report in business policy and strategy (mitch)

Business Policy and StrategyBusiness Policy and Strategy

Strategy Formulation: Corporate StrategyStrategy Formulation: Corporate Strategy

Reported by: Michellin Ann Gutierrez BSBA – 4th year

Prof. Navarez


Corporate StrategyCorporate Strategy– is primarily about the is primarily about the choice of direction for choice of direction for the firm as a whole. the firm as a whole.


Corporate StrategyCorporate Strategy– Directional StrategyDirectional Strategy – overall – overall

orientation towards growth, stability, orientation towards growth, stability, retrenchmentretrenchment

– PortfolioPortfolio Strategy Strategy – industries/markets – industries/markets that the firm competes in through that the firm competes in through products lines & business unitsproducts lines & business units

– Parenting StrategyParenting Strategy – coordination and – coordination and transfer of resources between product transfer of resources between product lines & business unitslines & business units


Vertical and Horizontal Integration - Value Chain Vertical and Horizontal Integration - Value Chain ActivitiesActivities

Vertical Integration:Vertical Integration: Coordinating upstream activities (those closer to Coordinating upstream activities (those closer to

the raw materials) with downstream activities the raw materials) with downstream activities (those closer to the customer) (those closer to the customer)

Acquisitions, Strategic Alliances, Internal Acquisitions, Strategic Alliances, Internal DevelopmentDevelopment


Vertical and Horizontal Integration - Value Chain ActivitiesVertical and Horizontal Integration - Value Chain Activities

Benefits of Vertical IntegrationBenefits of Vertical Integration

reduces or eliminates costs of buying and selling reduces or eliminates costs of buying and selling (Transaction Costs)(Transaction Costs)

smoother, more efficient operationsmoother, more efficient operation

Limits to Vertical IntegrationLimits to Vertical Integration

Differences in minimum efficient scale in vertically Differences in minimum efficient scale in vertically integrated corporation.integrated corporation.

Must remain innovative in all Must remain innovative in all Value ChainValue Chain activities. activities.

Possible incompatibilities between managerial Possible incompatibilities between managerial skills and corporate cultures that make upstream skills and corporate cultures that make upstream and downstream activities successful.and downstream activities successful.


Vertical and Horizontal Integration - Vertical and Horizontal Integration - Value Chain ActivitiesValue Chain Activities

Horizontal IntegrationHorizontal Integration

Coordinating across the same or similar Coordinating across the same or similar value chain activities.value chain activities.

Acquisition, Strategic Alliance, Internal Acquisition, Strategic Alliance, Internal DevelopmentDevelopment


Vertical and Horizontal Integration - Value Chain ActivitiesVertical and Horizontal Integration - Value Chain Activities

Horizontal Integration Benefits:Horizontal Integration Benefits:

Corporate managers have expertise to recognize Corporate managers have expertise to recognize undervalued stocks that many individual investors would undervalued stocks that many individual investors would miss.miss.

Corporations have economies of scale for financing Corporations have economies of scale for financing acquisitions that individuals do not.acquisitions that individuals do not.

Horizontal Integration Costs:Horizontal Integration Costs:

Conglomerate discount: value of stock of conglomerate Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks.sells for less than total value of individual stocks.

Takeover premiums: corporations usually pay a premium Takeover premiums: corporations usually pay a premium over the normal trading price of the target’s stock.over the normal trading price of the target’s stock.


Diversification StrategiesDiversification Strategies

When an industry consolidates When an industry consolidates and becomes mature, most of and becomes mature, most of the surviving firms have the surviving firms have reached the limits of growth reached the limits of growth using vertical and horizontal using vertical and horizontal growth strategies.growth strategies.


Mergers & AcquisitionsMergers & Acquisitions

Merger: integration of operations of two firms; Merger: integration of operations of two firms; relatively coequal basis.relatively coequal basis.

Study by McKinsey & Company: only 23% of mergers Study by McKinsey & Company: only 23% of mergers over a 10-year period generated returns in excess of over a 10-year period generated returns in excess of costs incurred in the deal.costs incurred in the deal.

Acquisition: one firm buys controlling interest in Acquisition: one firm buys controlling interest in another firm; acquired firm becomes subsidiary in another firm; acquired firm becomes subsidiary in acquirer’s business portfolio.acquirer’s business portfolio.

(Hostile)Takeover: acquisition that was not solicited(Hostile)Takeover: acquisition that was not solicited



Reasons for M & AsReasons for M & As Increased market powerIncreased market power Capitalizing on core competenciesCapitalizing on core competencies Overcome entry barriersOvercome entry barriers Bypass cost of new product development:Bypass cost of new product development: Increased speed to marketIncreased speed to market Increased diversificationIncreased diversification Avoiding excessive competitionAvoiding excessive competition



Problems with Achieving M & A SuccessProblems with Achieving M & A Success Integration difficultiesIntegration difficulties Inadequate evaluation of targetInadequate evaluation of target Large or extraordinary debtLarge or extraordinary debt Inability to achieve synergyInability to achieve synergy Too much diversificationToo much diversification Managers overly focused on Managers overly focused on

acquisition/mergeracquisition/merger Too large (bureaucratic)Too large (bureaucratic)


International Entry OptionsInternational Entry Options

ExportingExporting LicensingLicensing FranchisingFranchising Joint VenturesJoint Ventures AcquisitionsAcquisitions Green – Field DevelopmentGreen – Field Development Production SharingProduction Sharing Turnkey OperationsTurnkey Operations


Stability StrategiesStability Strategies

A corporation may choose A corporation may choose stability over by continuing stability over by continuing its current activities its current activities without any significant without any significant change in direction.change in direction.


