1. Strategy A View from the Top: Corporate Strategy: Shaping the Portfolio
Everett Gibson
Alex Beverly
Andrew Keeling
Emily Dale
Kolt Pedersen
Carli Slingerland
Hayley Rush

2. Introduction “What is your Strategy”
For single business companies it should be clear and concise
For multibusiness corporations it is more complex
Most effective way to answer is to identify three to five strategic themes that are simple to communicate and comprehend
Example: GE’s key values: Strength in developing leaders, ability to integrate business on a global scale, prowess in making skillful acquisitions

3. Introduction
Corporate Strategy is concerned with decisions about which businesses a company operates in—actions that shape the corporate portfolio of businesses—and with decisions about how to create value in the portfolio by exploiting synergies among multiple business units.

4. Economies of Scale
Occurs when the unit cost of performing an activity decreases as the scale of activity increases
Reasons: better technologies in production processes or greater buyer power in large-scale purchasing situations
Economies of learning: cumulative number of units processed or tasks performed drives the cost reduction-
occurs when cost is reduced as a result of finding better ways to perform a task

5. Economies of Scope
Occurs when the unit cost of an activity falls because the asset used is shared with some other activity
Frito Lay: uses its trucks to deliver its Frito corn chips and Lay’s potato chips, as well as salsa and other dips.

6. Economies of Scope
Decision opportunities for creating economies of scope fall into three broad classes:
Horizontal Scope-concern decisions of product scope
Geographical Scope-involves choices of geographical coverage
Vertical Scope- converned with how a company links its value chain activities vertically

7. Economies of Scope and Scale
To capitalize on the advantages of scale and scope:
Companies must make related investments to create global marketing and distribution organizations
Must create the right mangement infrastructure to effectively coordinate the operations of a multinational corporation (Essential piece of Good-to-Great Companies)
Timing is Critical
First Mover advantage: IBM, Intel, Microsoft, and Sony all dominant in their industries due to being first movers
Challengers: Face uphill battle. They work on building productive capacity while the first movers are perfecting their production processes

8. You're Hedgehog What is “Core”?
A firms most valuable customers, most valuable products, most important channels, and distinctive capabilities.
-Strategy
You're Hedgehog

9. What is “Core”? Not making a choice IS, making a choice.
Non-linear relationship to leadership
Increasing returns of scale

10. Strategy Traps
Assuming the business units that are performing well have peaked, and deciding not to make further investment.
Assuming there is more potential in underperforming businesses and making a risky investment
Prematurely abandoning core businesses.

11. Vertical Integration
Involves increasing a corporation’s vertical participation in an industry’s value chain
Forward Integration- moving closer to the customer
Backward Integration- acquiring resource suppliers or raw materials or manufacturing components that used to be sourced elsewhere
Valuable when corporation already possesses a business unit with strong competitive position in highly attractive industry
Potentially costly by creating exit barrier that prevents company from leaving industry if its fortunes decline
~VS~

12. Horizontal Integration
Involves increasing the range of products and services already offered to current markets or expanding geographically
Often designed to leverage brand potential
In recent years, strategic alliances have become increasingly popular in implementing horizontal growth strategies
Ex: GE- appliances, medical systems, aircraft engines, financing, etc…

13. Diversification
Defined as a strategy of entering product markets different from those in which a company is currently engaged
Ex- Berkshire Hathaway operates in insurance, food, furniture, footwear, and a host of other businesses
Motivated by desire to:
Create revenue growth
Increase profitability through shared resources
Reduce company’s overall risk exposure
Exploit underutilized resources

14. Major Considerations
Potential for relatedness- the ability to target new business opportunities that have meaningful commonalities with the rest of the company’s portfolio
Three degrees of relatedness: dominant business companies, related business companies, and unrelated business companies; companies with closely related portfolios outperform widely diversified corporations
Types of related diversification strategies:
Target tangible links, such as opportunities arising from common buyers, channels, technologies, or other commonalities
Target intangible resources, such as knowledge or capabilities
Target ability of business units to jointly gain or exercise market power
Combination in which companies have opportunity to exploit the different types of relatedness

15. Porter’s 3 Tests
The attractiveness test- Is new industry attractive from growth, competitive, and profitability perspectives? Can company create such favorable conditions?
The cost of entry test- Costs of entry reasonable? How long before venture becomes profitable?
The better-off test- Does portfolio’s overall competitive position and performance improve?

