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Corporate-Level Strategy

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Presentation on theme: "Corporate-Level Strategy"— Presentation transcript:

1 Corporate-Level Strategy

2 Has Two Levels of Strategy
A Diversified Company Has Two Levels of Strategy - low cost - differentiation - integrated low cost/differentiation - focused low cost - focused differentiation How to create competitive advantage in each business in which the company competes 1. Business-Level Strategy (Competitive Strategy) How to create value for the corporation as a whole 2. Corporate-Level Strategy (Companywide Strategy) 7

3 Key Questions of Corporate Strategy
1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts 11

4 Levels and Types of Diversification
Low Levels of Diversification Single business > 95% of revenues from a single business unit A Dominant business Between 70% and 95% of revenues from a single business unit B A Moderate to High Levels of Diversification < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Related constrained A B C Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist A B C Very High Levels of Diversification Unrelated-Diversified Business units not closely related A B C 15

5 Alternative Diversification Strategies
Related Diversification Strategies Sharing Activities Transferring Core Competencies Unrelated Diversification Strategies Efficient Internal Capital Market Allocation Restructuring 24

6 Value-creating Strategies of Diversification
Operational and Corporate Relatedness Related Constrained Diversification Vertical Integration (Market Power) Both Operational and Corporate Relatedness (Rare Capability and Can Create Diseconomies of Scope) High Sharing: Operational Relatedness Between Business Unrelated Diversification (Financial Economies) Related Linked Diversification (Economies of Scope) Low Low High Corporate Relatedness: Transferring Skills Into Business Through Corporate Headquarters 63

7 Mergers and Acquisitions
A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses Takeover An acquisition where the target firm did not solicit the bid of the acquiring firm 3

8 Reasons for Acquisitions Problems in Achieving Success
Increased market power Overcome entry barriers Lower risk compared to developing new products Cost of new product development Increased speed to market diversification Avoid excessive competition Integration difficulties Inadequate evaluation of target Too much diversification Large or extraordinary debt Inability to achieve synergy Managers overly focused on acquisitions Too large Acquisitions 31

9 Restructuring Activities
Downsizing Wholesale reduction of employees Example: Procter & Gamble’s cutting of its worldwide workforce by 15,000 jobs Downscoping Reducing scope of operations Selectively divesting or closing non-core businesses Leads to greater focus Example: Disney’s selling of Fairchild Publications 41

10 Business-Level Strategy

11 The Basis………….. External Environment Sustainable Competitive Advantage
Internal Environment Sustainable Competitive Advantage Business Level Strategy 4

12 Business Level Strategy
The Basis………….. Core Competency The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals. Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage. Business Level Strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets. 7

13 Generic Business Level Strategies
Source of Competitive Advantage Cost Uniqueness Breadth of Competitive Scope Broad Target Market Narrow Focused Low Cost Differen- tiation Focused Differen- Generic Business Level Strategies Cost Leadership 8

14 Generic Business Level Strategies
Source of Competitive Advantage Cost Uniqueness Breadth of Competitive Scope Broad Target Market Narrow Leadership Focused Low Cost Differen- tiation Focused Differen- Integrated Low Cost/ Differentiation 8

15 Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may: Adapt more quickly Learn new skills and technologies Utilize Flexible Manufacturing Systems to create differentiated products at low costs Leverage core competencies through Information Networks across multiple business units Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs 103

16 Integrated Low Cost/Differentiation Strategy
Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy 104

17 Integrated Low Cost/Differentiation Strategy
Southwest Airlines Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes 15 minute turnaround time No meals No reserved seats No travel agent reservations Low Cost Focus on customer satisfaction New flight services for business travelers (phones and faxes) High level of employee dedication Differentiation 107

