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Chap 7 sm full

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strategic management

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Chap 7 sm full

  1. 1. Strategy Formulation: Corporate Strategy
  2. 2. Corporate Strategy <ul><li>Three Key Issues: </li></ul><ul><li>Firm’s directional strategy </li></ul><ul><li>Firm’s portfolio strategy </li></ul><ul><li>Firm’s parenting strategy </li></ul>
  3. 3. Corporate Directional Strategies
  4. 4. Corporate Strategy <ul><li>Directional Strategy: </li></ul><ul><ul><li>Orientation toward growth </li></ul></ul><ul><ul><ul><li>Expand, cut back, status quo? </li></ul></ul></ul><ul><ul><ul><li>Concentrate within current industry, diversify into other industries? </li></ul></ul></ul><ul><ul><ul><li>Growth and expansion through internal development or acquisitions, mergers, or strategic alliances? </li></ul></ul></ul>
  5. 5. Corporate Strategy <ul><li>Directional Strategy: </li></ul><ul><ul><li>Three Grand Strategies: </li></ul></ul><ul><ul><ul><li>Growth strategies </li></ul></ul></ul><ul><ul><ul><li>Stability strategies </li></ul></ul></ul><ul><ul><ul><li>Retrenchment strategies </li></ul></ul></ul>
  6. 6. Corporate Strategy <ul><li>Growth Strategies: </li></ul><ul><ul><li>Most widely pursued strategies </li></ul></ul><ul><ul><li>External mechanisms: </li></ul></ul><ul><ul><ul><li>Mergers </li></ul></ul></ul><ul><ul><ul><ul><li>Transaction involving two or more firms in which stock is exchanged but only one firm survives. </li></ul></ul></ul></ul><ul><ul><ul><li>Acquisition </li></ul></ul></ul><ul><ul><ul><ul><li>Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm. </li></ul></ul></ul></ul><ul><ul><ul><li>Strategic Alliance </li></ul></ul></ul><ul><ul><ul><ul><li>Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. </li></ul></ul></ul></ul>
  7. 7. Corporate Strategy <ul><li>2 Basic Growth Strategies: </li></ul><ul><ul><li>Concentration </li></ul></ul><ul><ul><ul><li>Current product line in one industry </li></ul></ul></ul><ul><ul><li>Diversification </li></ul></ul><ul><ul><ul><li>Into other product lines in other industries </li></ul></ul></ul>
  8. 8. Corporate Strategy <ul><li>Basic Concentration Strategies: </li></ul><ul><ul><li>Vertical growth </li></ul></ul><ul><ul><li>Horizontal growth </li></ul></ul>
  9. 9. Corporate Strategy <ul><li>Concentration: </li></ul><ul><ul><li>Vertical growth </li></ul></ul><ul><ul><li>Vertical integration </li></ul></ul><ul><ul><ul><li>Full integration </li></ul></ul></ul><ul><ul><ul><li>Taper integration </li></ul></ul></ul><ul><ul><ul><li>Quasi-integration </li></ul></ul></ul><ul><ul><li>Backward integration </li></ul></ul><ul><ul><li>Forward integration </li></ul></ul>
  10. 10. <ul><li>Benefits of Vertical Integration </li></ul><ul><ul><ul><li>reduces or eliminates costs of buying and selling (Transaction Costs) </li></ul></ul></ul><ul><ul><ul><li>smoother, more efficient operation </li></ul></ul></ul><ul><li>Limits to Vertical Integration </li></ul><ul><ul><ul><li>Differences in minimum efficient scale in vertically integrated corporation. </li></ul></ul></ul><ul><ul><ul><li>Must remain innovative in all Value Chain activities. </li></ul></ul></ul><ul><ul><ul><li>Possible incompatibilities between managerial skills and corporate cultures that make upstream and downstream activities successful. </li></ul></ul></ul>
  11. 11. Corporate Strategy <ul><li>Concentration: </li></ul><ul><ul><li>Horizontal Growth </li></ul></ul><ul><ul><li>Horizontal integration </li></ul></ul><ul><li>Coordinating across the same or similar value chain activities. </li></ul>
  12. 12. <ul><li>Horizontal Integration Benefits: </li></ul><ul><li>Corporate managers have expertise to recognize undervalued stocks that many individual investors would miss. </li></ul><ul><li>Corporations have economies of scale for financing acquisitions that individuals do not. </li></ul><ul><li>Horizontal Integration Costs: </li></ul><ul><li>Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks. </li></ul><ul><li>Takeover premiums: corporations usually pay a premium over the normal trading price of the target’s stock. </li></ul>
  13. 13. Corporate Strategy <ul><ul><li>Basic Diversification Strategies: </li></ul></ul><ul><ul><li>Concentric Diversification </li></ul></ul><ul><ul><li>Conglomerate Diversification </li></ul></ul>
  14. 14. Corporate Strategy <ul><li>Diversification: </li></ul><ul><ul><li>Concentric: </li></ul></ul><ul><ul><li>Growth into related industry Related-Diversified Firm : Less than 70 percent of firm revenues comes from a single business unit, and different business units share numerous links and common attributes. </li></ul></ul><ul><ul><li>Search for synergies </li></ul></ul>
