Unit - 5_Part B_Strategic Management (18MBA25)_Corporate Level Strategies

Corporate Level Strategies
MBA Programme – BIET, DavangereProf. Vijay K S
Unit – 5 Part “B”

Strategic Management
18MBA25
As Per the VTU Syllabus
Unit – 5 Part “B”

Strategy
Formulations
Strategies
Corporate Strategies

Corporate Strategy Talks about …..
 Growth, Stability and Retrenchment – Directional
Strategies
 The Industries or markets in which the firm competes
through its products and business units - Portfolio
Analysis
 Coordination of activities and transfers resources and
cultivates capabilities among product lines and business
units – Corporate Parenting

Directional Strategies
 Expand , Cutback, Continue, Unchanged
 Concentrate on existing or Diversifying
 Expand nationally or globally

Corporate Directional Strategies
(Three Growth Strategies)
Growth Strategies
expand the
company’s activities
Stability Strategies
make no change to
the company’s
current activities
Retrenchment Strategies
reduce the company’s
level of activities
Growth
Concentration
• Vertical Growth
• Horizontal Growth
Diversification
• Concentric
• Conglomerate
Stability
Pause/Proceed with
Caution No Change profit
Retrenchment
• Turnaround
• Captive Company
• Sell-out/Divestment
• Bankruptcy/Liquidation

Growth Strategies:
 Most widely pursued strategies
 External mechanisms:
 Mergers
• Transaction involving two or more firms in which stock is
exchanged but only one firm survives.
 Acquisition
• Purchase of a firm that is absorbed as an operating
subsidiary of the acquiring firm.
 Strategic Alliance
• Partnership of two or more firms to achieve strategically
significant objectives that are mutually beneficial.

Mergers and Acquisition
Merger
Two firms agree to integrate their operations on a
relatively co-equal basis
Acquisition
One firm buys a controlling, 100 percent interest in
another firm with the intent of making the acquired firm
a subsidiary business within its portfolio
Takeover
Special type of acquisition strategy wherein the target
firm did not solicit the acquiring firm's bid
Unfriendly acquisition

Reasons
To increase market power firms use
Overcoming entry barriers
Cost of new product development and increased speed to
market
Lower risk compared to developing new products
Increased diversification
Reshaping firm’s competitive scope
Learning and developing new capabilities

Mergers and Acquisition

Basic Growth Strategies:
 Concentration - Current product line in one industry
 Vertical growth
 Backward
 Forward
 Horizontal growth
 Diversification - Into other product lines in other industries
 Concentric Diversification
 Conglomerate Diversification

 Vertical growth
 Vertical integration
 Full integration.
• Completely controls its distributors.
 Taper integration.
• Internally produces less than half of its requirements.
 Quasi-integration.
• Purchases most of its requirements from outside.
 Long-term Contract.
• Backward integration
• Forward integration

 Vertical growth
 Vertical integration
• Backward integration
• Forward integration
Full Integration Taper
Integration
Quasi
Integration
Long-Term
Contract
100% Makes it
internally, Shell and
BP
Less than a half
Apple sales - Best Buy
Purchases most of its
requirements and
Partial control
Contract for a
specified period

 Horizontal growth / Horizontal Integration
 Exporting
 Licensing
 Franchising
 Joint Venture
 Acquisitions
 Green-field Development
 Production sharing -
Outsourcing
 Turnkey operations
 BOT Concept (Build, Operate,
Transfer)
 Management Contracts

 Diversification Strategies – When the attractiveness of
industry is low
 Concentric (Related) Diversification
 Growth into related industry
 Search for synergies
Bombardier:
1980s the company expanded beyond snowmobiles into making
light rail equipment, 1986 it entered into aircraft business by
purchasing Canadair.

 Diversification Strategies – When the attractiveness of
industry is low
 Conglomerate (Unrelated) Diversification
 Growth into unrelated industry
 Concern with financial considerations
General Electric and Berkshire Hathaway:
BH has interests in furniture retailing, razor blades, airlines, paper,
broadcasting, soft drinks and publishing.

