1. Université Paris Ouest - Master 1 - Strategy
Corporate Strategy
Université Paris Ouest - Master 1 - Strategy

2. Université Paris Ouest - Master 1 - Strategy
Corporate Strategy
A diversified company has two levels of strategy:
Business Unit (or competitive) Strategy
Corporate (or Companywide) Strategy.
Université Paris Ouest - Master 1 - Strategy

3. Université Paris Ouest - Master 1 - Strategy
Corporate Strategy
Competitive Strategy =>
How to create competitive advantage in each of the businesses in which a company competes?
Corporate Strategy =>
What businesses the corporation should be in?
How the corporate office should manage the array of business units?
Université Paris Ouest - Master 1 - Strategy

4. Université Paris Ouest - Master 1 - Strategy
Corporate Strategy
Corporate-level Strategy
Actions to be taken to gain a competitive advantage
Select and manage a group of different businesses competing in different product markets
Expected to help firm earn above - average returns
Université Paris Ouest - Master 1 - Strategy

5. Université Paris Ouest - Master 1 - Strategy
Corporate Strategy
Competition Occurs at the Business Unit Level
Diversified companies do not compete
Only their business units do
Corporate Strategy Goal = Ensure the success of each unit
Université Paris Ouest - Master 1 - Strategy

6. Strategic Formulation
Michael PORTER’S vision of Strategy
Université Paris Ouest - Master 1 - Strategy

7. What Is Strategy? Strategic positioning means:
Performing different activities from rivals’
Or performing similar activities in different ways.

8. Types of Competitive Advantage and Sustainability
Three generic strategies to overcome the five forces and achieve competitive advantage
Reminder: The five Forces
Competitive Rivalry
Supplier’s Bargaining Power
Threat of Substitute Products
Customer’s Bargaining Power
Threat of new Entrants

9. Types of Competitive Advantage and Sustainability
Overall cost leadership
Differentiation
Focus strategy

10. Types of Competitive Advantage and Sustainability
Overall cost leadership
Low-cost-position relative to a firm’s peers
Manage relationships throughout the entire value chain

11. Types of Competitive Advantage and Sustainability
Differentiation
Create products and/or services that are unique and valued
Non-price attributes for which customers will pay a premium

12. Types of Competitive Advantage and Sustainability
Focus strategy
Narrow product lines,
Buyer segments
Or targeted geographic markets
Attain advantages either through differentiation or cost leadership

13. Three Generic Strategies
Competitive Advantage
Uniqueness Perceived by the Customer
Low Cost Position
Strategic Target
Particular Segment Only
Industrywide
Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press.

14. Overall Cost Leadership
Integrated tactics
Aggressive construction of efficient-scale facilities
Vigorous pursuit of cost reductions from experience
Tight cost and overhead control
Avoidance of marginal customer accounts

15. Overall Cost Leadership
Cost minimization in all activities in the firm’s value chain:
R&D
Service
Sales force
Advertising

16. Value-Chain Activities
Shared purchasing operations with other business units
Effective policy guidelines to ensure low cost raw materials (with acceptable
quality levels)
Expertise in process engineering to reduce manufacturing costs
Effective use of automated technology to reduce scrappage rates
Effective orientation and training programs to maximize employee productivity
Minimize costs associated with employee turnover through effective policies
Standardized accounting
practices to minimize personnel required
Few management layers to reduce overhead costs
Effective layout of receiving dock operation
Effective use of quality control inspectors to minimize rework on the final product
Effective utilization of delivery fleets
Purchase of media in large blocks
Sales force utilization is maximized by territory management
Thorough service repair guidelines to minimize repeat maintenance calls
Use of single type
of repair vehicle
to minimize
costs
Inbound
logistics
Operations
Outbound logistics
Marketing and sales
Service
Firm infrastructure
Human resource management
Technology development
Procurement

17. Overall Cost Leadership
A firm following an overall cost leadership position
Must attain parity on the basis of differentiation relative to competitors
Parity on the basis of differentiation
Permits a cost leader to translate cost advantages directly into higher profits than competitors
Allows firm to earn above-average profits

18. Comparing Experience Curve Effects

19. Overall Cost Leadership
An overall low-cost position:
Protects a firm against rivalry from competitors
Protects a firm against powerful buyers
Provides more flexibility to cope with demands from powerful suppliers for input cost increases

20. Overall Cost Leadership
Provides substantial entry barriers from economies of scale and cost advantages
Puts the firm in a favorable position with respect to substitute products

21. Pitfalls of Overall Cost Leadership Strategies
Too much focus on one or a few value-chain activities
All rivals share a common input or raw material
The strategy is initiated too easily
A lack of parity on differentiation
Erosion of cost advantages when the pricing information available to customers increases

22. Differentiation Differentiation can take many forms
Prestige or brand image
Technology
Innovation
Features
Customer service
Dealer network

23. Value-Chain Activities: Examples of Differentiation
Facilities that promote firm image
Superior MIS—To integrate value-creating activities to improve quality
Widely respected
CEO enhances firm reputation
Provide training and incentives to
ensure a strong customer service orientation
Programs to attract talented
engineers and scientists
Excellent applications engineering support
Superior material handling and
sorting technology
Use of most prestigious outlets
Purchase of high-quality
components to enhance product image
Superior
material
handling operations to minimize
damage
Quick transfer
of inputs to manufacturing process
Flexibility and speed in responding to changes in manufacturing specs
Low defect rates to improve quality
Accurate and responsive order processing
Effective
product replenishment
to reduce customer’s inventory
Creative and innovative advertising programs
Fostering of personal relation-ship with key customers
Rapid response to customer service requests
Complete inventory of replacement
parts and
supplies
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.

