Corporate strategy


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Corporate strategy

  1. 1. Corporate Strategy By KMI
  2. 2. Corporate Parent <ul><li>Many large businesses consist of a corporate parent and a number of SBUs </li></ul><ul><li>SBUs have own products, markets, responsible for success and failure. </li></ul><ul><li>Corporate parent has no direct contact with the buyers or competitors </li></ul><ul><li>Role is to manage overall scope of organization </li></ul><ul><li>Diversity of products and markets </li></ul><ul><li>International and geographic diversity </li></ul><ul><li>In the process can create or destroy value </li></ul>By KMI
  3. 3. <ul><li>Diversity of products & markets: advantages: economies of scope, corporate management skills and cross subsidy </li></ul><ul><li>Economies of scope </li></ul><ul><li>1. Marketing synergy </li></ul><ul><li>2. Operating synergy </li></ul><ul><li>3. Investment synergy </li></ul><ul><li>4. Management synergy </li></ul>By KMI
  4. 4. Diversification <ul><li>Why </li></ul><ul><li>Response to environment </li></ul><ul><li>Risk spreading </li></ul><ul><li>Expectation of stakeholders </li></ul><ul><li>Related Diversification: is development beyond current products and markets but within the capabilities or value network of the organization (Starbucks) </li></ul>By KMI
  5. 5. <ul><li>Horizontal Integration: makes use of current capabilities by development into activities that are competitive with or directly complementary to a company’s present activities. An example would be a TV company that moved into film production. </li></ul><ul><li>Vertical Integration: occurs when a company expands backwards and forwards within its existing value network and thus becomes its own supplier or distributor. Example Canned Milk/Dairy Farm. Example Cloth/Shirts making. </li></ul>By KMI
  6. 6. Vertical Integration <ul><li>Potential for success when final customers’ needs are not being properly satisfied </li></ul><ul><li>Advantages: </li></ul><ul><li>Secure supplies </li></ul><ul><li>Strong relationships with customers </li></ul><ul><li>Share of profits </li></ul><ul><li>Effective differentiation </li></ul><ul><li>Creation of entry barriers </li></ul><ul><li>Disadvantages: </li></ul><ul><li>Over-concentration </li></ul><ul><li>No economies of scale – little technical advances </li></ul>By KMI
  7. 7. Unrelated Diversification <ul><li>Is the development of products and services beyond the current capabilities or value network. (Such a company also known as conglomerate) </li></ul><ul><li>Advantages: </li></ul><ul><li>Risk spreading </li></ul><ul><li>Improved profit opportunities </li></ul><ul><li>Escape from declining markets </li></ul><ul><li>Use of company’s image and reputation </li></ul><ul><li>Disadvantages: </li></ul><ul><li>Dilution of share-holders earnings </li></ul><ul><li>Lack of common identity or purpose </li></ul><ul><li>Failure in one business will drag down the rest </li></ul><ul><li>Lack of management experience </li></ul>By KMI
  8. 8. International Diversification <ul><li>Developing the global business </li></ul><ul><li>Exporting: same product, economies of scale, low risk strategy, dependent on foreign intermediaries </li></ul><ul><li>Overseas branches: high sales, replace intermediaries, set own branches </li></ul><ul><li>Overseas production: so high sales, export costs rise too, overseas production, exploit local labor and other opportunities </li></ul><ul><li>Insiderisation: adapt to local market and environment, multi-national, independent in managing business, exchange rate risk, political risk </li></ul>By KMI
  9. 9. <ul><li>Global company: central HR, R & D, Finance, integrate learning & skills, competencies and technologies in order to achieve global efficiencies with local experiences. </li></ul>By KMI
  10. 10. Corporate Parent & Value Creation <ul><li>Value creating roles </li></ul><ul><li>Communicating vision to stakeholders and SBU managers </li></ul><ul><li>Intervention to improve performance </li></ul><ul><li>Provision of services, resources and expertise </li></ul><ul><li>Value destruction: </li></ul><ul><li>Costs: must create value at least equal to these costs </li></ul><ul><li>Corporate hierarchy: manager’s political ambitions </li></ul><ul><li>Size and complexity: can hinder development </li></ul><ul><li>Decision making can be slowed down. Response to market can also slow down </li></ul>By KMI
