Corporate Strategy Module

Session 5-6 Corporate Strategy FrameworkSession 7-8 Corporate Strategy In ActionSession 9-10 Related and Unrelated DiversificationSession 11-12 Vertical IntegrationSession 13-14 Merger and AcquisitionSession 15-16 DivestitureSession 17-18 Strategic AllianceSession 19-20 Group Presentation (Final Exam)

Graduate School of Business AdministrationIndonesian Institute of Management Development (IPMI)

Course Objectives-Outline-ScheduleCourse Objectives-Outline-Schedule

Understand strategy measurement tools and evaluation issues

15May[am] Session 1-2: Balance Score Card (Case: Mobil A1) Alex

22May[am] Session 3-4: Measuring Strategy Execution (Case Mobil A2/B) & Strategy Map (Case Serono) Alex

Differentiate between business and corporate strategy

29May[am] Session 5-6: Corp Strategy Framework (Case Walt Disney) Manggi

05Jun[am] Session 7-8: Corp Strategy in Action (Case GE) Manggi

Course Objectives-Outline-ScheduleCourse Objectives-Outline-Schedule

Familiarize with diversification and integration 12Jun[pm] Session 9-10: Related & Unrelated

Business (Cases: Porsche/PepsiCo & Masco/Berkshire) Manggi

19Jun[pm] Session 11-12: Vertical Integration (Case: Arauco) Mustafa

Familiarize with corporate actions 26Jun[am] Session 13-14: Merger & Acquisition

(Cases: HP-Compaq/Newell) Mustafa

03Jul[pm] Session 15-16: Divestiture (Cases: Prudential Securities and AT&T) Mustafa

24Jul[am] Session 17-18: Strategic Alliance (Cases: IBM and Linux/Laura Ashley and Fedex) Mustafa

07Aug[am] Session 19-20: Group Term Project prez

Course Assignment & Grading Individual class participation [30%] Individual and Group Assignment [30%]

Hand in hard copy of Group presentation after each class (session)

One page (3 bullet pts) on lessons learnt for session 5-18: due thru email: 24-26 Jul 2010

Group Term Project [40%] Group Term Project will be assigned on July 24 to be

presented and hard copy submitted in class on 7Aug2010.

Session 5-6: Corporate Strategy Framework

Corporate Strategy

Graduate School of Business AdministrationIndonesian Institute of Management Development (IPMI)

BS CS

What is Bus & Corp Strat Difference?What is Bus & Corp Strat Difference?Simple draw single bus and multi-busSimple draw single bus and multi-bus

• Tactics and approaches, e.g. EOQ level, double-shift, 24-hour operations

• Business process, Standards and Procedures

Levels of StrategyLevels of StrategyCreating synergy Creating synergy difficult difficult

Business Unit Strategy

Functional Strategy

• Business portfolio & scope: diversification, merger & acquisition, divestitures

• Creating synergy: corporate advantage, skill transfer, sharing assets, holding company

• Detailed strategic positioning and initiatives by function, e.g. marketing, sales, finance, operations, HR, IT

• Link to business strategy

• Where to compete: Positioning, strategic intent

• How to compete: Strategic initiatives, strategic options

• Link to corporate strategy

Multi-business, Corporate advantage

Single business,Competitive advantage

Detailedstrategy

OPERATIONS

Corporate Srategy

Corporate Strategy Corporate Strategy DefinitionDefinition

How to generate sustainable corporate advantage by choosing and managing an appropriate:

• business mix (configuration), • ownership (HQ and control) structure • organizational design to best allocate and share resources (coordination)

that optimizes corporation resources

Corporate Srategy

• Generate corporate value from the membership of each business unit (the sum is more than its parts)

• Create more value than the cost of corporate overhead

• Add more value than other corporation (“competitors”)

Corporate StrategyCorporate StrategyUltimate ObjectivesUltimate Objectives

CORPORATE STRATEGY IS

NOT JUST COMPETITIVE ADVANTAGE, IT IS ABOUT CORPORATE ADVANTAGE

Corporate Srategy

Corporate Strategy Elements

Vision & Objectives (Consistent and Feasible) Vision: LTerm purpose and mission and Goals &

Objectives: STerm concrete targets Resources (Skill transfer and Sharing assets)

Hard and soft assets that are sources of corporate advantage

Business Mix (Portfolio strategies) Corporate HQ role (Shared activities and control)

Deploying corp resources and decentralized decn mkg

Corporate affairs, legal, financial and tax Structure n SOP to control and coordinate multi-

businesses

Corporate Strategy FrameworkCorporate Strategy Framework

BIZ MIX(industry, biz strategy, ownership)

CORP HQ ROLE(organization,

control, process)

RESOURCES(assets, skill, competence)

VISION

OBJECTIVE

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

CORPORATE ADVANTAGE

• __________• __________

PORTFOLIO: high when a lot of acquisition / divestiture by HQ

STRATEGIC: high if HQ is active in developing, approving,, monitoring, or supervising strategy of business units (Bus)

SKILL TRANSFER: high if a lot of transfer skill and people competence among BUs either technical or managerial, can be represented also in rotation or knowledge management system

SHARED ACTIVITIES: high if a lot of similar business process is used by different BUs

TIGHT CONTROL: high when stringent budgetary or investment control (financial relate) is exercised by HQSHARING ASSETS: high when tangible*

(plant, equipment, patent, product) or intangible assets (brand, reputation) is being shared by BUs

Corporate Strategy in ActionCorporate Strategy in Action

H

M

L

*Note: tangible assets does not include financial (tight control) and people (skill transfer)

