Global Management

MGT. 5491 Session # 8 Strategic and Global Management: Corporate Strategies

Corporate/Enterprise (Parent) Level Strategies

Firms must learn to compete differently if they are to achieve strategic competitiveness in the 21 st -century competitive landscape. To provide an idea of what this means, new ways of competing may include:
bringing new good and services to market more quickly
The use of new technologies (e.g., Amazon.com)
Diversifying the product line (e.g., Barnes and Nobles into music as a catalyst for growth)
The New Reality - #1

Shifting product emphasis (e.g., U-Haul’s new focus on accessory sales) (i.e., Dual Branding)
Consolidation (e.g., the merger of Exxon and Mobil)
Combining online selling with physical stores (e.g., CompUSA’s new strategy)

Dell Model for Growth
Have New Business Model (maybe changes every 5 years?)
Identify Core Competencies and then improve the four capabilities
Outsource non-core competencies
Create a “Brand Management Company”

Brief Overview of Corporate Strategy
Those strategies concerned with the broad and long-term questions of what business(es) the organization is in and what it wants to do with those businesses

1. What businesses should the corporation/enterprise be in? 2. How should the corporate/G.O. office manage the array of business units (GBU’s/SBU’s/ Wholly owed subsidiaries) Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts Key Questions of Corporate/Firm-level Strategies

21 st Century Organization Strategies for Growth and Profitability Multi-International: One Consumer Products Company (Corporate Level) Driving Growth (8) Funding Growth (5) Creating the Best Place To Work (10) Global Scope Consumer Promotion 360 0 Marketing Superior Knowledge of Customers/Consumers Strong Alliances/ Partnerships with Customers Coverage of Trade Acquisitions/JV’s Focus on Product Quality Innovative New Products/Services Vision Direction : Guiding Core Values, Philosophies, Principles, Mission, & Others Regionalization With Local Control Lean & Flat Structures Shared Leadership, Coaching & Feedback Horizontal, Structures, Systems, & Processes: Integration/communication/coordination Empower People Stimulating Careers Streamline and obtain A Seamless Supply Chain/ Demand Side (Value Chain) Integration Use of Technologies to create Cost Savings IS/SAP/ Consolidated Partnership Move to “Global” And “Local” Regional Business HPWS Community Involvement Recognition & Financial Rewards Demand Side Strategies: Supply Chain Strategies: Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)

Corporate (and International) Strategies
Three directions for corporate strategy
Growth
M&A , JV, and SA (external growth)
International (internal growth)
Stability (internal growth)
Renewal (internal growth)
Retrenchment
Turnaround
Increase the four capabilities via core competencies

Future Work Trends How does it fit together? Globalization (External Growth) Year 2009 Success Factors Strategic Alliances (External and/or Internal Growth) Improvement in the four Capabilities via Core Competencies along Value Chain Business Imperatives: Capabilities: Vision Direction and Strategies: Barry A. Macy, Successful Strategic Change , Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Vision Direction External and Internal Strategies (Corporate & Business) 1st 2nd 3rd

Organizational Growth: External and/or Internal
External and Internal Growth Strategy
One that involves the attainment of specific growth objectives by increasing the level of an organization’s capabilities
Typical growth strategies include goals for:
Increase in sales revenues
Profits
Other balanced scorecard performance measures

Types of Growth Strategies Organizational Growth Horizontal Integration: Along Value Chain International Concentration
Diversification
Related Businesses
Unrelated Businesses
Vertical Integration
Related Businesses

Concentration
Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business

Concentration Customers Product(s) Product/Market Diversification Market Focused Development Product Development Product-Market Exploitation

Another Possible Way for Growth

The “Right” People or the “Right” Organization?
What are our basic Principles, Philosophies
and Core Values?
What do we believe in?
What policies and practices are consistent
with these Values and Philosophies?
What can we do for the customer better
than our competitors?
Given our core capabilities, how can we deliver
value (EVA) to customers in a way our
competitors cannot easily imitate?
Senior management “manages” the values
and culture of the firm.
A Values-Based View of Strategy Fundamental Values or Beliefs Design Management Practices That Reflect and Embody These Values Use These to Build Core Capabilities Invent a Strategy That is Consistent with the Values and Uses the Talents & your four Capabilities to Compete in New and Unusual Ways Senior Management’s Role

Possible Strategic Focus Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable? The following examples are provided as evidence that the trust structures contribute to the above average performance of each firm.
Anderson & Associates practices open-book management, meaning that all financial data are readily accessible on the firm’s Intranet. The company’s CEO claims that this practice contributes to employee loyalty.
Radius, a French restaurant in Boston, relies upon trust to sustain one of its competencies – excellent teamwork.
MTW Corp., a software and Internet applications provider, relies upon “expectation agreements” among the boss , an employee, and his or her work team.