  11. 11. Approaches to value creation <ul><li>Portfolio managers: Services in financial disciplines; purchasing & acquiring companies; improve their performance; keep their own costs low; provide few central services </li></ul><ul><li>Synergy managers: Pursue economies of scope, shared use of resources, need to overcome: cost involved in sharing, impact of self-interest in SBUs, incompatibility of systems & cultures among SBUs, variation in local conditions </li></ul><ul><li>Parental developer: deploying its specific competencies to aid SBUs, must be able to do it, external capabilities may be bought if parent cannot do so cost effectively, understanding about SBUs </li></ul>By KMI
  12. 12. The Corporate Portfolio <ul><li>Build, Hold, Harvest, Divest </li></ul><ul><li>BCG Matrix </li></ul><ul><li>GEBS </li></ul><ul><li>Shell Directional Matrix </li></ul><ul><li>Ashridge Portfolio Display </li></ul>By KMI
  13. 13. BCG Matrix High Low High Low Market Share Growth By KMI Star Question mark Cash Cow Dog
  14. 14. GEBS Business Strength Market Attractiveness By KMI Invest for growth Invest selectively for growth Develop for income Invest selectively and build Develop selectively for income Harvest or divest Develop selectively build on strengths Harvest Divest
  15. 15. Shell Directional Policy Matrix Prospects for sector profitability Enterprise’s Competitive capabilities weak avg strg unatt avg attr By KMI Disinvest Phased withdrawal Double or quit Phased withdrawal Custodial growth Try harder Cash generation Growth leader leader
  16. 16. Ashridge Portfolio Display Alien Businesses Benefit Feel CSF Low High Low High By KMI Ballast Heartland Businesses Businesses Value trap businesses
  17. 17. Business Unit Strategy <ul><li>Coping successfully with competitive forces </li></ul><ul><li>Cost-leadership (cost-focus) </li></ul><ul><li>Differentiation leadership (differentiation – focus) </li></ul><ul><li>Stuck in the middle </li></ul>By KMI
  18. 18. Cost Leadership <ul><li>Position of low cost producer in the entire industry </li></ul><ul><li>Can compete on price </li></ul><ul><li>Earn higher profits </li></ul><ul><li>How? </li></ul><ul><li>Set up production facilities to achieve economies of scale </li></ul><ul><li>Use technology </li></ul><ul><li>Exploit learning curve </li></ul><ul><li>Concentrate on improved productivity </li></ul><ul><li>Minimize overhead costs </li></ul><ul><li>Get favorable access to source supply </li></ul><ul><li>South West; Wal-Mart; Black n Decker </li></ul>By KMI
  19. 19. Differentiation <ul><li>Particular characteristics of a firm’s product </li></ul><ul><li>Break-through products </li></ul><ul><li>Improved products </li></ul><ul><li>Competitive products – attraction </li></ul><ul><li>How? </li></ul><ul><li>Build brand image </li></ul><ul><li>Add special features </li></ul><ul><li>Exploit other activities of value chain </li></ul>By KMI
  20. 20. The Strategy Clock <ul><li>Analyzing strategies in terms of price and perceived value (8 strategies) </li></ul><ul><li>Draw on the board </li></ul><ul><li>1, 2 will attract customer on price </li></ul><ul><li>3 serviceability </li></ul><ul><li>4, 5 customized </li></ul><ul><li>6,7,8 destined to meet failure </li></ul>By KMI
  21. 21. Sustaining Competitive Advantage <ul><li>Need for rapid innovation </li></ul><ul><li>Response to competitors’ moves </li></ul><ul><li>Sustaining price based strategies: </li></ul><ul><li>Low margins: scale/cross-subsidization </li></ul><ul><li>Drive costs down </li></ul><ul><li>Win price wars </li></ul><ul><li>No frills strategy </li></ul>By KMI
  22. 22. Sustaining Differentiation <ul><li>Difference must be valued by customers </li></ul><ul><li>Obstruct imitation </li></ul><ul><li>Cost advantage </li></ul><ul><li>Intangible resources </li></ul><ul><li>Lock-in: when a product becomes industry standard </li></ul><ul><li>Factors influencing lock in: </li></ul><ul><li>Perception of dominance </li></ul><ul><li>First mover advantage </li></ul><ul><li>Self-reinforcement </li></ul><ul><li>Fierce defence </li></ul>By KMI
  23. 23. Strategy and Competition <ul><li>Short term moves </li></ul><ul><li>Reposition strategy clock </li></ul><ul><li>Counter attack </li></ul><ul><li>Remain unpredictable </li></ul><ul><li>Attack competitor’s weaknesses </li></ul><ul><li>Give misleading signals </li></ul><ul><li>Using value chain: create value, add/eliminate </li></ul>By KMI
