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  1. 1. Corporate Strategy: Leveraging Resources to Extend Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Chapter 7
  2. 2. What you will learn… <ul><li>The concept of corporate strategy </li></ul><ul><li>The notion of a “resource-based view” of corporate strategy </li></ul><ul><li>How effective corporate strategy can be used to extend and leverage a firm’s distinctive competence </li></ul><ul><li>The broad types of corporate strategy, including vertical integration, related diversification, and unrelated diversification. </li></ul>Slide 1 of 2
  3. 3. What you will learn… <ul><li>Economic forces that motivate the pursuit of different corporate strategies. </li></ul><ul><li>How to balance the benefits and costs of diversification </li></ul><ul><li>Benefits of sharing and leveraging resources among businesses or activities </li></ul><ul><li>Costs accompanying diversification and the limits of sharing </li></ul><ul><li>Why corporations undertake restructuring </li></ul><ul><li>How spin-offs and divestitures represent a form of restructuring designed to regain focus </li></ul>Slide 2 of 2
  4. 4. Kellogg’s Corporate Strategy <ul><li>Addressing slowdown in growth of earnings </li></ul><ul><li>Moving into vegetarian and alternative foods </li></ul><ul><li>Finding growth through snack foods </li></ul>
  5. 5. Tyco’s Corporate Strategy <ul><li>A finely tuned acquisition strategy </li></ul><ul><li>A broad array of businesses </li></ul><ul><ul><li>Medical products </li></ul></ul><ul><ul><li>Electronics products </li></ul></ul><ul><ul><li>Security systems </li></ul></ul><ul><li>Recent initiatives </li></ul>
  6. 6. Resources and Strategy <ul><li>Resource-Based View of the Firm </li></ul><ul><ul><li>An evolving set of strategic management ideas that place considerable emphasis on the firm’s ability to distinguish itself from rivals by means of investing in hard-to-imitate and specific resources, such as: </li></ul></ul><ul><ul><ul><li>Technologies </li></ul></ul></ul><ul><ul><ul><li>Skills </li></ul></ul></ul><ul><ul><ul><li>Capabilities </li></ul></ul></ul><ul><ul><ul><li>Assets </li></ul></ul></ul><ul><ul><ul><li>Management approaches </li></ul></ul></ul>
  7. 7. Resource-Based View: Key Concepts <ul><li>Ideally, distinctive resources are hard for competitors to duplicate </li></ul><ul><li>A firm’s resources should be highly specialized and durable </li></ul><ul><li>Firms need to monitor the environment so that their corporate resources do not suffer from easy substitution by rivals </li></ul>
  8. 8. Ex. 7-1. Common Avenues to Enlarging the Firm’s Scope of Operations <ul><li>Entrance into… </li></ul><ul><li>New stages of activity </li></ul><ul><ul><li>(i.e., vertical integration) </li></ul></ul><ul><li>New businesses/ industries </li></ul><ul><ul><li>(i.e., industry-based diversification) </li></ul></ul>
  9. 9. Ex. 7-2. Benefits of Diversification <ul><li>More attractive terrain </li></ul><ul><ul><ul><li>Faster growth </li></ul></ul></ul><ul><ul><ul><li>Greater profitability </li></ul></ul></ul><ul><ul><ul><li>More stability </li></ul></ul></ul><ul><li>Access to resources </li></ul><ul><ul><ul><li>Physical assets and access to markets </li></ul></ul></ul><ul><ul><ul><li>Technologies and skills </li></ul></ul></ul><ul><ul><ul><li>Expertise </li></ul></ul></ul><ul><li>Sharing of activities (any activity) </li></ul>
  10. 10. Ex. 7-3. Sharing Expertise Among Businesses Slide 1 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Computer/workstations </li></ul><ul><li>Calculators </li></ul><ul><li>Laser printers </li></ul><ul><li>Digital imaging </li></ul><ul><li>Engineering systems </li></ul><ul><li>Microprocessors </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Engineering skills </li></ul><ul><li>Rapid product development </li></ul><ul><li>Distinctive manufacturing quality </li></ul><ul><li>Leverage design skills </li></ul>Hewlett-Packard
  11. 11. Ex. 7-3. Sharing Expertise Among Businesses Slide 2 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Nationwide system of low-cost, super-efficient banks </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Efficient management of banking activities (especially electronic data processing) </li></ul><ul><li>New product introduction (e.g., leasing, commercial lending </li></ul>Banc-One
