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Chapter 9-10
Corporate Level Strategy
Snack Foods Beverages
Foods
Frito-Lay North AmericaFrito-Lay International
Pepsi-Cola North AmericaGatorade/Tropicana North AmericaPepsiCo Beverages International
Quaker North America
Snack Foods
Frito-Lay North America
Lay’sRuffles DoritosSantitasFritos CheetosRold Gold
Funyuns Sunchips Cracker Jack Chester’s popcornGrandma’s cookiesMunchos Smartfood Baken-ets fried pork skinsOberto meat snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks
Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks
Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks
Beverages
Pepsi-Cola North America
Pepsi-ColaMountain DewSliceMugSierra MistFruitWorks
Lipton Dole Aquafina Frappuccino SoBe AMP
Beverages
Gatorade/Tropicana North America
GatoradePropelTropicanaDole juices
Beverages
PepsiCo Beverages International
Loóza juices and nectarsCopella juicesFrui’Vita juicesTropicana 100 juices
Foods
Quaker North America
Quaker OatsCap’n Crunch cerealLife cerealQuisp cerealKing Vitaman cerealMother’s cereal
Quaker rice cakes and granola barsRice-A-Roni side dishesNear East couscous/pilafsAunt Jemima mixes & syrupsQuaker grits
Foods
Quaker North America
Quaker OatsCap’n Crunch cerealLife cerealQuisp cerealKing Vitaman cerealMother’s cereal
Quaker rice cakes and granola barsRice-A-Roni side dishesNear East couscous/pilafsAunt Jemima mixes & syrupsQuaker grits
Business Level Strategies
How are we going to compete and gain a competitive advantage in each of our businesses?
Snack Foods Beverages
Foods
Corporate Level Strategy1) What businesses do we want to compete in?2) How do manage effectively across businesses
Where did they go?
Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the businesses
Capturing synergies and turning them into competitive advantages
Establishing investment priorities and steering resources into business units
4 Corporate Level Strategies
• Vertical Integration• Strategic Outsourcing• Horizontal Integration• Diversification – two or more different
businesses with distinct operations
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
Alternatives to Vertical Integration
Competitive biddingLong term contracts or strategic
alliances
VerticalIntegration
Markets &Competitive Bidding
Hybrid &Contracts/Alliances
Form of Relationship
2) Outsourcing
Cost reduction and differentiationHold-ups, scheduling and hallowing out
3) Horizontal Integration
Acquiring or merging with industry competitorsReduce cost and economies of scale Increasing value through wider product line
or product bundlingManage industry rivalry Increase buyer and supplier power
4) How to Diversify?
1) Internal Development - corporate entrepreneurship or internal venturingable to appropriate a larger portion of wealthavoids complexities of multiple partners time consuming and requires diversity of
organizational capabilities
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 technology
Problems appropriate partners - skills and compatibility trust and commitment communication
Who Makes a Geo?
Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.
Geo Prizm = Toyota Corolla
Geo Tracker = Suzuki Sidekick
Geo Metro = Suzuki Esteem or Swift w/hatchback
No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.
4) How to Diversify?
3) Mergers & Acquisition
Mergers & Acquisitions
Reasons of Acquisitions
Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition
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
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 FirmShareholders
Monday October 27th WSJ
Bank of American – Boston Fleet FinancialBoA down $8.29, or 10%, BFF rose 23%
Anthem – WellPoint Health NetworksAnthem down 8.2%, WellPoint up 8.8%
United Health – MidAtlantic Med ServicesUH down 4.9%, MAMS up 9.7%
Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months following acquisitions
30 - 50% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by 4%
3 month performance before and after30% substantial losses, 20% some losses,
33% marginal returns, 17% substantial returns
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 acquire2) Performing poorly - employment risk is
reduced as returns are less volatile
Related Diversification at Disney
Entertainment/Production
Theme Parks
Resorts
Entertainment/Broadcasting
Cruise Lines
Retailing
Levels of Diversification
Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizonal relationships across businesses - synergies
Advantages of related diversification include: Leveraging Core Competencies Sharing Activities Market Power
Tyco ElectronicsTyco Telecommunications
Tyco Fire and SecurityTyco Safety Products
Tyco HealthcareTyco Plastics
Tyco AdhesivesTyco Flow Control
Tyco Electrical and Metal ProductsTyco Fire and Building Products
Tyco Infrastructure Services
Tyco
Limits itself to businesses that can be held strictly accountable for a few key financial measures
Mature, stable, low-tech industries which face certain environments and little R&D investments
Levels of Diversification (cont.)
Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses
Conglomerate Diversification - no relatedness between businesses
When/Why to Diversify?
To create shareholder value
Porter’s Three Point Test
1) Attractiveness Test
2) Cost of Entry Test
3) Better off Test
Should pass all 3
Portfolio analysis
BCG Growth-Share Matrixquestion marks, dogs, cash cows, stars
GE- Nine Cell Matrix