1. Strategic Charles W. L. Hill Management Gareth R. Jones
Chapter 10 Corporate Development: Building and Restructuring the Corporation
Strategic Charles W. L. Hill Management Gareth R. Jones
Fifth Edition
PowerPoint Presentation by Charlie Cook
An Integrated Approach
Copyright © 2001 Houghton Mifflin Company. All rights reserved.

2. Building on Corporate Development
Corp Dev:
Which business opportunities to pursue
How to pursue them (internal venturing; acquisitions; joint ventures)
How it should exit those opportunities that no longer work for them (divestment, harvest, liquidation)
This requires looking at the company’s Portfolio
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3. Reviewing the Corporate Portfolio
Portfolio Planning under the Boston Consulting Group (BCG) matrix:
Identifying the Strategic Business Units (SBUs) by business area or product market
Assessing each SBU’s prospects (using relative market share and industry growth rate) relative to other SBUs in the portfolio.
Developing strategic objectives for each SBU.
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4. The BCG Matrix
FIGURE 10.1
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Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970.

5. The BCG Matrix Stars Question marks Cash cows Dogs
High relative market shares in fast growing industries.
Question marks
Low relative market shares in fast growing industries.
Cash cows
High relative market shares in low-growth industries.
Dogs
Low relative market shares in low-growth industries.
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6. The Strategic Implications of the BCG
Cash cows
Investments sufficient to maintain competitive position. Cash surpluses used in developing and nurturing stars and selected question mark firms.
Stars
Aggressive investments to support continued growth and consolidate competitive position of firms.
Question marks
Selective investments; divestiture for weak firms or those with uncertain prospects and lack of strategic fit.
Dogs
Divestiture, harvesting, or liquidation and industry exit.
Co then considers acquisitions, divestments and new ventures to get a “balanced” portfolio
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7. Limitations on Portfolio Planning
Flaws in portfolio planning:
The BCG model is simplistic if used blindly; considers only two competitive environment factors– relative market share and industry growth rate.
High relative market share is no guarantee of a cost savings or competitive advantage (but normally does a good job of predicting cash flow)
Low relative market share is not always an indicator of competitive failure or lack of profitability (but normally does a good job of predicting cash flow).
Multifactor models (e.g., the McKinsey matrix or the GE Grid) are better though imperfect.
Importantly, goals other than cash flow may be more critical (such as ROI). If so, use the BCG with caution
Fail to look at “dependencies” among SBUs wrt transferring competencies, economies of scope,etc.
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8. The McKinsey Matrix FIGURE 10.2
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9. Corp as a Portfolio of “Competencies”
Identify current competencies
Compare competencies to opportunities and threats
Develop an agenda for corporate development
Advantage is that this method recognizes need to add value by looking at inter-dependencies
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10. The Corporation as a Portfolio of Core Competencies
Establishing a Core Competence Agenda
FIGURE 10.3
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Source: G. Hamel and C. K. Prahalad, Competing for the Future (Cambridge, Mass.: Harvard Business School Press, 1994), p. 227.

11. From Agenda to Action
Based on the analysis of the portfolio and “what do you have to do” the next step is “how to you get there”
Internal New Ventures
Acquisitions
Joint Ventures
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12. Internal New Venturing
Internal new venturing is attractive when:
Entering as a science-based company.
Entering an emerging industry with no established competitors.
Good if company has key competencies that can be leveraged
Pitfalls of new venturing (very high failure rate):
Scale of entry– Low-scale entry reduces probability of long-term success (low share drives high costs and low revenue)
Commercialization– Failure to develop a product that meets basic customer needs.
Poor Implementation– Using “shotgun” approach, not setting clear strategic objectives, abandoning projects too soon.
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13. Scale of Entry, Profitability, and Cash Flow
FIGURE 10.4
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14. Internal New Venturing
Guidelines for successful new venturing:
Adopt a structural approach with clear strategic objectives setting R&D direction.
Foster close links between R&D and marketing.
Use project teams to reduce development time.
Use a selection process to pick venture projects with the highest probability of success.
Monitor progress of ventures in gaining initial market share goals.
Large-scale entry is important for venture success.
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15. Acquisitions as an Entry Strategy
Acquisition is an attractive strategy when:
Competencies important in a new business area are lacking in the entering firm.
Speed of entry is considered important.
Acquisition is perceived as a less risky form of entry.
Barriers to entry can be overcome by acquisition of a firm in the industry targeted for entry.
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16. Acquisitions as an Entry Strategy
Pitfalls of acquisitions:
Failing to follow through on postacquisition integration of the acquired firm.
Overestimating the economic benefits of the acquisition.
Underestimating the expense of an acquisition.
Failing to properly screen candidates before acquisition.
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17. Acquisitions as an Entry Strategy
Guidelines for successful acquisitions:
Properly identify acquisition targets and conduct a thorough preacquisition screening of the target firm.
Use a bidding strategy with proper timing to avoid overpaying for an acquisition.
Follow through on postacquisition integration synergy-producing activities of the acquired firm.
Dispose of unwanted residual acquisition assets.
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18. Joint Ventures as an Entry Strategy
Attractions
Sharing new project costs and risks.
Increasing the probability of success in establishing the new business.
Drawbacks
Requires a sharing of control with partner firms.
Requires that partner firms share profits.
Risks giving away critical knowledge.
Risks creating a potential competitor.
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19. Restructuring Why restructure? Exit strategies
Pull-back from overdiversification.
Attacks by competitors on core businesses.
Diminished strategic advantages of vertical integration and diversification.
Exit strategies
Divestment– spinoffs of profitable SBUs to investors; management buy outs (MBOs).
Harvest– halting investment, maximizing cash flow.
Liquidation– Cease operations, write off assets.
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20. Turnaround Strategy The causes of corporate decline
Poor management– incompetence, neglect
Overexpansion– empire-building CEO’s
Inadequate financial controls– no profit responsibility
High costs– low labor productivity
New competition– powerful emerging competitors
Unforeseen demand shifts– major market changes
Organizational inertia– slow to respond to new competitive conditions
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21. The Main Steps of Turnaround
Changing the leadership
Replace entrenched management with new managers.
Redefining strategic focus
Evaluate and reconstitute the organization’s strategy.
Asset sales and closures
Divest unwanted assets for investment resources.
Improving profitability
Reduce costs, tighten finance and performance controls.
Acquisitions
Make acquisitions of skills and competencies to strengthen core businesses.
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