the choice of direction of the firm as a whole and the management of its business or product portfolio and concerns
corporate strategy
corporate strategy
•Directional strategy
•Portfolio analysis
•Parenting strategy
the firm’s overall orientation toward growth, stability, or retrenchment
directional strategy
industries or markets in which the firm competes through its products and business unites
Portfolio analysis
the manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units
Parenting strategy
Growth Strategy
concentration
diversification
a transaction involving two or more corporations in which stock is exchanged but in which only one corporation survives
Merger
the purchase of a company that is completely absorbed by the subsidiary or division of the acquiring corporation
Acquisition
concentration
vertical
horizontal
diversification
concentric
conglomerate
taking over the function previously provided by a supplier or by a distributor
Vertical growth
the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing
Vertical integration
assuming a function previously provided by a supplier
Backward integration
assuming a function previously provided by a distributor
Forward integration
vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying on the open market become too great
Transaction cost economies
a firm internally makes 100% of its key suppliers and completely controls its distributors
Full integration
a firm internally produces less than half of its own requirements and buys the rest from outside suppliers
Taper integration
a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control
Quasi-integration
agreements between 2 firms to provide agreed-upon goods and services to each other for a specific period of time
Long-term contracts
expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets
Horizontal growth
Horizontal growth is achieved through:
Internal development
Acquisitions
Strategic alliances
the degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain
Horizontal integration
International Entry Options for Horizontal Growth
Exporting
Licensing
Franchising
Joint Venture
Acquisitions
Green-Field Development
Production Sharing
Turn-key Operations
Management Contracts
growth into a related industry when a firm has a strong competitive position but attractiveness is low
Concentric (Related) Diversification
when two businesses will generate more profits together than they could separately
Synergy
growth into an unrelated industry
Conglomerate (Unrelated) Diversification
Management realizes that the current industry is unattractive
Conglomerate (Unrelated) Diversification
Firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries
Conglomerate (Unrelated) Diversification
continuing activities without any significant change in direction
Stability Strategies
an opportunity to rest before continuing a growth or retrenchment strategy
Pause/Proceed with caution strategy
continuance of current operations and policies
No change strategy
to do nothing new in a worsening situation but instead to act as though the company’s problems are only temporary
Profit Strategies
used when the firm has a weak competitive position in some or all of its product lines from poor performance
Retrenchment Strategies
emphasizes the improvement of operational efficiency when the corporation’s problems are pervasive but not critical
Turnaround strategy
effort to quickly “stop the bleeding” across the board but in size and costs
Contraction
stabilization of the new leaner corporation
Consolidation
company gives up independence in exchange for security
Captive Company Strategy
management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the company to another firm
Sell-out strategy
sale of a division with low growth potential
Divestment
company gives up management of the firm to the courts in return for some settlement of the corporation’s obligations
Bankruptcy
management terminates the firm
Liquidation
management views its product lines and business units as a series of investments from which it expects a profitable return
Portfolio analysis
Popular portfolio analysis techniques include:
BCG Matrix
GE Business Screen
new products with the potential for success but require a lot of cash for development
Question marks
market leaders at the peak of their product cycle and are able to generate enough cash to maintain their high market share and usually contribute to the company’s profits
Stars
products that bring in far more money than is needed to maintain their market share
Cash cows
products with low market share and do not have the potential to bring in much cash
Dogs
BCG Matrix Limitation
Use of highs and lows to form categories is too simplistic
Link between market share and profitability is questionable
Growth rate is only one aspect of industry
attractiveness
Product lines or business units are considered only in relation to one competitor
Market share is only one aspect of overall competitive position
GE Business Screen- Limitations
Complex and cumbersome
Numerical estimates of industry attractiveness and business strength/competitive position give the appearance of objective, but are actually subjective judgments that can vary from person to person
Cannot effectively depict the positions of new products and business units in developing industries
Portfolio Analysis Advantages:
Encourages top management to evaluate each of the corporation’s businesses individually and to set objectives and allocate resources for each
Stimulates the use of externally oriented data to supplement management’s judgment
Raises the issue of cash flow availability to use in expansion and growth
Portfolio Analysis Limitations:
Defining product/market segments is difficult
Suggest the use of standard strategies that can miss opportunities or be impractical
Provides an illusion of scientific rigor when in reality positions are based on objective judgments
Value-laden terms such as cash cow and dog can lead to self-fulfilling prophecies
Lack of clarity on what makes an industry attractive or where a product is in its life cycle
Managing a Strategic Alliance Portfolio
Developing and implementing a portfolio strategy for each business unit and a corporate policy for managing all the alliances of the entire company
Monitoring the alliance portfolio in terms of implementing business units’ strategies and corporate strategy and policies
Coordinating the portfolio to obtain synergies and avoid conflicts among alliances
Establishing an alliance management system to support other tasks of multi-alliance management
views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units
Corporate parenting
Generates corporate strategy by focusing on the core competencies of the parent corporation and the value created from the relationship between the parent and its businesses
Corporate Parenting
cuts across business unit boundaries to build synergy across business units and to improve competitive position in one of more business units
Horizontal strategy
large multi-business corporations compete against other large multi-business firms in a number of markets
Multipoint competition
Developing a Corporate Parenting Strategy
Examine each business unit in terms of its strategic factors
Examine each business unit in terms of areas in which performance can be improved
Analyze how well the parent corporation fits with the business unit