Possible Strategic Focus Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable? 3-18
What is the value of a friend who can be trusted compared to one who cannot be trusted?
Would you be willing to loan your car to the less-than-trustworthy acquaintance if they were going to need it for a few hours?
Would you trust them at all?
For firms, trust relationships can easily make the difference between a deal getting done or not, or it can impact the size of the deal that is done. Trust carries a great deal of weight, especially in an environment where it is in short supply. AND Today’s deal that is based on trust can lead to a sustainable edge when future deals are considered.

Possible Strategic Focus Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable? Trust and organizational success are closely linked. Trust benefits the organization in that it reduces the overall transaction costs. There are many attributes to trust, the most prominent of which is risk. This risk can be divided into two categories:
Managerial Risk – the general risk of management decisions
Organizational Risk – characteristic of forms with volatile income streams

Possible Strategic Focus Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable? 3-17 Davis, Schoorman, Mayer and Tan define trust as “the willingness of a party (trustor) to be vulnerable to the actions of another party (trustee) based on the expectation that the trustee will perform an action important to the trustor, regardless of the trustor’s ability to monitor or control the trustee.”
Trust between general manager and employees may be a source of competitive advantage. This trust rests upon the trustor’s perception of the trustees:
ability – skills and competencies by which trustee may influence outcomes
benevolence – degree to which trustor believes trustee acts for the good of the trustor
integrity – belief that the trustee will follow a set of principles that are desired by the trustor

Possible Strategic Focus Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable? 3-17 The Davis, et al. study suggests that these three factors of trust can contribute to competitive advantage of the firm. We can conclude that trust satisfies at least three of the four (and conceivably all four) criteria for sustainable competitive advantage.
Valuable – the study demonstrated that trust increased profitability and reduced turnover.
Rare – this relationship dynamic is uncommon.
Costly to imitate – trust is an intangible social construct that cannot easily be replicated.
Nonsubstitutable – possibility, since trust is difficult to observe

Another Way: Diversification Related Diversification Product Similarities Distribution Channels Value Chain Capabilities/ Core Competencies Customer Use Similar Technology

Diversification
Level
Horizontal
Anti-trust laws prohibit a lot of these
Vertical
Suppliers buying buyers (or vice versa)
Two Types
Related Businesses

Related Diversification and Competitive Advantage
Competitive advantage can result from related diversification if opportunities exist to
Transfer expertise / capabilities / technology
Combine related activities into a single operation and reduce costs
Leverage use of firm’s brand name reputation
Conduct related value chain activities in a collaborative fashion to create valuable competitive capabilities

What is Unrelated Diversification?
Involves diversifying into businesses with
NO strategic fit
NO meaningful value chain relationship
NO unifying strategic theme
Approach is to venture into “any business in which we think we can make a profit”
Firms pursuing unrelated diversification are often referred to as conglomerates

Attractive Merger/Acquisition Targets
Companies with undervalued assets
Capital gains may be realized
Companies in financial distress
May be purchased at bargain prices and turned around
Appeal of Unrelated Diversification Strategy
Business risk scattered over different industries
Financial resources can be directed to those industries offering the best profit prospects
If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced

Drawbacks of Unrelated Diversification
Difficulties of competently managing many diverse businesses
Lack of strategic fits which can be leveraged into competitive advantage
Consolidated performance of unrelated businesses tends to be no better than sum of individual businesses on their own (and it may be worse)
Likely effect is 1 + 1 = 1.5 , not 1 + 1 = 3
Promise of greater sales-profit stability over business cycles seldom realized

Combination Related-Unrelated Diversification Strategies
Dominant-business firms
One major core business accounting for 50 – 80 percent of revenues, with several small related or unrelated businesses accounting for remainder
Narrowly diversified firms
Diversification includes a few (2-5) related or unrelated businesses

