8/8/2019 Ch 06 - My PPT [F07]

1/15

Prentice Hall, Inc. 2006 7-1

CHAPTER 6Strategy Formulation: Corporate Strategy

8/8/2019 Ch 06 - My PPT [F07]

2/15

Prentice Hall, Inc. 2006 7-2

Corporate Strategy

Corporate Strategy Deals with 3 KeyIssues:

Firms directional strategy

Firms portfolio strategy

Firms parenting strategy

8/8/2019 Ch 06 - My PPT [F07]

3/15

Prentice Hall, Inc. 2006 7-3

Corporate Directional Strategies

Directional Strategy

Refer to the Orientation Toward Growth

Managers decide on 3 grand strategies based on the following questions:

1. Expand, cut back, or stays the same (status quo)?2. Concentrate within current industry or diversify into other

industries?

3. If expansion then decide if through internal development,

acquisitions, mergers, or strategic alliances?

8/8/2019 Ch 06 - My PPT [F07]

4/15

Prentice Hall, Inc. 2006 7-4

Corporate Directional Strategies

1. Growth 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.

2Basic forms:Concentration

Diversification

8/8/2019 Ch 06 - My PPT [F07]

5/15

Prentice Hall, Inc. 2006 7-5

Corporate Directional Strategies

Basic Concentration Strategies --

Vertical Growth --Vertical integration

Full integration

Taper integration (make less then 50% of components)

Quasi-integration (partial Ownership of supplier

Long-term contract

Backward integration

Forward integration

Horizontal Growth / Concentration --Horizontal integration:

Degree firms operate in multiple locations at the same point in value

chain

Expand in multiple locations or increase range of products/services

offered to current markets

8/8/2019 Ch 06 - My PPT [F07]

6/15

Prentice Hall, Inc. 2006 7-6

Corporate Directional Strategies

Basic Diversification Strategies

Concentric (Related) Diversification --

Growth into related industrySearch for synergies

Conglomerate (Unrelated) diversification --Growth into unrelated industry

Concern with financial considerations

8/8/2019 Ch 06 - My PPT [F07]

7/15

Prentice Hall, Inc. 2006 7-7

Corporate Directional Strategies

InternationalEntry

Options

Exporting

Licensing

Franchising

Joint VenturesAcquisitions

Green-Field Development

Production Sharing

Turnkey Operations

BOT ConceptManagement Contracts

8/8/2019 Ch 06 - My PPT [F07]

8/15

Prentice Hall, Inc. 2006 7-8

Corporate Directional Strategies

2. Stability Strategies --

Pause/proceed with caution

No change

Profit strategies

8/8/2019 Ch 06 - My PPT [F07]

9/15

Prentice Hall, Inc. 2006 7-9

Corporate Directional Strategies

3. Retrenchment Strategies --

Turnaround

Captive Company Strategy

Selling out

Bankruptcy

Liquidation

8/8/2019 Ch 06 - My PPT [F07]

10/15

Prentice Hall, Inc. 2006 7-10

Corporate Strategy

II. Portfolio Analysis --

Resource commitment on best products to

ensure continued successHow much of our time and money should we spend

on our best products to ensure that they continue tobe successful?

Resource commitment on new costly products

high riskHow much of our time and money should we spend

developing new costly products, most of which will

never be successful?

8/8/2019 Ch 06 - My PPT [F07]

11/15

Prentice Hall, Inc. 2006 7-11

BCG Matrix (Portfolio Analysis)

Funding Decisions and Product Life Cycle

8/8/2019 Ch 06 - My PPT [F07]

12/15

Prentice Hall, Inc. 2006 7-12

GE Business Screen (Portfolio Analysis)

AWinners Winners

B

C

QuestionMarks

D

F

Average

Businesses

EWinners

Losers

GLosers

H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

8/8/2019 Ch 06 - My PPT [F07]

13/15

Prentice Hall, Inc. 2006 7-13

Portfolio Analysis

Portfolio Analysis: Pros & Cons

Advantages:

Top management evaluates each of firms businesses

individually

Use of externally-oriented data to supplement managementjudgment

Raises issue of cash flow availability

Facilitates communication

Disadvantages:

Difficult to define product/market segments

Standard strategies can miss opportunities

Illusion of scientific rigor

Value-laden terms

8/8/2019 Ch 06 - My PPT [F07]

14/15

Prentice Hall, Inc. 2006 7-14

Corporate Strategy

III. Corporate Parenting Strategy --

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

If there is good fit between Parents skills and

resources with the needs and opportunities of

the business units, the corporation is likely to

create value

STEP

S:1. Identify Strategic Factors responsible for firms success

and/or failure

2. Identify areas for performance improvement

3. Analyze fit between parent and business units

8/8/2019 Ch 06 - My PPT [F07]

15/15

Prentice Hall, Inc. 2006 7-15

Parenting-Fit Matrix

Edge of the

Hart

Heartland

AlienTerritory

Low

High

HighLow

FIT between parenting opportunitiesand parenting characteristics

Ballast

Value Trap