1. CHAPTER 7 Strategy Formulation: Corporate Strategy
STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
Prentice Hall, Inc. © 2006
Prentice Hall 2006

2. 3 Key Issues – Firm’s directional strategy Firm’s portfolio strategy
Corporate Strategy
3 Key Issues –
Firm’s directional strategy
The firm’s overall orientation towards growth, stability or retrenchment
Firm’s portfolio strategy
The industries or markets in which the firm competes
Firm’s parenting strategy
The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units
Prentice Hall, Inc. © 2006
Prentice Hall 2006

3. Directional Strategy – 3 Grand Strategies Growth strategies
Corporate Strategy
Directional Strategy –
3 Grand Strategies
Growth strategies
Concentration or diversification
Internal development or acquisitions, mergers, or alliances
Stability strategies
-status quo
Retrenchment strategies
-contraction
Prentice Hall, Inc. © 2006
Prentice Hall 2006

4. Corporate Directional Strategies
Prentice Hall, Inc. © 2006
Prentice Hall 2006

5. Growth Strategies -- External mechanisms Mergers Acquisitions
Corporate Strategy
Growth Strategies --
External mechanisms
Mergers
Acquisitions
Strategic alliances
Prentice Hall, Inc. © 2006
Prentice Hall 2006

6. Growth Strategies -- 2 Basic forms Concentration Vertical growth
Corporate Strategy
Growth Strategies --
2 Basic forms
Concentration
Vertical growth
Horizontal growth
Diversification
Concentric Diversification (RELATED)
Conglomerate Diversification (UNRELATED)
Prentice Hall, Inc. © 2006
Prentice Hall 2006

7. Vertical Growth -- Vertical integration Full integration
Corporate Strategy
Vertical Growth --
Vertical integration
Full integration
Taper integration
Quasi-integration
Long-term contract
Prentice Hall, Inc. © 2006
Prentice Hall 2006

8. Vertical Growth -- Backward integration Forward integration
Corporate Strategy
Vertical Growth --
Backward integration
Forward integration
Prentice Hall, Inc. © 2006
Prentice Hall 2006

9. Horizontal Growth Concentration -- New Geographic Markets
Corporate Strategy
Concentration --
Horizontal Growth
New Geographic Markets
Acquiring New Companies
Prentice Hall, Inc. © 2006
Prentice Hall 2006

10. Basic Diversification Strategies --
Corporate Strategy
Basic Diversification Strategies --
Concentric Diversification (RELATED)
Growth into related industry
Search for synergies
Conglomerate Diversification (UNRELATED)
Growth into unrelated industry
Concern with financial considerations
Prentice Hall, Inc. © 2006
Prentice Hall 2006

11. International Entry Options -- Exporting Licensing Franchising
Corporate Strategy
International Entry Options --
Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing (Outsourcing)
Turnkey Operation
BOT Concept (Build, Operate, Transfer)
Management Contracts
Prentice Hall, Inc. © 2006
Prentice Hall 2006

12. CONTRAVERSIES IN DIRECTIONAL GROWTH STRATEGIES
Corporate Strategy
CONTRAVERSIES IN DIRECTIONAL
GROWTH STRATEGIES
Although research in not in complete agreement, growth into areas related to a company’s current product lines is generally more successful than in growth into completely unrelated areas
Cisco’s three criteria for takeover:
It must be relatively small
It must be comparable in organizational culture
It must be physically close to one of the existing affiliates
Prentice Hall, Inc. © 2006
Prentice Hall 2006

13. Stability Strategies --
Corporate Strategy
Stability Strategies --
Pause/proceed with caution
No change
Profit strategies
Prentice Hall, Inc. © 2006
Prentice Hall 2006

14. Retrenchment Strategies --
Corporate Strategy
Retrenchment Strategies --
Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation
Prentice Hall, Inc. © 2006
Prentice Hall 2006

15. Corporate Strategy
Portfolio Analysis --
Resource commitment on best products to ensure continued success
Resource commitment on new costly products high risk
Prentice Hall, Inc. © 2006
Prentice Hall 2006

16. …Puts the corporate headquarters into the role of an internal banker
Corporate Strategy
Portfolio Analysis --
…Puts the corporate headquarters into the role of an internal banker
…Top management views its product lines and business units as a series of investments from which it expects a profitable return
Prentice Hall, Inc. © 2006
Prentice Hall 2006

17. BCG Matrix (Portfolio Analysis)
Prentice Hall, Inc. © 2006
Prentice Hall 2006

18. GE Business Screen (Portfolio Analysis)
Winners B C
Question
Marks D F
Average
Businesses E
Losers G H
Profit
Producers
Strong
Weak
Low
Medium
High
Business Strength/Competitive Position
Industry Attractiveness
Prentice Hall, Inc. © 2006
Prentice Hall 2006

19. “Corporate Parenting Strategy”
Corporate Strategy
Portfolio Analysis --
Disadvantage:
because it tends to primarily view matters financially, it regards business units and product lines as separate and independent.
It fails to deal with the question of :
-- what industries a corporation should enter or
-- with how a corporation can attain synergy among its product lines and business units.
These questions are addressed by;
“Corporate Parenting Strategy”
Prentice Hall, Inc. © 2006
Prentice Hall 2006

20. performance improvement Analyze fit
Corporate Strategy
Corporate Parenting Strategy –
…views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units …
Strategic factors
Examine each business unit in terms of its strategic factors
performance improvement
Examine each business unit in terms of areas in which performance can be increased
Analyze fit
Analyze how well the parent corporation fits with the business unit
Prentice Hall, Inc. © 2006
Prentice Hall 2006