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STRATEGIC MANAGEMENT & BUSINESS POLICY 13TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

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Corporate strategy- the choice of direction of the firm as a whole and the management of its business or product portfolio and concerns:

• Directional strategy

• Portfolio analysis

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Directional strategy- the firm’s overall orientation toward growth, stability, or retrenchment

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Portfolio analysis- industries or markets in which the firm competes through its products and business unites

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Growth Strategy:

Concentration and Diversification

• Merger- a transaction involving two or more corporations in which stock is exchanged but in which only one corporation survives

• Acquisition- the purchase of a company that is completely absorbed by the subsidiary or division of the acquiring corporation (Facebook acquisition of Instragram, WhatsApp)

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Growth Strategy

Concentration

• Vertical

• Horizontal

Diversification

• Concentric

• Conglomerate

Examples for diversification

• Restaurants

• A restauranteur can tap revenue streams

beyond serving meals in the restaurant.

Grocery stores can carry the restaurant's

line of salad dressings, marinades, or

sauces, for example. A restaurant might

have a gift shop to sell gifts tailored to the

restaurant, its menu, or community, such

as cookbooks, travel books and videos,

souvenirs, and postcards.

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Vertical growth- taking over the function previously provided by a supplier or by a distributor

• Vertical integration- the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing

• Horizontal growth is the expanding of a firm's

activities into other geographic regions and/or by

increasing the range of products and services

offered to current markets. Vertical growth, in

contrast, involves a firm's taking over a function

previously performed by a supplier or a distributor.

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• Full integration- a firm internally makes 100% of its key suppliers and completely controls its distributors

• Taper integration- a firm internally produces less than half of its own requirements and buys the rest from outside suppliers (BMW which uses both in-house market research from its Corporate Center Development and external market research

from independent, specialized firms.[4] Pepsi both having

integrated bottling subsidiaries while also relying on

independent bottlers for production and distribution

in some markets)

https://en.wikipedia.org/wiki/Tapered_integration

https://en.wikipedia.org/wiki/Pepsi

Examples

• Vertical integration dictates that one

company controls the end product as well

as its component parts. In technology,

Apple for 35 years has championed a

vertical model, which features an

integrated hardware-and-software

approach. For instance, the iPhone and

iPad have hardware and software

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Horizontal integration

• Facebook aquision of Instragram

(Facebook, looking to strengthen its

position in the social media and social

sharing space, saw the acquisition of

Instagram as an opportunity to grow its

market share, increase its product line,

reduce competition and access potential

new markets.

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http://www.investopedia.com/financial-edge/0412/did-facebook-overpay-for-instagram.aspx

http://www.investopedia.com/terms/a/acquisition.asp

Examples

• The Standard Oil Company's acquisition of

40 refineries.

• An automobile manufacturer's acquisition

of a sport utility vehicle manufacturer.

• A media company's ownership of radio,

television, newspapers, books, and

magazines.

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• Quasi-integration- a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control (Quasi-integrated arrangements place greater proportions of ownership equity at risk,

but they also provide greater flexibility in responding

to changing conditions than a contract may provide.)

• Long-term contracts- agreements between 2 firms to provide agreed-upon goods and services to each other for a specific period of time ( sellers and suplliers)

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NO Horizontal growth- expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets

• Horizontal growth is achieved through:

– Internal development

– Acquisitions

– Strategic alliances

Horizontal integration- the degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain

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Diversification Strategies

Synergy- when two businesses will generate more profits together than they could separately

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Diversification Strategies

Conglomerate (Unrelated) Diversification- growth into an unrelated industry

• Management realizes that the current industry is unattractive

• Firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries

Synergy

• Aim of diversification should be to create

value or wealth in excess of what firms

would enjoy without diversification.

• Synergy: the value of the combined firm

after acquisition should be greater than

the value of the two firms prior to

acquisition.

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Stability Strategies- continuing activities without any significant change in direction

• Pause/Proceed with caution strategy- an opportunity to rest before continuing a growth or retrenchment strategy

• No change strategy- continuance of current operations and policies

• Profit Strategies- to do nothing new in a worsening situation but instead to act as though the company’s problems are only temporary

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Retrenchment Strategies- used when the firm has a weak competitive position in some or all of its product lines from poor performance . (The Retrenchment Strategy is adopted when an organization aims at

reducing its one or more business operations with the

view to cut expenses and reach to a more stable

financial position)

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Retrenchment Strategies

Turnaround strategy- emphasizes the improvement of operational efficiency when the corporation’s problems are pervasive but not critical

• Contraction- effort to quickly “stop the bleeding” across the board but in size and costs

• Consolidation- stabilization of the new leaner corporation

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Captive Company Strategy- company gives up independence in exchange for security

Sell-out strategy- management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the company to another firm

Divestment- sale of a division with low growth potential

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Bankruptcy- company gives up management of the firm to the courts in return for some settlement of the corporation’s obligations

Liquidation- management terminates the firm

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Portfolio analysis- management views its product lines and business units as a series of investments from which it expects a profitable return

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Advantages and Limitations of Portfolio Analysis

Advantages:

• Encourages top management to evaluate each of the corporation’s businesses individually and to set objectives and allocate resources for each

• Stimulates the use of externally oriented data to supplement management’s judgment

• Raises the issue of cash flow availability to use in expansion and growth