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Corporate Strategy
• is primarily about the choice of direction for the firm as a whole (small one-product company and a large multi business company)
• is also about managing various product lines and business units for maximum value (large multi business company)
Corporate Strategy
3 Key Issues –
The firm’s overall orientation toward growth, stability or retrenchment (directional strategy)
The industries or markets in which the firm competes through its products and BU (portfolio strategy)
The manner in which management coordinates activities, transfer resources, and cultivates capabilities among product lines and BUs (parenting strategy)
Corporate Directional Strategy
Orientation toward growth
Expansion, contraction, status quo
Concentration or diversification
Internal development or acquisitions, mergers, or alliances
Corporate Level Strategy
3 Grand Strategies
EXPANSION/GROWTH•Through
Concentration•Through Integration
•Through Internationalization
STABILITY•No Change Strategies
•Pause/Proceed with caution
•Profit Strategies
RETRENCHMENT•Turnaround
•Divestment/ Sell out
•Liquidation
Combination Strategy
Other than growth, stability & retrenchment there is one more strategy named as Combination Strategy
It is followed when an organization adopts a mixture of growth, stability & retrenchment strategies
E.g.– A paints company augments its offering of decorative paints to provide a wider variety to its customers (stability) & expands its product range to include industrial & automotive paints (expansion). Simultaneously, it decides to close down the division which undertakes large scale painting contract job ( retrenchment)
Corporate Directional Strategy
Growth/ Expansion Strategies --
A corporation can grow internally by expanding its operation both globally and domestically, or it can grow externally
Growth Strategies
Mergers (Allied Corporation+ Signal Companies= Allied Signal)
Acquisitions (Procter & Gamble acquisition of Richardson-Vicks knowing for Oil of Olay brand)
Strategic alliances
Concentration Strategies:
i. Market Penetration – aggressively targeting current markets with existing product specialties
ii. Market Development/Geographic Expansion – expanding into new markets
iii. Market Segmentation – dividing existing
markets
iv. Product Development – modify existing
products, or develop new but related
products
Integration Strategies
Vertical integration Full integration (100% suppliers +controls
distributors) Quasi-integration (buy/sell from outside
suppliers/distributors that under its partial control) Long-term contract
Backward integration Forward integration Horizontal Integration
Is a logical strategy for a corporation or BU with a strong competitive position in a highly attractive industry
Diversification Strategies –
Concentric Diversification – when a firm has a strong competitive position but industry attractiveness is low Growth into related industry Search for synergies
Conglomerate diversification – when industry is unattractive and a firm lacks outstanding abilities and skills Growth into unrelated industry Concern with financial considerations
Risks of Diversification:
Diversification, especially unrelated, is a complex strategy to formulate & implement
It demands a wide variety of skills It might result in decreasing commitment to a
single business It often does not result in the promised rewards It increases the administrative costs of
managing, integrating & controlling a wide portfolio of business
International Entry Options --
Exporting Licensing Franchising Joint Ventures Acquisitions Production Sharing Turnkey Operation BOT Concept (Build, Operate, Transfer) Management Contracts
2. Stability Strategies --
Pause/proceed with caution (timeout before continuing growth or retrenchment)
No change (to do nothing new)
Profit strategies (to support profits by reducing investments and short-term expenditures)
Corporate Strategy
Portfolio Analysis --
Resource commitment on best products to ensure continued success
Resource commitment on new costly products high risk
The BCG model is a well-known portfolio management tool used in Product life cycle theory that was invented in the early 1970’sby the Boston Consulting Group. The BCG model can be used to determine what priorities should be given in the product portfolio of a business unit.Placing products in the BCG model results in 4 categories in a portfolio of a company.
1. Stars
2. Question Marks
3. Cash Cows
4. Dogs
-high growth, high market share
-high market share in a growing market
-generate large amounts of cash because of their strong relative market share, but also consume a lot of cash due to their growth rate
-If market share is kept, Stars are likely to grow into cash cows
-These products are in growing markets but have low market share.
-Question marks are essentially new products where buyers have yet to discover them.
-The marketing strategy is to get markets to adopt these products.
- Question marks have high demands and low returns due to low market share.
- These products need to increase their market share quickly or they become dogs.
-- The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them.
-Cash cows are in a position of high market share in a mature market.
- If competitive advantage has been achieved, cash cows have high profit margins and generate a lot of cash flow.
-Because of the low growth, promotion and placement investments are low.
- Investments into supporting infrastructure can improve efficiency and increase cash flow more.
- Cash cows are the products that businesses strive for.
-Dogs are in low growth markets and have low market share.
-Dogs should be avoided and minimized.
- Expensive turn-around plans usually do not help.
BCG Matrix
Limitations:
Too simplistic The link between market share and profitability is
questionable Growth rate is only one aspect of industry
attractiveness Product lines or business units are considered in
relation to the one market leader Market share is only one aspect of overall
competitive position
GE/McKinsey Matrix
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
Business strengths reflect market share, technological advantage, product quality, operating costs, and price competitiveness.
Industry attractiveness reflects market size and growth, capital requirements and competitive intensity.
Both business strength and industry attractiveness are categories as low, medium, and high.
Combining the business strength and industry attractiveness variables yields a nine-cell matrix that identifies business units as “winners,” “question marks,” “average businesses,” “profit producers,” or “losers.”
GE/McKinsey Matrix
Limitations:
It can get quite complicated and cumbersome The numerical estimates of industry attractiveness
and business strength/competitive position give the appearance of objectivity, but they are in reality subjective judgments
It cannot effectively depict the positions or business units in developing industries
GE/McKinsey Matrix
Portfolio Analysis
Advantages of portfolio analysis:
It encourages top management to evaluate each of the businesses individually and set objectives and allocate resources for each.
It stimulates the use of externally oriented data to supplement management’s judgment.
It raises the issue of cash flow availability for use in expansion and growth.
Its graphic depiction facilitates communication.
Portfolio Analysis
Limitations of portfolio analysis:
It is not easy to define product/market segments. It suggests the use of standard strategies that can
miss opportunities or be impractical. It provides an illusion of scientific rigor when in
reality positions are based on subjective judgments. It is not always clear what makes an industry
attractive or where a product is in its life cycle.
Corporate Strategy
Corporate Parenting Strategy --
Strategic factors
Performance improvement
Analyze fit
Corporate Parenting
Value creation only occurs under three conditions:
the parent sees an opportunity for a business to improve performance and a role for the parent in helping to grasp the opportunity
the parent has the skills, resources and other characteristics needed to fulfill the required role
the parent has sufficient understanding of the business and sufficient discipline to avoid other value-destroying interventions.