Monday, December 19, 2011

Corporate Strategy

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Corporate Strategy


Ø Corporate strategy deals with three Key Issues in Corporate Strategy


1. The firm’s overall orientation toward growth, stability, or retrenchment directional strategy


. The industries or markets in which the firm competes portfolio strategy


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. The manner in which management contributes to and coordinates activities of business units parenting strategy


DIRECTIONAL STRATEGY


Ø Directional Strategy


· Orientation toward growth


§ Expand, cut back, status quo?


§ Concentrate within current industry, diversify into other industries?


§ Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?


Ø Three Grand Directional Strategies


1. Growth strategies


. Stability strategies


. Retrenchment strategies





v Growth Strategies


· Most widely pursued strategies � greater market cap, more options, etc.


· External mechanisms


§ Mergers


o Transaction involving two or more firms in which stock is exchanged but only one firm survives.


§ Acquisition


o Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.


§ Strategic Alliance


o Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.


Ø Basic Growth Strategies


· Concentration


§ Current product line in one industry


· Diversification


§ Into other product lines in other industries


Ø Basic Concentration Strategies


· Vertical growth


· Horizontal growth


Ø Vertical growth


· Vertical integration


§ Full integration


§ Taper integration


§ Quasi-integration � ownership


§ Backward (upstream) integration


§ Forward (downstream) integration


Ø Horizontal Growth


· Horizontal integration


Ø Basic Diversification Strategies


· Concentric (Related) Diversification


· Conglomerate (Unrelated) Diversification


Ø Concentric - RELATED


· Growth into related industry


· Search for synergies


Ø Conglomerate - UNRELATED


· Growth into unrelated industry


· Concern with financial considerations


v Stability Strategies


Ø Pause/proceed with caution (Dell 85% growth, then pause)


Ø No change


Ø Profit strategies (artificially hold up profits hoping problems are temporary)


v Retrenchment Strategies


Ø Turnaround (pervasive but not critical problems, eg IBM)


Ø Captive Company Strategy (find angel to be captive to, eg. GM)


Ø Selling out/Divesting (Rover to BMW; AMC to Chrysler)


Ø Bankruptcy � Chapter 11 (continue firm by handing it over to court supervision)


Ø Liquidation � Chapter 1 (terminate firm; PTP and AOL)


Portfolio Analysis


Ø Portfolio analysis put top management in the role of internal banker that views product lines and business units as a series of investments that need to be managed to maximize returns.


Ø This involves questions


1. How much of our time and money should we spend on our best products and business units 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?


Ø Three models of portfolio analysis


1. BCG (Boston Consulting Group) Matrix


v Product life cycle and funding decisions


i. Question marks


ii. Stars


iii. Cash cows


iv. Dogs





. GE Business Screen


v Long-term industry attractiveness


v Business strength/competitive position





. International Portfolio Analysis


v Factors


1. Country’s attractiveness


v Market size, rate of growth, regulation


v Competitive strength


. Market share, product fit, contribution margin, market


Support


Ø Portfolio Analysis Advantages


· Top management evaluates each of firm’s businesses individually


· Use of externally-oriented data to supplement management judgment


· Raises issue of cash flow availability


· Facilitates communication


Ø Portfolio Analysis Disadvantages


· Difficult to define product/market segments


· Standard strategies can miss opportunities


· Illusion of scientific rigor


· Value-laden terms


Corporate Parenting


Ø 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.


· Focuses on the core competencies of the parent and the value created by the relationship among the parent and the business units.


Ø Parenting-Fit Matrix


· Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole.


· Method


1. Examine each potential unit in terms of Strategic factors


· Those elements of a company that determine its strategic success or failure (internal and external, or SWOT analysis)


. Examine each potential unit in terms of areas where performance can be improved (parenting opportunities)


· What can the parent bring to the table (mfg expertise, relationships, R&D management)


. Analyze fit





Ø Horizontal Strategy and Multipoint Competition


· 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.





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