  12. 12. Ex. 7-3. Sharing Expertise Among Businesses Slide 3 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Weight loss centers </li></ul><ul><li>Cosmetic dentistry centers </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Operation of retail centers devoted to enhancing physical appearance </li></ul>Nutri/System
  13. 13. Ex. 7-3. Sharing Expertise Among Businesses Slide 4 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Campgrounds </li></ul><ul><li>Printing shops </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Franchising expertise </li></ul><ul><li>Selling franchises to small investors </li></ul>KOA
  14. 14. Ex. 7-3. Sharing Expertise Among Businesses Slide 5 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Soft drinks (Pepsi, Mountain Dew) </li></ul><ul><li>Snack food (Frito Lay) </li></ul><ul><li>Gatorade </li></ul><ul><li>Quaker Oats </li></ul><ul><li>Tropicana juices </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Operating a wide geographic network of franchised outlets </li></ul><ul><li>Marketing research </li></ul><ul><li>Segmentation skills </li></ul><ul><li>Consumer advertising </li></ul><ul><li>Brand development </li></ul><ul><li>Advertising </li></ul>PepsiCo
  15. 15. Ex. 7-3. Sharing Expertise Among Businesses Slide 6 of 6 <ul><li>Partial List of Businesses </li></ul><ul><li>Heart devices </li></ul><ul><li>Pacemakers </li></ul><ul><li>Spinal surgery </li></ul><ul><li>Nervous system disorders </li></ul><ul><li>Shared Expertise </li></ul><ul><li>Shared R&D skills </li></ul><ul><li>Wireless initiatives </li></ul><ul><li>Advanced techniques for less invasive medicine </li></ul>Medtronic
  16. 16. Ex. 7-4. Sharing Activities Among Businesses Slide 1 of 2 Marketing: distribution, advertising, market research, promotion Cigarettes, packaged foods, consumer notdurables Philip-Morris Technology development, coatings adhesives, thin-film substrates Sandpaper, tapes, fabric treatments, sealants, weather-stripping, Post-It notes, medical patches, signs 3M Key Shared Activities Partial List of Businesses Firm
  17. 17. Ex. 7-4. Sharing Activities Among Businesses Slide 2 of 2 Operations: network management, telecommunications, internal logistics. Marketing: distribution, sales, service, Internet Mutual funds, brokerage, securities, annuities Fidelity Investments Technology: silicon etching, systems integration, advanced materials, miniaturization. Semiconductors, computers, network systems, disk drives, software, electronic commerce IBM Key Shared Activities Partial List of Businesses Firm
  18. 18. Ex. 7-5: Costs of Diversification Ignorance (about newly entered fields) <ul><li>Coordination </li></ul><ul><li>Communication </li></ul><ul><li>Compromise </li></ul><ul><li>Accountability </li></ul>Neglect (of core business)
  19. 19. Ex. 7-6. Balancing the Benefits & Costs of Diversification Slide 6-10 © 2000 South-Western Publishing Benefits Costs • More attractive terrain • Access to key resources • Sharing resources • Ignorance • Neglect • Coordination
  20. 20. Ex. 7-7. Conditions Leading to Powerful Diversification Benefits Achieving more attractive terrain (This is rarely a source of powerful benefits for all stakeholders) Transferring resources which are… • Competitively important to receiving businesses • Difficult for receiving businesses to duplicate on their own • Hard for competitors to imitate Shared activities must be… • Large in dollar terms • Susceptible to economies of scale & experience
  21. 21. Ex. 7-8. Limiting Diversification Costs Limit Costs of Ignorance by... • entering familiar fields • entering new areas internally rather than by acquisition Limit Costs of Neglect by... • ensuring new businesses fit easily with existing ones • leveraging a distinctive competence systemwide Limit Costs of Cooperation by… • carefully managing the sharing of activities • designing organizational support systems that promote that promote interrelationships
  22. 22. Ex. 7-9. Steps in Corporate Restructuring <ul><li>Selective focus on carefully chosen activities or niches </li></ul><ul><li>Divestitures and spinoffs </li></ul>Corporation SBU-1 SBU-2 SBU-n

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