of 24
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Chapters 9 - 10
Corporate Level Strategy
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Foods
Quaker North America
Quaker Oats
Capn Crunch cereal
Life cerealQuisp cereal
King Vitaman cereal
Mothers cereal
Quaker rice cakes and granola bars
Rice-A-Roni side dishes
Near East couscous/pilafsAunt Jemima mixes & syrups
Quaker grits
Business Level
Strategies
How are we going
to compete and
gain a competitive
advantage ineach of our
businesses?
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Snack Foods Beverage
s
Foods
Corporate Level Strategy1) What businesses do we want to compete in?
2) How do manage effectively across businesses
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Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the
businessesCapturing synergies and turning them into
competitive advantages
Establishing investment priorities andsteering resources into business units
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4 Corporate Level Strategies
1) Vertical Integration
2) Strategic Outsourcing
3) Horizontal Integration 4) Diversification two or more different
businesses with distinct operations
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1) Vertical Integration
Forward or backwards Full integration Taper integration
Benefits
Build barriers to entry Facilitates investment in specialized assets Protecting product quality Improved scheduling
Risks
Costs Rapid technological changes Demand predictability
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Alternatives to Vertical Integration
Competitive bidding
Long term contracts or strategic
alliances
VerticalIntegration
Markets &Competitive Bidding
Hybrid &Contracts/Alliances
Form of Relationship
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2) Outsourcing
Cost reduction and differentiation
Hold-ups, scheduling and hallowing out
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3) Horizontal Integration
Acquiring or merging with industry
competitorsReduce cost and economies of scale
Increasing value through wider product line
or product bundling
Manage industry rivalry
Decrease buyer and supplier power
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4) How to Diversify?
1) Internal Development - corporate
entrepreneurship or internal venturingable to appropriate a larger portion of wealth
avoids complexities of multiple partners
time consuming and requires diversity of
organizational capabilities
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4) How to Diversify?
2) Strategic Alliances and Joint Ventures entering a new market via the combination of
complementary resources - do more together
cost reduction & sharing
development/diffusion of technologyProblems
appropriate partners - skills and compatibility
trust and commitment
communication
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4) How to Diversify?
3) Mergers & Acquisition
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Acquisitions
Reasons of Acquisitions
Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation
Results
Poor
Performance
Who Wins?
Acquired Firm
Shareholders
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Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firms value drops 4% in the 3 months
following acquisitions
30 - 50% of acquisitions are later divestedAcquirers underperform S&P by 14%, peers by 4%
3 month performance before and after
30% substantial losses, 20% some losses, 33%
marginal returns, 17% substantial returns
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Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are
related
When do executives loss their jobs?1) Acquired - larger firms harder to acquire
2) Performing poorly - employment risk is
reduced as returns are less volatile
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Levels of Diversification
Related Diversification - entering product markets
that share some resource or capability
requirements with the current business
horizontal relationships across businesses -
synergies
Advantages of related diversification include:
Leveraging Core CompetenciesSharing Activities
Market Power
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Levels of Diversification (cont.)
Unrelated Diversification - few similarities in the
resources and capabilities required among the
firms businesses
Conglomerate Diversification - no relatedness
between businesses
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When/Why to Diversify?
To create shareholder value
Porters Three Point Test
1) Attractiveness Test2) Cost of Entry Test
3) Better off Test
Should pass all 3
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Portfolio analysis
BCG Growth-Share Matrixquestion marks, dogs, cash cows, stars
GE- Nine Cell Matrix
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Growth
Rate
Relative Market Share
Stars QuestionMarks
CashCows
Dogs
Boston Consulting Group Matrix
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Growth
Rate
Relative Market Share
1.0High Low
Soft
Drinks
FritoLay
KFC
Pizza
Hut
Taco
Bell
Low
High
10%
BCG Matrix for PepsiCo - Early 1990s
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Growth
Rate
Relative Market Share
.75High Low
Soft
Drinks
Frito
Lay
KFC
Pizza
HutTaco
Bell
Low
High
5%
BCG Matrix for PepsiCo - Early 1990s
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Competitive Strengths
A
ttractiveness
Invest
Grow
Low
High
LowHigh
Harvest
Divest
Hold
GE 9 Cell Matrix
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Competitive Strengths
A
ttractiveness
Low
High
LowHigh
GE 9 Cell Matrix for Pepsico
Soft Drinks
Snack Foods