Combination Related-Unrelated Diversification Strategies (cont.)
Broadly diversified firms
Diversification includes a wide ranging collection of either related or unrelated businesses or a mixture
Multi-business firms
Diversification portfolio includes several unrelated groups or related businesses

Diversification and Corporate Strategy
A company is diversified when it is in two or more lines of business
Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business
A diversified company needs a multi-industry, multi-business strategy
A strategic action plan must be developed and implemented for several different businesses competing in diverse industry environment

Levels and Types of Diversification Low Levels of Diversification Moderate to High Levels of Diversification Very High Levels of Diversification Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist A B C Single business > 95% of revenues from a single business unit A Dominant business Between 70% and 95% of revenues from a single business unit B A Unrelated-Diversified Business units not closely related A B C < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Related constrained A B C

When to Diversify
Some companies do EXCELLENTLY and are not diversified
McDonald’s, SWA, Coca-Cola, Domino’s Pizza, Wal-Mart, FedEx, Timex, Gerber
Why stay single business
Clear understanding of who we are/what we do
No Dilution of management’s attention
Risks of a single business strategy
Putting all the “eggs” in one industry basket
Unforeseen changes can undermine a single business firm’s prospects

Adding Value by Diversification Diversification most effectively adds value by either of three mechanisms: By developing economies of scope between business units in the firms which leads to synergistic benefits By developing market power which leads to greater returns
ECR (Efficient Consumer Response)
Efficient Assortment
Efficient Product Introduction
Efficient Replenishment
Efficient Promotion
TOTAL ECR SCORE = Sum of 4 above

Assumptions: Sharing Activities Alternative Diversification Strategies Strong sense of corporate identity Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance (balanced scorecard)

Alternative Diversification Strategies Related Diversification Strategies Unrelated Diversification Strategies Sharing Activities (Shared Global Services) Transferring Core Competencies Efficient Internal Capital Market Allocation Restructuring

Key Characteristics: Example: Using a common physical distribution system and sales force such as Procter & Gamble’s disposable diaper and paper towel divisions Example: General Electric’s costs to advertise, sell and service major appliances are spread over many different products Sharing Activities Alternative Diversification Strategies Achieves economies of scale Boosts efficiency of utilization Helps move more rapidly down Learning Curve Sharing Activities often lowers costs or raises differentiation Sharing Activities can lower costs if it:

Example: Shared order processing system may allow new features customers value or make more advanced remote sensing technology available Example: Procter & Gamble’s sharing of sales and physical distribution for disposable diapers and paper towels is effective because these items are so bulky and costly to ship Key Characteristics: Sharing Activities Alternative Diversification Strategies Sharing Activities can enhance potential for or reduce the cost of differentiation Must involve activities that are crucial to competitive advantage

Key Characteristics: Transferring Core Competencies Alternative Diversification Strategies Identify ability to transfer skills or expertise among similar value chains Exploit ability to transfer activities Exploits Interrelationships among divisions Start with Value Chain analysis

Summary Model of the Relationship Between Firm Performance and Diversification Resources Incentives Managerial Motives Capital Market Intervention and Market for Managerial Talent Diversification Strategy Strategy Implementation Firm Performance

Performance Level of Diversification Diversification and Firm Performance Dominant Business Unrelated Business Related Constrained

Future Work Trends How does it fit together? Globalization (External Growth) Year 2009 Success Factors Strategic Alliances (External and/or Internal Growth) Improvement in the four Capabilities via Core Competencies along Value Chain Business Imperatives: Capabilities: Vision Direction and Strategies: Barry A. Macy, Successful Strategic Change , Berrett-Koehler Publishers, San Francisco, CA. (forthcoming) Vision Direction External and Internal Strategies (Corporate & Business) 1st 2nd 3rd

Questions for Strategy to Consider Competitive Dynamics

An organization’s size affects the likelihood that it will take competitive actions as well as the types of action it will take and their timing. Small firms are more likely to launch competitive actions and tend to be quicker in doing so. 5-10 Strategic Actions and Organizational Size - 1

Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period. Thus, the competitive actions a firm will likely ecounter from larger competitors will be different than the competitive actions it will encounter from smaller firms. 5-10 Strategic Actions and Organizational Size - 2

Large organizations often have the slack resources required to launch a larger number of total competitive actions, and thus do. However, smaller firms have the flexibility needed to launch a greater variety of competitive actions. 5-10 Strategic Actions and Organizational Size - 3

Declining emphasis on single, domestic markets and increasing emphasis on global markets Advances in communication technology make coordination easier across multiple markets Advances in technology and innovation have increased competitiveness of small and medium sized firms National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC) Factors Leading to More Complex Rivalry

Competitive Dynamics Results from a series of competitive actions and competitive responses among firms competing within a particular industry Competitive Rivalry Exists when two or more firms jockey with one another in the pursuit of better market position

Actions and responses shape the competitive positions of each firm’s business level strategy Actions taken by one firm elicit responses from competitors A firm’s strategic conduct is dynamic in nature Competitive responses lead to additional actions from the firm that acted originally Competitive Dynamics

Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response Do managers understand the key characteristics of competitors? Awareness

Does the firm have appropriate incentives to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response

Does the firm have the necessary resources to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response

Competitor Analysis Resource Similarity Market Commonality Model of Interfirm Rivalry: Likelihood of Attack and Response Do firms compete with each other in multiple markets? Market Commonality

Competitor Analysis Resource Similarity Market Commonality Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs For example, airlines price flights similarly but respond quickly when competitors introduce promotional prices Model of Interfirm Rivalry: Likelihood of Attack and Response

Competitor Analysis Resource Similarity Do competitors possess similar types or amounts of resources? Market Commonality Model of Interfirm Rivalry: Likelihood of Attack and Response

Competitor Analysis Resource Similarity Market Commonality Firms are less inclined to attack a firm that is likely to retaliate Firms with dissimilar resources are more likely to attack Firms with similar resources are more likely to be aware of each other’s competitive moves Model of Interfirm Rivalry: Likelihood of Attack and Response

Interfirm Rivalry: Attack & Response Likelihood of Attack First Mover Incentives Likelihood of Response Type of Competitive Action Dependence on the Market Resource Availability Actor’s Reputation Model of Interfirm Rivalry: Likelihood of Attack and Response Likelihood of Attack First Mover Incentives First Mover advantage can be substantial

First Mover Firms that take an initial competitive action Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies Can earn above average profits until competitors respond Gain customer loyalty, helping to create a barrier to entry by competitors Advantage depends upon difficulty of imitation

Second Mover Firms that respond to a First Mover’s actions Second Movers frequently imitate First Movers Speed of response often dictates success Should evaluate customers’ response before moving “ Fast” Second Movers can capture some of initial customers and develop some brand loyalty Avoid some of the risks associated with First Move Must possess necessary capabilities to imitate

Types of Competitive Actions Tactical Actions Major Acquisition Example Strategic Actions Price cut Example Significant commitments of specific and distinctive organizational resources Difficult to implement Difficult to reverse Relatively easy to implement Relatively easy to reverse Undertaken to “fine tune” strategy

Relative Size Quality Innovation Speed Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response Relative Size Firm size can have opposing effects on competitive dynamics

Quality Speed Large firms may exert market power over rivals and erect barriers to entry against smaller competitors However, smaller competitors may be more nimble and innovative Ability for Action and Response Relative Size Innovation Model of Interfirm Rivalry: Likelihood of Attack and Response “ Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” -- Herb Kelleher, CEO, Southwest Airlines

Relative Size Quality Innovation Speed Quick response is crucial to both the first mover and the fast second mover Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response

Consistent innovation is required for market leadership in many dynamic industries Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response

Exceeding customer expectations is a necessity to compete in the 21st century Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response

Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage

Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained competitive advantage is a possible outcome in this instance Standard cycle markets often lead to highly competitive pressures despite world class products Firms with multimarket competition may dampen rivalry somewhat Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response

Sustained Competitive Outcomes Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Evolutionary Actions Growth-Oriented Actions Market-Power Actions Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable Evolutionary Outcomes Firms may cannibalize older generation products while introducing new innovative premium products Sustainable competitive advantage is unilkely Model of Interfirm Rivalry: Likelihood of Attack and Response

Global Management

by Nirmala last on Oct 22, 2008

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