3 Corporate Strategy Directional Strategy: Three Grand Strategies: o Growth strategies o Stability strategies o Retrenchment strategies
4 Corporate Strategy Growth Strategies: Most widely pursued strategies External mechanisms: Mergers Transaction involving two or more firms in which stock is exchanged but only one firm survives. Acquisition Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm. Strategic Alliance Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.
5 Corporate Strategy 2 Basic Growth Strategies: Concentration – Current product line in one industry Diversification – Into other product lines in other industries
8 Corporate Strategy Diversification: Concentric: Growth into related industry Search for synergies
9 Corporate Strategy Diversification: Conglomerate: Growth into unrelated industry Concern with financial considerations
10 Corporate Strategy International Entry Options Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts
11 Corporate Strategy Stability Strategies: Pause/proceed with caution No change Profit strategies
12 Corporate Strategy Retrenchment Strategies: Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation
13 Corporate Strategy Portfolio Analysis How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which will never be successful?
Question Marks Low relative market share – compete in high-growth industry Cash needs are high Case generation is low Decision to strengthen (intensive strategies) or divest
16 BCG Matrix Stars High relative market share and high growth rate Best long-run opportunities for growth & profitability Substantial investment to maintain or strengthen dominant position Integration strategies, intensive strategies, joint ventures
BCG Matrix Cash Cows High relative market share, competes in low- growth industry Generate cash in excess of their needs Milked for other purposes Maintain strong position as long as possible Product development, concentric diversification If weakens—retrenchment or divestiture
BCG Matrix Dogs Low relative market share & compete in slow or no market growth Weak internal & external position Liquidation, divestiture, retrenchment
19 Corporate Strategy Portfolio Analysis Advantages: Top management evaluates each of firm’s businesses individually Use of externally-oriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication
20 Corporate Strategy Portfolio Analysis Disadvantages: Difficult to define product/market segments Standard strategies can miss opportunities Illusion of scientific rigor Value-laden terms
21 Corporate Strategy Corporate Parenting: Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
22 Corporate Strategy Corporate Parenting: Strategic factors Those elements of a company that determine its strategic success or failure Performance improvement Analyze fit
23 Corporate Strategy Horizontal Strategy: Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units.
Grand Strategy Matrix Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth
RAPID MARKET GROWTH Quadrant II 1. Market development 2. Market penetration 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Concentric diversification Quadrant III 1. Retrenchment 2. Concentric diversification 3. Horizontal diversification 4. Conglomerate diversification 5. Liquidation Quadrant IV 1. Concentric diversification 2. Horizontal diversification 3. Conglomerate diversification 4. Joint ventures
Grand Strategy Matrix Quadrant I Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary
Grand Strategy Matrix Quadrant II Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy
Grand Strategy Matrix Quadrant III Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment)
Grand Strategy Matrix Quadrant IV Strong competitive position Slow-growth industry Diversification to more promising growth areas