether the Calphalon acquisition makes sense. What about the Rubbermaid acquisition? MGPO 639 Managing corporate strategy 5
  • 6. Class Schedule Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Fri. 3 Guest lecturer: Professor Taïeb Hafsi, Walter-J.-Somers Chair in International July 21 Strategic Management, HEC - Montréal 9:00-12 :30 Value creation through competing on capabilities - Resources, functional competences, capabilities - Sustainable competitive advantage Case: Canon: Competing on capabilities European Case Clearing House 392-031-1** 1. What are the key resources and functional competences that contribute to Canon’s strategic capabilities? 2. What are the strategic investments made by Canon to build these capabilities and what are some of the ways in which the company ensures its capabilities are cross-functional? 3. Assess the sources of competitive advantage sought by Canon and consider their sustainability for the future. MGPO 639 Managing corporate strategy 6
  • 7. Fri. 4 Creating value through corporate planning and leadership development July 21 13:30- - corporate planning; strategic business units 17:00 - management development as corporate advantage Case: General Electric: Reg Jones and Jack Welch HBS 391-144 ** 1. What is your assessment of Reg Jones as CEO of GE? What problems was Jones trying to address during his tenure as CEO? What do you thinks of the approaches and steps he used to solve those problems? 2. What problems caused GE to change its approach to strategic planning in 1972, and again in 1977? 3. What were the problems Jones faced in selecting his successor? Assess the selection process over 1977, 1979, 1980. 4. What is your assessment of Jack Welch’s performance as CEO of GE for his first several months? For his first 3 ½ years? How does he compare with Reg Jones? 5. What problems did Welch face in 1984? What is the “85 percent that remained to be accomplished”? Case: GE's Talent Machine: The Making of a CEO HBS 304-049 ** 1. While most companies have difficulty producing sufficient quality candidates for top management succession, how has GE been able to create a surplus? What philosophy, policies and practices have made it a “CEO factory”? 2. How generalizable are GE’s management development policies and practices? How transferable across cultures? Across industries? Across companies? 3. Should Jeff Immelt tune up or even overhaul GE’s management development policies and practices? How would you deal with proposals to change the vitality curve, MBA and international recruitment, and the executive bands? 4. What lessons do you take from the case? Reflecting on your analysis – positive or negative- of GE’s development of its management pipeline, what do you see as the key success factors in making talent management what Immelt claims is an important source of competitive advantage for the company? MGPO 639 Managing corporate strategy 7
  • 8. Class Schedule Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Sat. 5 Guest lecturer: Elliot Lifson, Vice-Chairman, Peerless Clothing; President of July 22 the Canadian Apparel Federation: and 9:00-12 Vice-Chair of the Board of Trade of Metropolitan Montreal :30 The world is flat – What is your strategy? • Thomas Friedman (2005) The World is Flat. New York: Farrar, Straus and Giroux. (recommended background reading) OR • Summary from Thomas Friedman in New York Times and book review plus reference to chapter summary in Wikipedia * Optional (highly recommended if you do not have time to read the book): • Online video of Thomas Friedman’s MIT lecture on his book, May 16, 2005 - flat versus non-flat world - 11/9 (Berlin Wall falling) versus 9/11 - value chain and logistics configuration for competitive strategy - open-sourcing (‘uploading’) - outsourcing - offshoring - supply chaining - insourcing - in-forming (Google) - amplifying technologies - competing with Chinese manufacturing MGPO 639 Managing corporate strategy 8
  • 9. Class Schedule Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Mon. 6 Guest lecturer: Olivier Roche has worked as an investment officer at the World July 24 Bank/IFC; as a director at the British investment bank Schroders, and at the Dutch 9:00-12 bank ABN AMRO in Hong Kong. He is a licensed attorney, admitted to the bar :30 in New York State. He is completing a doctorate at McGill University, focusing on corporate governance and the role of the board of directors pre- and post-IPO. Ownership and corporate governance systems and practices - shareholders - stakeholders - top management - board of directors - corporate governance - separation of ownership and control - externalities - agency problem - informational asymmetries - market for corporate control - hostile takeover - fiduciary responsibility - governance roles: auditing, supervising, coaching and steering - financial audit committee - multiple objectives - trade-offs between short-term financial performance and longer term value creation - outside directors - transactional efficiency - keiretsu - relational contracting - cross-shareholding - supervisory board vs. management board (Germany) Part 1: • Strebel, Paul (2004) The case for contingent governance, MIT Sloan Management Review, 45(2): 59-66, reprint 45211* Case: The Board of Directors at the Coca-Cola Company HBS 404-039** 1. How has the role of the board of directors evolved at the Coca-Cola Company? What criteria should guide its recruitment of directors? Part 2: • Lightfoot, Robert W. (1991) Note on Corporate Governance Systems: The United States, Japan and Germany, HBS 292-012 ** Case: PetroChina: International Corporate Governance with Chinese Characteristics University of Hong Kong HKU183 ** 1. Why does corporate governance matter in China’s capital market? 2. How does the corporate governance model in China differ from international standards? 3. What are the special problems associated with PetroChina’s corporate governance model? MGPO 639 Managing corporate strategy 9