Stability Strategies: - Proceed with caution
Stability Strategies
An organisation may choose stability over growth by continuing its
current activities without any significant change indirection
 Pause/Proceed with caution
 No change
 Profit strategies

Retrenchment Strategies: - Proceed with caution
 Turnaround
• Indian Railways
 Captive Company Strategy - Giving up independence in
exchange of security
• Simpson Industries agreed to let a special team from GM inspect its
engine parts facilities and books and interview its employees. In
return nearly 80% of the company’s production was sold to GM
through long-term contracts.
 Selling out/Divestment Strategy
• In 2008 Ford sold its Jaguar and Land Rover units to Tata Motors in
2008 for $2 billion.
 Bankruptcy / Liquidation

Corporate Strategy:
1. Directional Strategy
2. Portfolio Analysis
1. BCG Matrix
2. GE Nine Cell Matrix
3. Parenting Strategy

Portfolio Analysis
How much of our time and money should we spend on
our best products to ensure that they continue to be
successful?
How much of our time and money should we spend
developing new costly products, most of which will never
be successful?

Portfolio Analysis Techniques:
 BCG (Boston Consulting Group) Matrix
(One of largest strategic consulting companies in U.S)
 GE Business Screen
Portfolio Analysis

BCG Share - Growth Matrix
Product life cycle and funding decisions:
• Question marks
• Stars
• Cash cows
• Dogs
Portfolio Analysis

BCG Matrix
?
Portfolio Analysis

Portfolio Analysis

BCG Matrix
 Question Marks ?
• Low Market share, Hi Growth
 Use intensive strategies such as market penetration, market
development, product development
 Stars
• High Industry Growth Rate
 Use backward and forward integration, horizontal integration, market
penetration, market development, product development and joint ventures
 Cash Cows
• High Market Share, Low Industry Growth Rate
 Use Product Development or Diversification
 Dogs
• Low industry Growth Rate, and Low Market Share
 Use retrenchment, liquidation, divestment
Portfolio Analysis

Portfolio Analysis
Long-term industry attractiveness
Business strength/competitive position
GE Business Screen
Portfolio Analysis

GE Business Screen / GE Nine Cell Matrix
A
Winners Winners
B
C
Question
Marks
D
F
Average
Businesses
E
Winners
Losers
G
Losers
H
Losers
Profit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive PositionMBA Programme – BIET, DavangereProf. Vijay K S
Portfolio Analysis

GE Business Screen
To Plot Product line on the GE Business Screen, follow these our steps:
Select criteria to rate the industry for each product
line or business unit. Asses overall industry
attractiveness for each product line on a scale of 1
(very unattractive) to 5 (very attractive)
Select the key factors needed for success in each
product line. Assess business strength/competitive
position for each product line on a scale of 1(VW)
to 5 (VS)
Plot each product line’s current position on a matrix
Plot the firm’s future portfolio, assuming that present
corporate and business strategies remain unchanged. Is there
a performance gap between projected and desired portfolio?
If so, gap should serve as a stimulus to seriously review the
corporation’s mission, objectives, strategies and policies.
Portfolio Analysis

GE Business Screen
Portfolio Analysis

International Portfolio Analysis
Two Factors:
Country’s attractiveness
• Market size, Rate of growth, Regulation
Competitive strength
• Market share, Product fit, Contribution margin, Market support
Portfolio Analysis

Portfolio Analysis
Advantages:
 Top management evaluates each of firm’s businesses
individually.
 Stimulates use of externally-oriented data to supplement
management judgment.
 Raises issue of cash flow availability for use of growth and
expansion.
 Its graphic depiction facilitates communication
Portfolio Analysis

Portfolio Analysis
Disadvantages:
 Difficult to define product/market segments
 Standard strategies can miss opportunities
 Illusion of scientific rigor
 Value-laden terms such as cash cow and dog can lead to
self-fulfilling.
Portfolio Analysis

Corporate Strategy:
1. Directional Strategy
2. Portfolio Analysis
3. Parenting Strategy

Creating value in the multibusiness company, contend that
corporate strategist must address two crucial questions:
• What businesses should this company own and why?
• What organizational structure, management processes, and
philosophy will foster superior performance from the
company’s business units?
Corporate Parenting

Corporate Parenting
Views the corporation in terms of resources and capabilities
that can be used to build business unit value as well as
generate synergies across business units.
Parenting Strategy
Corporate Parenting

Three analytical steps involves in developing a corporate
parenting strategy:
1. Estimate each business unit in terms of the strategic factors.
• Center of excellence – explicitly recognized as am important source of
value creation.
2. Examine each business unit in terms of areas in which
performance can be improved.
3. Analyze how well the parent corporation fits with the
business unit.
Corporate Parenting

Unit - 5_Part B_Strategic Management (18MBA25)_Corporate Level Strategies

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Unit - 5_Part B_Strategic Management (18MBA25)_Corporate Level Strategies