Stability StrategiesStability Strategies

Pause/Proceed with Caution StrategyPause/Proceed with Caution Strategy

- is, in effect, a timeout – an opportunity to - is, in effect, a timeout – an opportunity to rest before continuing a growth or rest before continuing a growth or retrenchment strategy. retrenchment strategy.

No changeNo change

- is a decision to do nothing new – a choice - is a decision to do nothing new – a choice to continue current operations and policies to continue current operations and policies for the foreseeable future.for the foreseeable future.

Profit StrategyProfit Strategy

- is a decision to do nothing new in a - is a decision to do nothing new in a worsening situation but instead to act as worsening situation but instead to act as though the company’s problems are only though the company’s problems are only temporary.temporary.


Retrenchment StrategiesRetrenchment Strategies

A company may pursue A company may pursue retrenchment strategies retrenchment strategies when it has a weak when it has a weak competitive position in competitive position in some or all of its product some or all of its product lines resulting in poor lines resulting in poor performances – sales are performances – sales are down and profits are down and profits are becoming losses.becoming losses.



Turnaround StrategyTurnaround Strategy

- emphasizes the improvement of - emphasizes the improvement of operational efficiency and is operational efficiency and is probably most appropriate when a probably most appropriate when a corporation’s problem are pervasive corporation’s problem are pervasive but not yet critical.but not yet critical.

Captive Company StrategyCaptive Company Strategy

- is the giving up of independence in - is the giving up of independence in exchange for security.exchange for security.



SellSell – Out/Divestment Strategy – Out/Divestment Strategy

- If a corporation with a weak competitive - If a corporation with a weak competitive position in its industry in unable either to position in its industry in unable either to pull itself up by its bootstraps or to find a pull itself up by its bootstraps or to find a customer to which it can become a captive customer to which it can become a captive company, it may have no choice but to sell company, it may have no choice but to sell out.out.

Bankruptcy/Liquidation StrategyBankruptcy/Liquidation Strategy

- When a company finds itself in the worst - When a company finds itself in the worst possible situation with a poor competitive possible situation with a poor competitive position in an industry with a few prospects, position in an industry with a few prospects, management has only a few alternatives – management has only a few alternatives – all of them distasteful. all of them distasteful.


Portfolio AnalysisPortfolio Analysis

Assessing Business Unit’s Competitive PositionAssessing Business Unit’s Competitive Position

Possession of desirable core competenciesPossession of desirable core competencies

Relative market shareRelative market share

Profit margins relative to competitorsProfit margins relative to competitors

Ability to match or beat rivals on product quality and Ability to match or beat rivals on product quality and serviceservice

Relative cost positionRelative cost position

Knowledge of customers and marketsKnowledge of customers and markets

Technological capabilitiesTechnological capabilities

Caliber of managementCaliber of management



BCG Growth-Share MatrixBCG Growth-Share Matrix questions marksquestions marks: business growth rate - high; : business growth rate - high;

relative competitive position - weakrelative competitive position - weak starsstars: business growth rate - high; relative : business growth rate - high; relative

competitive position - strongcompetitive position - strong cash cowscash cows: business growth rate - low; relative : business growth rate - low; relative

competitive position - strongcompetitive position - strong dogsdogs: business growth rate - low; relative : business growth rate - low; relative

competitive position - weakcompetitive position - weak

BCG MatrixBCG Matrix



Strengths: evaluate businesses Strengths: evaluate businesses individually, raises issues of cash flow individually, raises issues of cash flow for expansionfor expansion

Weaknesses: difficult to define product & Weaknesses: difficult to define product & market segments, subjective market segments, subjective determinations, lack of clarity of determinations, lack of clarity of product life cycle position, static product life cycle position, static comparisons.comparisons.


Impact of the Internet on Corporate Impact of the Internet on Corporate StrategyStrategy

The Internet has an ever-increasing The Internet has an ever-increasing importance in business. Businesses rely importance in business. Businesses rely heavily on the Internet for all aspects of their heavily on the Internet for all aspects of their functioning, from reaching out to clients, functioning, from reaching out to clients, contacting and ordering from suppliers, contacting and ordering from suppliers, marketing, as well as carrying out financial marketing, as well as carrying out financial transactions. The Internet is a very important transactions. The Internet is a very important means of communicating, researching, means of communicating, researching, marketing and conducting business.marketing and conducting business.

report in business policy and strategy (mitch)

Documents

corporate strategyvertical

corporate strategyreported

corporate managers

corporate cultures

solicitedstrategy formulation

strategystrategy formulation

navarezstrategy formulation

horizontal integration