Western International University Corporate Level Strategy Amit Sharma Sarosh Wazir Dheeraj Chhikara Manik Diengdoh Rahul Mukherjee MGT 625 – Strategic Management September 5, 2009
Strategic Management Strategic management is the set of managerial decisions and actions that determines the long run performance of the corporate. It involves environmental scanning, strategy formulation, strategy implementation & evaluation and control. Strategic Management Process Mission Objective Environmental Scanning Internal External Strategic Choice Strategy Implementation Corporate Level Management Business Level Management Functional Level Management Evaluation & Control
Levels of Strategic Management Corporate Level Strategies Head Office Business Level Strategies Function Level Strategies Division A Division B Marketing Finance Human Resource Operations Marketing Finance Human Resource Operations CEO, Board of Directors & Corporate Staff Divisional Managers & Staff Functional Managers
Companies adopt a long-term perspective while formulating a corporate-level strategy.
Corporate Level Strategy is used for:
Businesses or industries that the company should compete in
Value creation activities that the company should perform in those businesses
Methods to enter or leave businesses or industries in order to maximize its long-run profitability
Concentrated Growth It is the strategy in which the firm directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology and taking advantage of economies of scale. IBM Case Study Issue The company’s semiconductor unit, which had bet on a strategy of manufacturing all kinds of chips for all 400 customers, had lost $ 1.2 billion over the previous 18 months. In spite of spending billions of upgrade its chip plant they were getting thrashed by Asian rivals that were manufacturing at much higher volumes and offering bargain-basement prices. Strategy formulation On July 15, 2003, 70 experts headed by Chief Executive Samuel J. Palmisano gathered in a conference to formulate the strategy. Key outcome
The chip and computer unites would be combined
Instead of manufacturing all kinds of chips for 400 customers, It would focus primarily on one family of chips (Power microprocessors).
It would produce some chips for itself and the remaining for other key partner like Nintendo, Apple G5 computers, Cisco Systems networking gear.
It would recruit co-investors to help fund advances in the chip manufacturing technology.
IBM gained share in high-end servers.
IBM became processer supplier for next generation game consoles to companies like Sony, Microsoft & Nintendo & controls 100 % market share.
Conditions Favoring a Concentrated Growth Strategy Firm’s industry is resistant to major technological advancements Firm’s targeted markets are not product saturated Firm’s markets are sufficiently distinctive to dissuade competitors in adjacent markets from entering firm’s segment Firm’s inputs are stable in price and quantity and available in amounts and at times needed Firm’s industry is stable Firm’s competitive advantages are based on efficient production or distribution channels Success of market generalists
Acquisitions It is an agreement between two firms where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio business Reasons for Acquisitions
Increased Market Share
Overcome Barriers to Entry
Lower Cost and Risk of New Product Development
Reshaping its competitive Scope
Problems with Acquisitions
Inadequate evaluation of worth
Too Large to manage
Vertical Integration Vertical Integration is a strategy for increasing or decreasing operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products. Types of Vertical Integration
Backward Vertical Integration
Forward Vertical Integration
Final Assembly In-house Distributers In-house Component Parts Manufacturing Raw Material Out-side Distributers Out-side Supplier Backward Integration Forward Integration Full Integration Taper Integration
Horizontal Integration It is process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope. Manufacturing Car (3 lakhs – 1 lakhs) Manufacturing Car (3 lakhs – 10 lakhs) Manufacturing Car (25 lakhs – 10 lakhs) In-house Distributers In-house Component Parts Manufacturing Raw material
Implementing a horizontal integration is not an easy task
Problems associated with merging very different company cultures
High management turnover in the acquired company when the acquisition is a hostile one
Tendency of managers to overestimate the benefits to be had in the merger
Tendency of managers to underestimate the problems involved in merging their operations
The merger may be blocked if merger is perceived to:
Create a dominant competitor
Create too much industry consolidation
Have the potential for future abuse of market power
Strategic Alliance Strategic Outsourcing allows one or more of a company’s value-chain activities or functions to be performed by independent specialized companies that focus all their skills and knowledge on just one kind of activity. Distributer Distributer Distributer Distributer Distributer Distributer Regional Center Regional Center Factory Distributer Distributer Distributer Distributer Distributer Distributer Distributer Distributer Distributer Distributer Distributer Distributer Factory FedEx Shared Facility FedEx Shared Facility FedEx Shared Facility FedEx Center
The specialist company cost is less than what it would cost to perform the activity internally.
The quality of the activity performed by the specialist is greater than if the activity were performed by the company.
Focus on the core business
Distractions are removed.
The company can focus attention and resources on activities important for value creation and competitive advantage.
Holdup – company becomes too dependent on specialist provider
Loss of information – company loses important customer contact or competitive information
Diversification It is a strategy adopted by the firms to acquire new firms to expand its product base and to maximize its revenue. There are two types of diversifications Concentric Diversification & Conglomerate Diversification Motivating factors for Diversification
Increase the firm’s stock value
Increase the growth rate of the firm
Better utilization of firm’s resources
Improve the stability of the firm
Balance or fill out the product line
Diversify the product line
Acquired the needed reasons
Concentric Diversification As per this strategy firm are acquired or new ventures are made that are related to the acquiring firm in terms of technology, market or products. Hence the acquired business possess a high degree of compatibility with the firms current business. Conglomerate Diversification As per this strategy firm are acquired which are not related to the acquiring firm in terms of technology, market or products. The firms engage in this kind of activity as they take this as the most promising investment opportunity.
Turnaround This strategy involves a concerted effort over a period of time to fortify a firm’s distinctive competencies and returning it to profitability. Major Steps in Turnaround process
Change in Management
Declining sales or margins Imminent bankruptcy Low High Cost reduction Asset reduction Efficiency maintenance Entrepreneurial reconfiguration Stability Recovery Internal factors External factors Turnaround situation Turnaround response Cause Severity Retrenchment phase Recovery phase (operating) (strategic) A Model of the Turnaround Process
Divestiture This strategy involves the sale of a firm or a major component of a firm. Reasons for Divestiture Hurdles in Divestiture
Partial mismatched between acquired
firm & parent firm
Corporate financial needs
Government antitrust actions
Finding a buyer who is willing to pay a
premium above the value of a going
concern’s fixed assets
Liquidation As per this strategy the firm sells its parts at tangible asset value and not as a going concern. What's for the business?
It minimizes the losses of all the stakeholders.
It gives the business a scope to gain greatest possible return and cash conversation so that it can relinquish its market share.
Bankruptcy It is a strategy through which the business agrees to a complete distribution of their assets to creditors, most of whom receive a small part of what they are owed. Outcome of bankruptcy