Application assignment 1
Strategic Management Concepts
Chapter 6
Corporate-Level Strategies
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Corporate Profile (3 options)
Corporate Strategies (3 options)
Different Means of Pursuing Corporate Growth
When Stability is Better than Growth
The Boston Consulting Group (BCG) Matrix
Chapter 6: Key Issues
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The corporate-level strategy is the strategy top management formulates for the overall corporation.
Strategies are also formulated at the business (competitive) and functional levels. These are discussed in the following two chapters.
Introduction
Compete in a single industry: Allows a firm to specialize, but “all eggs are in a single basket.”
Compete in related industries: Allows a firm to develop synergy among the business units. Synergy occurs when the combination of two organizations results in higher effectiveness and efficiency than would otherwise be generated separately.
Compete in unrelated industries: Minimizes risk through diversification.
6-1 The Corporate Profile: 3 Options
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Growth (increase in size)
Stability (retain current size)
Retrenchment (decrease in size)
6-2 Corporate Strategies: 3 Options
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Internal Growth- expanding by internally increasing its size and sales.
External Growth- acquiring other companies.
A Merger occurs when two or more firms, usually of roughly similar sizes, combine into one through an exchange of stock.
An Acquisition is a form of merger whereby one firm purchases another, often with a combination of cash and stock.
6-3 Growth Strategies
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External growth can usually occur more quickly than internal growth, but integrating newly acquired entities into the current organization can be difficult.
The pursuit of external growth can enable a firm to modify its corporate profile.
Growth is not necessarily the best strategic alternative for every healthy organization.
There are five growth alternatives presented in the upcoming slides.
6-3 Growth Strategies (cont’d)
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A firm that acquires other companies in the same line of business is engaging in horizontal integration. Doing so allows a firm operating in a single industry to grow rapidly without moving into other industries.
6-3a Horizontal (Related) Integration
A firm is engaging in horizontal related diversification when it acquires a business outside its present scope of operation, but with similar or related core competencies, the firm’s key capabilities and collective learning skills that are fundamental to its strategy, performance, and long-term profitability.
6-3b Horizontal (Related) Diversification
When a corporation acquires a business in an unrelated industry to reduce cyclical fluctuations in cash flows or revenues, it is pursuing conglomerate (unrelated) diversification.
6-3c Conglomerate (Unrelated) Diversification
Vertical integration refers to merging various stages of activities in the distribution channel.
When a firm acquires its suppliers (i.e., expanding “upstream”), it is engaging in backward integration, whereas a firm acquiring its buyers (i.e., expanding “downstream”) is engaging in forward integration.
6-3d Vertical Integration
Strategic alliances—often called partnerships—occur when two or more firms agree to share the costs, risks, and benefits associated with pursuing new business opportunities.
6-3e Strategic Alliances (Partnerships)
Stability—attempting to maintain the present size and scope of operations—may be more attractive than growth when:
Industry growth is slow or non-existent.
Costs associated with growth do not exceed its benefits.
Growth may place great strains on quality and customer service.
Large, dominant firms may not want to risk prosecution for monopolistic practices.
6-4 Stability Strategy
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When performance is disappointing, however, a retrenchment strategy may be appropriate. A firm deliberately reduces its size when it employs a retrenchment strategy.
A retrenchment strategy is often accompanied by a reorganization process known as corporate restructuring.
The three forms of retrenchment are presented in the following slides.
6-5 Retrenchment Strategies
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A turnaround seeks to transform the corporation into a leaner, more effective firm, and includes such actions as eliminating unprofitable outputs, pruning assets, reducing the size of the workforce, cutting costs of distribution, and reassessing the firm’s product lines and customer groups.
6-5a Turnaround
Divestment—selling one or more of a firm’s business units—may be necessary when the industry is in decline, or when a business unit drains resources from more profitable units, is not performing well, or is not synergistic with other corporate holdings.
6-5b Divestment
Liquidation is the strategy of last resort, and terminates the business unit by selling its assets. In effect, liquidation represents a divestment of all the firm’s business units and should be adopted only under extreme conditions.
6-5c Liquidation
What is the corporate profile?
What is the corporate strategy?
Provide support and explain the details.
Case Analysis Step 9: Identify the Corporate Strategy
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The Boston Consulting Group (BCG) Matrix is corporate portfolio framework that examines the relationships among business units held by a single firm. There are four kinds of businesses within the matrix:
Stars- high growth potential & high market share
Question Marks- high growth potential, but low market share
Cash Cows- low growth potential, but high market share
Dogs- low growth potential & low market share
6-6 BCG Growth-Share Matrix
The (Original) BCG Growth-Share Matrix
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Build market share with stars and question marks.
Hold market share with cash cows.
Harvest (milk) as much short-term cash as possible.
Divest a business unit.
BCG Matrix Four Options for Strategic Managers
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Involvement at the international level (minimal)
Involvement at the multinational level (moderate)
Involvement at the global level (maximum)
6-7 Corporate Strategy Considerations
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Importing
Exporting
International Licensing
International Franchising
Strategic Alliances
Global Corporate Strategy Option 1: Involvement at the International Level
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Global Corporate Strategy Option 2: Involvement at the Multinational Level
In addition to the International Level…
Direct investments in other countries
Subsidiaries operate independently from each other.
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Global Corporate Strategy Option 3: Involvement at the Global Level
In addition to the International Level…
Direct investments abroad
Subdivisions are interdependent
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Are customer needs abroad similar to those in the firm’s domestic market?
Are differences in transportation and other costs abroad conducive to producing goods and services abroad?
Are the firm’s customers or partners already involved in global business?
Six Global Orientation Considerations: Which Option Is Most Appropriate?
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Will it be difficult to distribute goods and services abroad?
Will government trade policies facilitate global expansion?
Can managers in one country learn from managers in other countries?
Six Global Orientation Considerations (cont’d)
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