BUS 6320 VII
BUS 6320, Global Strategic Management 1
Course Learning Outcomes for Unit V At the end of this unit, you should be able to:
4. Explain methodologies in the overall evaluation of business strategies. 4.1 Evaluate different types of corporate diversification.
Required Unit Resources Chapter 8: Corporate Strategy: Vertical Integration and Diversification (ULO 4.1) This chapter discusses the three dimensions of corporate strategy, boundaries of the firm, types of vertical integration along the value chain, and corporate diversification. Chapter 9: Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions (ULO 4.1) This chapter reviews how firms achieve growth, strategic alliances, and mergers and acquisitions. Unit Lesson Lesson: Corporate Strategy (ULO 4.1)
What Is Corporate Strategy? Corporate strategy is a fact-based system that assists organizational leaders in securing competitive advantage for their firm. In that regard, Rothaermel (2024) notes that corporate strategy frames the boundaries of a firm to include three key components: vertical integration, horizontal diversification, and geographic scope. This is illustrated in Exhibit 8.2: The Three Dimensions of Corporate-Level Strategy: Vertical Integration, Horizontal Diversification, and Geographic Scope, in the course textbook. Vertical integration considers the value chain from transforming raw materials to finished products. Horizontal diversification considers the range of products and services being offered. Geographic scope considers the location of the activities of the firm—local, regional, national, or global. Of course, firms are under pressure to grow. Growth can include increased profits, reduced costs, an increase in market power, reduction of risk, and/or motivation of management and employees (increased productivity).
Boundaries of the Firm The corporate strategy is a template that assists in establishing the boundaries of the firm. In part, the boundaries of the firm can be explained by transaction costs that can be internal or external. Controlling these costs is a key way a firm can expand on its competitive advantage by keeping costs lower. Organizing the economic activity of a firm should reflect the unique attributes of the firm and the sector within which it operates. How is technology driving change in organizing the economic activity of a firm? One component of the organizational design discussion relates to the principal agent problem. Rothaermel (2024) defines this problem as a “situation in which an agent performing activities on behalf of a principal pursues his/her own interests” (p. R-2). An example of this concern in application would be a chief executive officer of a firm making decisions of value more to the benefit of the CEO as opposed to the firm.
UNIT V STUDY GUIDE Corporate Strategy
BUS 6320, Global Strategic Management 2
UNIT x STUDY GUIDE Title
The Make or Buy Continuum As illustrated in Exhibit 8.5: Alternatives on the Make-or-Buy Continuum, firms often are faced with a basic decision: to buy a service or product outside of the firm or to make that service or product internally. Of course, each option comes with its costs and benefits and the correct answer to the make or buy question is contextual.
Strategic Alliances As firms look to grow alliances are an important opportunity that must be considered. Rothaermel (2024) defines strategic alliances as “voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services” (p. 307).
Corporate Diversification There are three important questions framing corporate strategy:
1. Vertical integration is a process in which a firm acquires another company for greater control related to the supply or distribution chain. Vertical integrations can assist a firm in increasing profits as well as making them less dependent on suppliers and/or distributors. Vertical integration can include backward and/or forward integration, and it is about the control of all aspects of the value chain of the firm. For example, a firm might decide to take control of the inputs of its production process instead of depending on a supplier. This would include acquiring a process that was previously contracted out— for example hiring employees.
2. Horizontal integration relates to a firm buying the competitor. Horizontal integration can assist a
company expand and diversify as well as enter new markets.
3. Geographic scope refers to the physical area in which the firm operates. Many successful firms have strategically included a global component as a key part of their growth plans. For example, many firms have expanded operations into China to take advantage of lower labor costs and/or a much larger market.
Build-Borrow-Buy
In this unit, we explored the importance of firms looking to grow. As a firm considers growth options, they often look at build-borrow-buy options. There are different costs and risks associated with each of these options. For example, a build option would take longer in many cases as opposed to buying an existing plant or operation. The key point is that a firm should carefully consider the build-borrow-buy framework as a part of their growth plan. Each of these options can be effective as illustrated in Exhibit 9.1: Guiding Corporate Strategy: The Build-Borrow-Buy Framework. When deciding on the best option for a firm, consideration should be based on the unique aspects of the firm and the factors that inform that decision. Lauby (2018) of the Society for Human Resource Management notes that this model can be applied to decisions around hiring employees.