  15. 15. Corporate Strategy <ul><li>Diversification: </li></ul><ul><ul><li>Conglomerate: </li></ul></ul><ul><li>Growth into unrelated industry Less than 70% of firm revenues comes from a single business, and there are few, if any, links or common attributes among businesses. </li></ul><ul><ul><li>Concern with financial considerations </li></ul></ul>
  16. 16. Corporate Strategy International Entry Options Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts
  17. 17. Corporate Strategy <ul><li>Stability Strategies: </li></ul><ul><ul><li>Pause/proceed with caution </li></ul></ul><ul><ul><li>No change </li></ul></ul><ul><ul><li>Profit strategies </li></ul></ul>
  18. 18. Corporate Strategy <ul><li>Retrenchment Strategies : </li></ul><ul><ul><li>Turnaround </li></ul></ul><ul><ul><li>Captive Company Strategy </li></ul></ul><ul><ul><li>Selling out </li></ul></ul><ul><ul><li>Bankruptcy </li></ul></ul><ul><ul><li>Liquidation </li></ul></ul>
  19. 19. Corporate Strategy <ul><li>Portfolio Analysis </li></ul><ul><ul><li>How much of our time and money should we spend on our best products to ensure that they continue to be successful? </li></ul></ul><ul><ul><li>How much of our time and money should we spend developing new costly products, most of which will never be successful? </li></ul></ul>
  20. 20. Corporate Strategy <ul><li>Portfolio Analysis </li></ul><ul><li>BCG (Boston Consulting Group) Matrix </li></ul><ul><ul><li>Product life cycle and funding decisions </li></ul></ul><ul><ul><ul><li>Question marks </li></ul></ul></ul><ul><ul><ul><li>Stars </li></ul></ul></ul><ul><ul><ul><li>Cash cows </li></ul></ul></ul><ul><ul><ul><li>Dogs </li></ul></ul></ul>
  21. 21. BCG Matrix
  22. 22. GE Business Screen <ul><li>Long-term industry attractiveness </li></ul><ul><li>Business strength/competitive position </li></ul>
  23. 23. General Electric’s Business Screen Source: Adapted from Strategic Management in GE , Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company. 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 Position Industry Attractiveness
  24. 24. International Portfolio Analysis <ul><li>2 Factors: </li></ul><ul><li>Country’s attractiveness </li></ul><ul><ul><li>Market size, rate of growth, regulation </li></ul></ul><ul><li>Competitive strength </li></ul><ul><ul><li>Market share, product fit, contribution margin, market support </li></ul></ul>
  25. 25. Portfolio Matrix for Plotting Products by Country Harvest/Divest Combine/License Invest/Grow Dominate/Divest Joint Venture Low High High Low Competitive Strengths Country Attractiveness Selective Strategies
  26. 26. Corporate Strategy <ul><li>Portfolio Analysis </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Top management evaluates each of firm’s businesses individually </li></ul></ul><ul><ul><li>Use of externally-oriented data to supplement management judgment </li></ul></ul><ul><ul><li>Raises issue of cash flow availability </li></ul></ul><ul><ul><li>Facilitates communication </li></ul></ul>
  27. 27. Corporate Strategy <ul><li>Portfolio Analysis </li></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Difficult to define product/market segments </li></ul></ul><ul><ul><li>Standard strategies can miss opportunities </li></ul></ul><ul><ul><li>Illusion of scientific rigor </li></ul></ul><ul><ul><li>Value-laden terms </li></ul></ul>
  28. 28. Corporate Strategy <ul><li>Corporate Parenting: </li></ul><ul><li>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. </li></ul>
  29. 29. Corporate Strategy <ul><li>Corporate Parenting: </li></ul><ul><li>Strategic factors </li></ul><ul><ul><li>Those elements of a company that determine its strategic success or failure </li></ul></ul><ul><li>Performance improvement </li></ul><ul><li>Analyze fit </li></ul>
  30. 30. Corporate Strategy <ul><li>Corporate Parenting: </li></ul><ul><li>Parenting-Fit Matrix </li></ul><ul><ul><li>Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole. </li></ul></ul>
  31. 31. Corporate Strategy <ul><li>Corporate Parenting: </li></ul><ul><li>Parenting-Fit Matrix </li></ul><ul><ul><li>2 Dimensions </li></ul></ul><ul><ul><ul><ul><li>Positive contributions parent can make </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Negative effects parent can have </li></ul></ul></ul></ul>
  32. 32. Parenting-Fit Matrix Edge of Heartland Heartland Alien Territory Low High High Low FIT between parenting opportunities and parenting characteristics MISFIT between critical success factors and parenting characteristics Ballast Value Trap
  33. 33. Corporate Strategy <ul><li>Horizontal Strategy: </li></ul><ul><ul><li>Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units. </li></ul></ul>

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