Relative Market Share of Company / Business Unit

Market Growth of Industry

DOG

Low High

High

Low

STARPROBLEM CHILD

CASH COW

USED FOR:• Business

selection• Investment

plan

Managing a Portfolio of BusinessesManaging a Portfolio of Businesses Market Growth / Market Share Matrix (BCG)Market Growth / Market Share Matrix (BCG)

Case: Walt Disney Situational analysis [end-2000]

Eisner’s successful turnaround [84-93] losing steam [94-95 turmoil n transition]. After acquiring ABC, financials decline [98-99] ABC acquisition expensive (22xPE) Resulting in heavy debt burden Difficult creating synergy thru vertical

integration vs non-exclusive strategic alliance Integration problems (different corporate

cultures, Disney’s tendency to micro manage)

Walt Disney’s business Media Network (Rev: $9.6bn up, OM: 25%):

Broadcast [ABC]; Cable Network [ESPN, Disney Ch, etc]

Studio Entertainment ($6.0bn down, 2%): Films [WDisney, Touchstone, Miramax]; Buena Vista Home entertainment; Buena Vista Music Group; TV production

Theme Park n Resorts ($6.8bn up, 24%): Attractions [Disneyland, Disney World Resort, Vacation Club]; Anaheim Sports [Mighty Ducks, Angels]

Consumer Products ($2.6bn down, 17%): Merchandising; Disney Store; Publishing

Internet n Direct Mktg ($0.4bn up, loss): Disney Online; ESPN Internet; ABC Internet; GO Network

Disney Financial Performance

1983 19902000

Rev($bn) 1.3 5.8 25.4 Net Inc($bn) 0.1 0.8 0.9 Asset($bn) 2.4 8.0 45.0 RoA(%) 4.0 10.0 2.0 OptgM(%) 14 22 13 Debt/Assets19% 20% 22% Disney stock 100 906 3,226

Corp Strat Framework: DisneyCorp Strat Framework: DisneyCorporate Strategic Priorities: 1984 - 1993Corporate Strategic Priorities: 1984 - 1993

BIZ MIX

CORPORATE HQ

RESOURCES

VISION

OBJECTIVE

CORPORATE ADVANTAGE

• Disney characters (Mickey Mouse, Aladdin, etc.)

• Disney brand• Creativity and skills

in each business units

• Property

• Focus on movie and theme parks, expand into new region & segment, done both organic or through acquisition

• Diversify into new (but related) business, become vertically integrated entertainment corporation

• Strong intervention on business units strategy by Eisner’s combination of volume, performance (profit) and creative management (technology)

• Each biz unit has its own process, sharing in marketing/promotion and event coordination

• HQ step in only when necessary, transfer pricing. While Eisner demand s high performance , spending readily approved if deemed necessary

• Disney characters• Disney brand• Creativity• Eisner leadership

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

PORTFOLIOSTRATEGICSKILL TRANSFERSHARED ACTIVITIESSHARING ASSETSTIGHT CONTROL

PORTFOLIO STRATEGIC

SKILL TRANSFER

SHARED ACTIVITIES

TIGHT CONTROL

SHARING ASSETS

Corp Strategy in Action: DisneyCorp Strategy in Action: DisneyCorporate Strategy 1984 - 1993Corporate Strategy 1984 - 1993

M

H

H

MH M

M

PORTFOLIO: Enhanced core business of movie making and theme parks with new services and to new regions/segments. Expanded to related entertainment biz STRATEGIC: Eisner involved in almost all BU’s strategic decision (hands-on). Performance oriented mgmt balanced with “creativity mgmt” SKILL TRANSFER: A lot

of shared training, to improve synergy among BUs and encourage creativitySHARED ACTIVITIES: Frequent shared

promotional events

TIGHT CONTROL: Eisner is very hands on

SHARING ASSETS: Very strong in using Disney characters to all business units. Also capitalize on Disney’s brand

Business Matrix: DisneyBusiness Matrix: DisneyGrowth / Share Matrix: 1993Growth / Share Matrix: 1993

Movie studio (adult)Movie studio (animation)TV program/shows

Movie distrib (BVHV)Merch.licensing

Disney Store

PublishingNHL/Hockey clubMusic recordingTheater

Theme parks (including hotel, resort)

ESPN (Cable)

Relative Market Share

MarketGrowth

Disney Channel (cable)

Disney Strategic Issues Managing Synergies

Leverage brand and create synergies Synergy training (boot camp) Synergy Group at Corporate level Merged Touchstone and ABC

Managing Brand Limits of traditional wholesome image

ABC’s Ellen controversy Managing Creativity

Managing creativity thru conflict Money vs creativity

Key Questions: Disney

Was Disney becoming too large for Eisner’s autocratic and combative mgmt style?

Was Disney’s strategy coherent for its business mix?

Did Eisner’s 20% growth target make sense?

What happened? Eisner was moved out Sep 2005 after 21 years

at Disney Robert Iger takes over and has been able to

grow revenue and profits in all of its major business groups

More disciplined acquisitions Financially ok $8.9bn 4Q07 sales (annualized

$35.6bn), driven by strong ESPN and theme park performance. Studio performance, however, was weak.

Case: DisneyCase: DisneyLessons LearnedLessons Learned

• Disney’s utmost corporate advantage lies on ability to share assets (character) to various business units. It’s the synergy of businesses within Disney Corp.

• Creativity in producing the new character, and non-character entertainment products/services are also important for Disney

• “Strategic” and hands-on corporate HQ culture under Eisner is important in 1984 – 1993 period as business unit performance is lagging. Further hands-on without strong COO/Business Unit heads leads to autocracy of Eisner’s dominance

• During 1994 – 2000, extended “tight control” impact creativity and resulted in loss talent/competence of middle managers and less performance growth

• Rebalancing the corporate strategy is a mandatory action to be taken by Eisner in 2000, i.e. skill vs portfolio vs tight control