18 Three Intensive Growth Strategies

19 The Boston Consulting Group’s Portfolio (Growth-Share) Matrix

20 Process for Applying The Technique
Step 1: Divide the Firm into Strategic Business Units (SBUs) Step 2: Measure the Growth Rate of Each SBU Market Step 3: Measure the Relative Market Share of Each SBU Step 4: Position Each SBU along the Matrix Dimensions Plotting on the Vertical Axis – Market Growth Rate Plotting on the Horizontal Axis – Relative Market Share Plot Contribution Bubbles Step 5: Construct a Matrix for All SBU Competitors Step 6: Assign Optimal Generic Strategies to Each SBU Step 7: Further Disaggregate the Analysis

21 Business Profitability
Normative Strategies Business Category Market Share Thrust Business Profitability Investment Required Net Cash Flow Stars Hold/Increase High Around zero or slightly negative Cash Cows Hold Low Highly positive Problem Child (a) Increase None or negative Very high Highly negative Problem Child (b) Harvest/Divest Low or negative Divest Positive Dogs

22 BCG Portfolio Matrix, cont.

23 GE Strategic Planning Grid

24 Factors underlying Market Attractiveness and Business Strength in GE Strategic Planning Grid
Overall market size Annual market growth rate Historical profit margin Competitive intensity Technological requirements Inflationary vulnerability Energy requirements Environmental impact Social-political-legal Weight 0.20 0.15 0.05 Must be acceptable 1.0 Rating = (1-5) 4 5 2 3 Value 0.80 1. 0.60 0.30 0.10 3.70 Business Strength Market share Share growth Product quality Brand reputation Distribution network 0.40 0.50

25 Strategic Groups The Concept of Strategic Groups Groups of firms within an industry with similar strategic characteristics Permits simplification of competitor analysis

26 Strategic Group Mapping
SG: Set of firms pursuing similar strategies with similar resources in the same industry. # Identify the Features that differentiate firms in the industry price, quality range geographic coverage degree of vertical integration product line breadth use of distribution channels degree of service offered # Plot the firms on a two variable map using pairs of these differentiating features #Assign the firms that fall in about the same strategy space to the same strategic group #Draw circles proportional to the size of the group’s respective share of total industry sales revenue, around each group.

27 Strategic Group Mapping: Guidelines
Variables selected as axes should not be highly correlated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative or continuous Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group. If more than two good competitive variables can be used, several maps can be drawn.

28 Strategic Groups in the Pharmaceutical Industry
Merck Pfizer Eli Lilly High Low Prices Charged Proprietary Group Generic Group Ranbaxy Torrent Orchid Low R&D Spending High

29 SWOT Analysis Strength: It is a resource,skill or advantage relative to competitors (Fin. Resources, Image,Mkt. Leadership etc) Weakness: A limitation or deficiency in resources, skills and capabilities that prevents effective performance of the firm. Opportunity: It is major favourable situation in the environment ( New mkt. Segment, changes in Competition, Tech. Changes etc) Threat: A major unfavourable situation in the environment (Entry of Comp., Tech. Change, Slow mkt. Growth etc)

30 SWOT analysis diagram Substantial internal strengths Major
environmental threats Critical weaknesses Numerous opportunities Cell 3: Supports a Turnaround- Oriented strategy Cell 1: Supports an aggressive strategy Cell 4: Supports defensive strategy Cell 2: Supports a diversification strategy

31 Grand Strategy Selection Matrix
Overcome weaknesses Turnaround or retrenchment Divestiture Liquidation Vertical integration Conglomerate diversification External (acquisition or merger for resource capability) Internal (redirected resources within the firm) II I III IV Concentration Market development Product development Innovation Horizontal integration Concentric diversification Joint venture Maximise Strengths

32 Model of Grand Strategy Clusters
Rapid Market Growth Concentration Vertical Integration Concentric Diversification Reformulation of Concentration Horizontal Integration Divestiture Liquidation External (acquisition or merger for resource capability) Internal (redirected resources within the firm) I II IV III Concentric -Diversification Conglomerate -Diversification Joint Ventures Turnaround/retrenchment Concentric Diversification Conglomerate diversification Divestiture Liquidation Major environmental threats

33 Thank You!!!

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