  • 10. Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Mon. 7 Guest lecturer: Henry Mintzberg, Cleghorn Professor of Management Studies, July 24 McGill University 13:30-1 7:00 Modes of strategy making: Crafting strategy • Mintzberg, Henry (1987) Crafting Strategy, Harvard Business Review, 65(4): 66-75.* - Crafting strategy - Strategy formation versus strategy formulation - Deliberate versus emergent strategy - Strategic learning - Grass roots strategy-making - Deliberately emergent strategy and process strategy - Quantum change and cycles of change - Managing stability - Detecting subtle discontinuities - Reconciling change and continuity - Managing patterns - Craft, knowledge and creativity versus formal planning Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Tue. 8 Strategy and structure in international diversification July 25 9:00-12 - corporate advantage based on fit between strategy and structure :30 - alternative approaches to internal control/coordination Case: Philips versus Matsushita- A new century HBS 302-049 ** 1. How did Philips become the leading consumer electronics company in the first part of the 20th century? How was its structure a competitive advantage? How did this become a competitive disadvantage? 2. How did Matsushita catch up to Philips? What role did Matsushita’s structure play in its success? How did its structure become a competitive disadvantage? 3. Evaluate the efforts of successive Philips CEOs from 1971 onward in changing the firm’s structure and culture (please give specific examples). 4. Evaluate the efforts at Matsushita in effecting change. Are Mr. Nakamura’s restructuring efforts too timid or too ambitious? MGPO 639 Managing corporate strategy 10
  • 11. Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Tue. 9 Scope of the firm: Vertical integration and diversification July 25 13:30-1 - resource allocation in diversified firms 7:00 - sustainability of corporate level advantage - effect of national contexts on corporate strategy - corporate governance and social responsibility Case: Celulosa Arauco: Forward integration or horizontal expansion? HBS 705-474 ** 1. What are the sources of competitive advantage for Celulosa Arauco? For example, based on Exhibits 2, 6 and 15, what do comparisons with its international rivals indicate about Celulosa Arauco’s relative operating economics? 2. Assess whether Arauco should build the large new pulp plant at Itata (expanded pulp capacity plus further diversification into sawmilling and wood-processing)? Why has Arauco moved away from its traditional “pulp alone” strategy? Is new pulp plant at Itata consistent with its moving away from “pulp alone 3. Evaluate the strategic viability of Arauco integrating forward into the paper business. 4. What do you conclude should be the direction for Arauco’s strategic scope based on your analysis of the trade-offs between further expansion of pulp capacity versus vertical downstream integration into paper production? MGPO 639 Managing corporate strategy 11
  • 12. Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Thur. 10 Reconfiguring the value chain and corporate portfolio in response to technology July 27 shift. 9:00-12 - value chain :30 - sustainability of corporate level advantage - strategic alliances in corporate strategy - corporate transformation - corporate restructuring - divestment - portfolio rebalancing - competing with substitutes - customer focus - leadership and corporate strategy - technology shifts and corporate strategy Case: [Eastman Kodak] “You push the button, we do the rest”: From silver halide to infoimaging at Eastman Kodak. By Gareth Jones, in Hill, Charles W.L., & Gareth R. Jones (2004) “Eastman Kodak”, Strategic Management, 6th ed. Boston: Houghton Mifflin, pp. C614-C629. ** 1. Evaluate Kodak’s strategy in chemical photography? Why has it been so successful over the history of the industry? 2. Compare traditional chemical photography to digital imaging. What are the main industry structure and value chain differences? How have value creation and appropriation shifted? 3. Did Kodak need to divest its chemical and pharmaceuticals businesses? 4. How would you assess the way in which Kodak went about the process of developing its strategic capabilities in response to a rapidly changing competitive environment from 1985 onward? Has Kodak responded appropriately and adequately to the emergence of digital imaging? MGPO 639 Managing corporate strategy 12
  • 13. Date Sess. Topics (with readings indicated by bullets), Key Concepts, Cases and Discussion Questions Thur. 11 Strategies for corporate rejuvenation; rebuilding competitive advantage through July 27 new products 13:30-1 - rejuvenation 7:00 - value chain - transforming corporate advantage Case: Apple computer, 2005 HBS 705-469 ** 1. Historically, what were Apple’s major competitive advantages? 2. Analyze the structure of the personal computer industry over the last 10 years. How have the dynamics of the PC industry changed? 3. Evaluate Apple’s strategies since 1990. 4. Has Jobs finally solved Apple’s long-standing problems? Does Apple have a sustainable competitive advantage with the iPod ? MGPO 639 Managing corporate strategy 13