  24. 24. Other strategies <ul><li>Product Market strategy </li></ul><ul><li>Withdrawal/underperformance </li></ul><ul><li>Change of objective/strategic fit </li></ul><ul><li>Break up value of SBUs </li></ul><ul><li>Divestment: to rationalize a business </li></ul><ul><li>Selling off subsidiary </li></ul><ul><li>To raise funds </li></ul>By KMI
  25. 25. Methods of Growth <ul><li>Building own products and markets </li></ul><ul><li>Learning </li></ul><ul><li>Innovation </li></ul><ul><li>No target for acquisition </li></ul><ul><li>Can be planned </li></ul><ul><li>Financing from co’s current cash flow </li></ul><ul><li>Unseen losses are less likely </li></ul><ul><li>Economies of scale </li></ul>By KMI
  26. 26. Acquisitions and Mergers <ul><li>Buy a new product, market presence, distribution channel </li></ul><ul><li>Utilization of production facilities, technologies, raw materials, bulk purchases </li></ul><ul><li>Highly skilled management teams </li></ul><ul><li>Cash resources </li></ul><ul><li>Gain assets </li></ul><ul><li>Tax advantage </li></ul><ul><li>Risk spreading </li></ul><ul><li>Hedge-hog </li></ul><ul><li>Conglomerate diversification </li></ul>By KMI
  27. 27. Problems <ul><li>Costs </li></ul><ul><li>Customers </li></ul><ul><li>Incompatibility </li></ul><ul><li>Personal goals </li></ul><ul><li>Consultants </li></ul><ul><li>Little chances of success </li></ul><ul><li>Non financial factors </li></ul>By KMI
  28. 28. Joint Ventures <ul><li>Way of co-operation </li></ul><ul><li>Consortia: on specific business areas, purchase or research </li></ul><ul><li>Joint ventures: manufacturing, financial and marketing: a) cost sharing (b) cut risk (c) profits (d) knowledge sharing (e) synergies </li></ul><ul><li>Licensing: commercial contract </li></ul><ul><li>Sub-contracting </li></ul>By KMI
  29. 29. Disadvantages <ul><li>Conflict of interest </li></ul><ul><li>Disagreements </li></ul><ul><li>Chances of unilateral withdrawal </li></ul><ul><li>Competencies may be acquired </li></ul>By KMI
  30. 30. Franchising <ul><li>Method of expansion </li></ul><ul><li>Less capital by franchiser </li></ul><ul><li>Franchisee pays set up and running costs </li></ul><ul><li>Inputs: </li></ul><ul><li>Franchiser: name, good will, management knowledge, expertise, support services, ads, training, R & D, site coordination </li></ul><ul><li>Franchisee: capital, personal involvement, local market knowledge, pays to franchiser for rights and for support services, day to day operations </li></ul>By KMI
  31. 31. Advantages <ul><li>Reduces capital requirements </li></ul><ul><li>Reduces HR resources requirements </li></ul><ul><li>Speed of growth, improved return </li></ul><ul><li>Specialization </li></ul><ul><li>Low head office costs </li></ul><ul><li>Reduced supervision costs </li></ul><ul><li>Risk management </li></ul>By KMI
  32. 32. Disadvantages <ul><li>Profits are shared </li></ul><ul><li>Finding the right franchisee </li></ul><ul><li>Control </li></ul><ul><li>Risk to reputation </li></ul><ul><li>Potential for conflict </li></ul>By KMI
  33. 33. Alliances <ul><li>Reasons: </li></ul><ul><li>Cost sharing </li></ul><ul><li>When take overs prohibited </li></ul><ul><li>Complementary markets </li></ul><ul><li>Learning </li></ul><ul><li>Technology ( R & D ) </li></ul><ul><li>Innovation </li></ul><ul><li>Problems: core competencies/not new ones </li></ul>By KMI
  34. 34. Strategy & Market Position <ul><li>Leader: expand the market, product innovation, market share </li></ul><ul><li>Challenger: trying to take over the leader, risky strategy </li></ul><ul><li>Follower: status quo, me too </li></ul><ul><li>Nicher: specialist </li></ul>By KMI
  35. 35. Success Criteria <ul><li>Suitability – strategic fit </li></ul><ul><li>Feasibility – in terms of resources and competencies </li></ul><ul><li>Acceptability – to stake holders </li></ul>By KMI
  36. 36. Suitability requirements <ul><li>Exploit strengths </li></ul><ul><li>Rectify weaknesses </li></ul><ul><li>Deflect threats </li></ul><ul><li>Seize opportunities </li></ul><ul><li>Goal achievement </li></ul><ul><li>Competitive advantage </li></ul><ul><li>Minimizing risk </li></ul><ul><li>Feel </li></ul><ul><li>Life Cycle analysis </li></ul><ul><li>Business portfolio analysis </li></ul><ul><li>TOWS </li></ul>By KMI
  37. 37. <ul><li>Feasibility: </li></ul><ul><li>Ms </li></ul><ul><li>Acceptability: </li></ul><ul><li>Achievement of financial goals: ROI, Profits, Growth, EPS, Cash flow, Price/earnings, market capitalization, CB analysis </li></ul>By KMI