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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 7 Strategy Formulation: Corporate Strategy

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Corporate Strategy

3 Key Issues –

–Firm’s directional strategyThe firm’s overall orientation towards growth, stability or retrenchment

–Firm’s portfolio strategyThe industries or markets in which the firm competes

–Firm’s parenting strategyThe manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units

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Corporate Strategy

Directional Strategy –3 Grand Strategies

•Growth strategies– Concentration or diversification– Internal development or acquisitions, mergers, or alliances

•Stability strategies-status quo

•Retrenchment strategies -contraction

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Corporate Directional Strategies

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Corporate Strategy

Growth Strategies --

–External mechanisms

•Mergers

•Acquisitions

•Strategic alliances

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Corporate Strategy

Growth Strategies --

–2 Basic forms

•Concentration»Vertical growth»Horizontal growth

•Diversification»Concentric Diversification (RELATED)»Conglomerate Diversification (UNRELATED)

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Corporate Strategy

Vertical Growth --

–Vertical integration•Full integration•Taper integration•Quasi-integration•Long-term contract

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Corporate Strategy

Vertical Growth --

–Backward integration

–Forward integration

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Corporate Strategy

Concentration --

–Horizontal Growth

– New Geographic Markets

– Acquiring New Companies

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Corporate Strategy

Basic Diversification Strategies --

–Concentric Diversification (RELATED)

»Growth into related industry»Search for synergies

–Conglomerate Diversification (UNRELATED)

»Growth into unrelated industry»Concern with financial considerations

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Corporate Strategy

International Entry Options --

–Exporting–Licensing–Franchising–Joint Ventures–Acquisitions–Green-Field Development–Production Sharing (Outsourcing)–Turnkey Operation–BOT Concept (Build, Operate, Transfer)–Management Contracts

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Corporate Strategy

CONTRAVERSIES IN DIRECTIONAL GROWTH STRATEGIES

Although research in not in complete agreement, growth into areas related to a company’s current product lines is generally more successful than in growth into completely unrelated areas

Cisco’s three criteria for takeover:

-It must be relatively small-It must be comparable in organizational culture-It must be physically close to one of the existing affiliates

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Corporate Strategy

Stability Strategies --

–Pause/proceed with caution

–No change

–Profit strategies

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Corporate Strategy

Retrenchment Strategies --

–Turnaround–Captive Company Strategy–Selling out–Bankruptcy–Liquidation

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Corporate Strategy

Portfolio Analysis --

–Resource commitment on best products to ensure continued success

–Resource commitment on new costly products high risk

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Corporate Strategy

Portfolio Analysis --

…Puts the corporate headquarters into the role of an internal banker

…Top management views its product lines and business units as a series of investments from which it expects a profitable return

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BCG Matrix (Portfolio Analysis)

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GE Business Screen (Portfolio Analysis)

AWinners Winners

B

C

Question Marks

D

F

Average Businesses

EWinners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Indu

stry

Att

ract

ive

ness

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Corporate Strategy

Portfolio Analysis --

Disadvantage: because it tends to primarily view matters financially, it regards business units and product lines as separate and independent.

It fails to deal with the question of :-- what industries a corporation should enter or -- with how a corporation can attain synergy among its product lines and business units.

These questions are addressed by;

“Corporate Parenting Strategy”

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Corporate Strategy

Corporate Parenting Strategy –

…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 …

–Strategic factorsExamine each business unit in terms of its strategic factors

–performance improvementExamine each business unit in terms of areas in which performance can be increased

–Analyze fitAnalyze how well the parent corporation fits with the business unit