24. Differentiation
Firms may differentiate along several dimensions at once
Firms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being unique
Successful differentiation requires integration with all parts of a firm’s value chain
An important aspect of differentiation is speed or quick response

25. Differentiation Creates higher entry barriers due to customer loyalty
Provides higher margins that enable the firm to deal with supplier power
Reduces buyer power because buyers lack suitable alternative
Reduces supplier power due to prestige associated with supplying to highly differentiated products
Establishes customer loyalty and hence less threat from substitutes

26. Types of Strategies
Level of strategies
Prof. Dr. Majed El-Farra 2009

27. Corporate Strategy hierarchy
Growth strategy
Stability strategy
Retrenchment strategy
Prof. Dr. Majed El-Farra 2009

28. Université Paris Ouest - Master 1 - Strategy
Growth Strategy
An organization aims to improve its overall performance
2 types of Growth Strategies:
Internal
External
Université Paris Ouest - Master 1 - Strategy

29. Growth strategies Result increase in: Sales Market share Profit.
Prof. Dr. Majed El-Farra 2009

30. Growth strategies
Increase internal capacity of organization without acquiring other firms.
Conglomerate Diversification: Acquiring unrelated business.
Merger: Two roughly similar size firms combine into one. To benefit of synergy.
Strategic alliance: Temporary partnerships
Prof. Dr. Majed El-Farra 2009

31. So what did you get? Reasons for starting a business?
Marketing strategies?
Niche Vs Mass?
Diversification?
Which leads on to Ansoff and his matrix…

32. Université Paris Ouest - Master 1 - Strategy
The Ansoff Matrix
"The Ansoff growth matrix assists organizations to map strategic product market growth“.
Université Paris Ouest - Master 1 - Strategy

33. What is it?
A tool to help a business decide their product and growth strategy
N.B. It will not make the decision for you!

34. 2 sets of categories = 4 options
Look at either new or existing products
and
New or existing markets
Give a name to each of the 4 options.

35. Ansoff’s Matrix…

36. Market Penetration Market existing products to existing customers.
This means increasing revenue by, for example, promoting the product, repositioning the brand, and so on.
However, the product is not altered and we do not seek any new customers.
Often a low risk, low return option.

37. Market Penetration Low risk growth strategy
Focus on selling existing goods in existing markets
Business focuses on products and markets it is familiar with
Market research is therefore minimized
Reaction time of competitors is quick

38. Market Development Market our existing product range in a new market.
This means that the product remains the same, but it is marketed to a new audience.
Exporting the product, or marketing it in a new region, are examples of market development.
Medium risk/return

39. Market Development Medium risk growth strategy
Selling existing products in new markets
Using new distribution channels; changing the price; appealing packaging
The success of a product in one country does not necessarily guarantee success in another

40. Product Development New product to be marketed to existing customers.
Develop and innovate new product offerings to replace existing ones.
Such products are then marketed to existing customers.
This often happens with the cars where existing models are updated or replaced and then marketed to existing customers.
Medium risk/return

41. Product Development Medium risk strategy
Selling new products in existing market
Apple iPhone and McDonalds are two companies (products) that use this method
Product extension strategies and new product development
Products may have reached the end of their useful life
Reasons to acquire other companies

42. Diversification Market completely new products to new customers.
This can be broken down into two further subsets

43. Diversification: related
Related diversification means that the firm remains in a market or industry with which is familiar.
For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry).
The most risky option

44. Diversification Unrelated
Unrelated diversification is there is no previous industry nor market experience.
For example a music company invests in the rail business.

45. Diversification
High risk growth strategy that involves marketing new products in new markets
Risk is spread over several products
Virgin Group
Development of larger controlling companies (parent company)
Time Warner
Business is usually not familiar with the product’s success in different markets

46. How would you use it?
It helps companies put the options in the right box and then focus on what is the best for them
Try not to look at it as 4 categories, but as scale.

47. Université Paris Ouest - Master 1 - Strategy

48. Risks of Generic Strategies
Risks of Cost Leadership
Cost leadership is not sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost leadership erode.
Proximity in differentiation is lost.
Cost focusers achieve even lower cost in segments.
Risks of Differentiation
Differentiation is not sustained:
• Competitors imitate.
• Bases for differentiation become less important to buyers.
Cost proximity is lost.
Differentiation focusers achieve even greater differentiation in segments.
Risks of Focus
The focus strategy is imitated:
The target segment becomes structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors overwhelm the segment:
• The segment’s differences from other segments narrow.
• The advantages of a broad line increase.
New focusers subsegment the industry.
Risks of Differentiation
Differentiation is not sustained:
• Competitors imitate.
• Bases for differentiation become less important to buyers.
Cost proximity is lost.
Differentiation focusers achieve even greater differentiation in segments.
Risks of Cost Leadership
Cost leadership is not sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost leadership erode.
Proximity in differentiation is lost.
Cost focusers achieve even lower cost in segments.
Risks of Focus
The focus strategy is imitated:
The target segment becomes structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors overwhelm the segment:
• The segment’s differences from other segments narrow.
• The advantages of a broad line increase.
New focusers subsegment the industry.
Prof. Dr. Majed El-Farra 2009
Prentice Hall 2006