Alliances In terms of alliances, firms enter these voluntary relationships “to strengthen competitive position; enter new markets; hedge against uncertainty; access complementary assets; or learn new capabilities” (Rothaermel, 2024, p. 356). Exhibit 9.4: How to Make Alliances Work provides guidance on managing alliances to the benefit of both parties. Rothaermel notes that trust is a critical aspect of any strategic alliance. The alliance must be managed to the benefit of both firms.
Mergers and Acquisitions A merger is the joining of two separate companies to form a new firm. Mergers assist a firm in reducing competitive intensity, lowering costs, and increasing differentiation (Rothaermel, 2024).
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Acquisition is the takeover or purchase of one firm by another. The rationale behind acquisition includes “access to new markets and distribution channels, access to a new capability or competency, strategic preemption” (Rothaermel, 2024, p. 361).
Summary In conclusion, the environment of business—domestic and global—is turbulent with change as a constant factor to be addressed by all firms. For a company to develop and maintain a competitive advantage, the firm must constantly monitor its own capabilities and that of its competitors, and continuous improvement is critical. Organizational leaders must understand that they need to develop new resources, competencies, and capabilities to continually take advantage of emerging opportunities (Larson, 2016).
References Larson, C. (2016, November 15). Disruptive innovation theory: What it is & 4 key concepts. Harvard Business
School Online’s Business Insights. https://online.hbs.edu/blog/post/4-keys-to-understanding-clayton- christensens-theory-of-disruptive-innovation
Lauby, S. (2018, May 11). How to create a recruiting strategy: Buy, build, and borrow. Society for Human
Resource Management. https://www.shrm.org/ResourcesAndTools/hr-topics/talent- acquisition/Pages/How-to-Create-a-Recruiting-Strategy.aspx
Rawpixel. (n.d.). Character illustration of people with global network concept [Image]. Freepik.
https://www.freepik.com/free-vector/character-illustration-people-with-global-network- concept_3585190.htm#query=strategy%20global%20business%20planning&position=2&from_view= search&track=ais&uuid=eab5dd3f-267d-4ae8-9a3a-5381e987b5ac
Rothaermel, F. T. (2024). Strategic management (6th ed.). McGraw Hill.
https://online.vitalsource.com/#/books/9781265954574 Vector4stock. (n.d.). Business process illustration infographic of business structure from idea to successful
business [Image]. Freepik. https://www.freepik.com/free-vector/business-process-illustration-infographic-business-structure-from- idea-successful-business- project_26195295.htm#query=strategy%20global%20business%20planning&position=34&from_view =search&track=ais&uuid=eab5dd3f-267d-4ae8-9a3a-5381e987b5ac
Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid you in your course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Activity: Vertical Integration Reflection (Optional) As we see in this unit, integration is an important strategy for a firm to consider. In Chapter 8, review the section “When Does Vertical Integration Make Sense?” In a personal journal, write your responses to the following questions:
• How would you apply the concept of vertical integration to the firm that you selected earlier for the Unit III Assignment?
• Has the global pandemic impacted the use of vertical integration? Activity: Case Study (Optional) In Chapter 8, read the Chapter Case 8 Part I: Amazon’s Corporate Strategy. In a personal journal note your thoughts on the following questions:
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• How has Amazon evolved from an online bookstore to one of the largest retailers in the world? • In reviewing Amazon’s strategic initiatives, how do you see innovation and technology playing a part
in their success? Activity: Strategy Highlight 8.1 (Optional) In Chapter 8, read Strategy Highlight 8.1: The Equity Alliance between Coca-Cola and Monster: A Troubled Engagement? In a personal journal, note your thoughts on the following question:
• How do we develop strategic alliances that are beneficial to each party? Activity: Strategy Highlight 8.2 (Optional) In Chapter 8, read Strategy Highlight 8.2: P&G’s Diversification Strategy: Turning the Tide? In a personal journal, note your thoughts about the diversification strategy.