16. Mergers and Acquisitions
Companies implement diversification strategies through internal development
Alliances
Mergers and Acquisitions
Internal development is slow and expensive
Bonding with companies is the easiest way to diversify

17. Mergers and Acquisitions
Two companies have joined to form one company
Acquisition
When one firm buys another firm
The difference between the two is management control
Acquisitions quickly positions a firm

18. Mergers and Acquisitions
Acquisitions process is complex
Intense pressures
Frenzy environment
Six themes help the merger and acquisition process
Well developed corporate strategy
Ongoing, long term process
Disciplined strategic analysis
Add value
Objectivity is essential
Strategies must be formulated before acquisition

19. Cooperative Strategies
Cooperative strategies are becoming popular
Globalization is an important factor in cooperative ventures
Going alone is a big risk
Motivation for cooperative strategies is the corporations ability to spread its investments

20. Cooperative Strategies
Key drivers for cooperative strategies
Risk Sharing, Funding Limitations, Market Access, Technology Access
Risk Sharing
Most companies cannot afford to participate in all markets of interest
Companies must prioritize

21. Cooperative Strategies
Funding Limitations
Going it alone is not practical
Immense fixed costs with shorter payback
Market Access
Lack of prerequisite knowledge, infrastructure
Ex. Hitachi
Technology Access
Many different technologies
Technology spreading rapidly

22. Cooperative Strategies
Alternative reasons to pursue
Management skills
Inability to add value in house
Lack of opportunities
Airline Industry
Strategic alliance
Deregulation
Mergers blocked

23. The Strategic Logic of Alliances
Unique Alliance Drivers
Product Innovation
Credibility Early Growth Stage
Access to Capital
External Value
Customer Reach
Reduced Cost
Value-Chain Strengthening
Product Extension
Rapid Growth Stage
Stability Stage

24. Alliance Models
Franchise Model – between a firm and one discrete class of partners.
Portfolio Model – multiple class alliances managed by one firm.
Cooperative Model – between many comparable sized peers.
Constellation Model – multiple alliances led by two or more comparably sized peers.

25. Alliance Types
Expertise Alliances – A collection of non competing firms
Share Expertise and have specific capabilities
New Business Alliances – Partnerships focused on entering a new market
Popular when entering a new part of the world (China)
Cooperative Alliances – Joint efforts by competitors
Looking for cheaper health insurance
M&A - like Alliances – Focus on near complete integration.
Prevented from doing so, due to legal constraints

26. Growth & Strategic Risk
We can measure strategic risk in terms of how far a growth initiative takes a company away from the established strengths of its core business.
Bain International
This is calculated by assessing the degree of sharing between the core business and the growth opportunity

27. Growth & Strategic Risk
Distance from the core is measured on five dimensions based off of certain adjacencies (1 step, 2 steps, multi-step, diversification)
Shared customers
Shared costs
Shared channels
Shared competitors
Shared capabilities/technology
The chances of success vary by the type of adjacency that defines a particular growth initiative.

28. Growth & Strategic Risk
Straying from the core almost always guarantees failure
Diversification (<1%)
Step 3 (7%)
Step 2 (26%)
Step 1 (38%)
Core

29. Growth & Strategic Risk
Two dimensions of strategic risk define a strategic map used to manage the risk profile of an overall corporate growth strategy
The distance from the core
The type of strategic adjacencies

30. Growth & Strategic Risk
Probability of Successful Adjacency Move
New Business
Forward/Backward
Integration
<10%
New Channel
Segment
10% - 30%
New Customer
Segment
New Geography
30% - 50%
New Products
& Services
Step 1
Step 2
Step 3
Diversification
Steps from Core

31. Disinvestments: Sell-offs, Spin-offs, and Liquidations
“A sell-off or a spin-off into a separate company makes sense when analysis confirms the corporation is the wrong corporate parent for the business.”
Example: Chrysler Holding

32. Pitfalls
Splitting a company into a separate entity creates value for shareholders
For every one success there are two failures
Spin-off success factors:
Ensure that both the parent corporation and the unit spun off have viable business and financial structures.
Meet or exceed earning expectations.
Continue growth

33. Conclusion The Economics of Scale and Scope What is “core”?
Growth Strategies
Disinvestments: Sell-offs, Spin-offs, and Liquidations