| What is corporate strategy? | Corporate strategy relates to how strategy is managed across multi-part organizations.
(a) about the overall scope of company strategy, and
(b)how the centre adds value (or not) to the constituent businesses of the firm
Wider organizational terrain, but still the same strategy questions: which business areas, industries, and locations to be active in? What resources are necessary? How to achieve competitive advantage? etc. Choices to win. |
| What are the different levels of strategy? | Questions of scope, alliances; diversity; M&A; resource allocation. Product innovation; cost control; marketing; responding to competitors. The strategy describes how resources, processes, and people in support the above categories. |
| What is the purpose of corporate level strategy? | As organisations get bigger, their strategies cannot be solely concerned with achieving competitive advantage in one market, or in one business. They need to take a bigger and wider view. |
| How can we analyse the strategic directions for growth? | We can do so using Ansoff's matrix: 4 directions for organisational growth. Typically a firm starts in zone A.
Each of 4 strategies is a diversification strategy:
1. Market penetration (A) Existing markets / Existing products
2. Products and services development (B) Existing markets / New products
3. Market development (C) New markets / Existing products
4. Unrelated diversification (D) New markets / New products |
| What does Ansoffs market penetration strategy cover? | Market penetration increasing share of current markets with the current product range. This strategy:
• means the organisation’s scope is unchanged
• builds on established capabilities
• Attempts to get greater market share and increased power vs. buyers and suppliers
• provides greater economies of scale and experience curve benefits.
Limits and dangers of this strategy:
1. Retaliation from competitors e.g. price wars
2. Legal constraints e.g. limits imposed by regulators
3. ‘Economic constraints e.g. market downturn, or public funding squeeze |
| What does Ansoffs product/service development strategy cover? | Where a firm brings new products or services to existing markets. (Sometime forced by encroachment into core market e.g. TomTom goes into sports watches and action cameras. p.137)
• May require new resources and capabilities
• May require mastering new processes or technologies
• May involve project management risks. Often leads to growing service and administration complexity or legal risks |
| What does Ansoffs market development strategy cover? | Where a firm takes existing products or service to new markets. Involves:
• New customer groups
• New geographies (extending the market to new areas)
Requires crossing barriers to entry.
Requires meeting the critical success factors of the new market. |
| What does Ansoffs unrelated diversification strategy cover? | Diversifying to products or services with no relationships to existing businesses. Value may be created:
• SBUs may benefit from being part of a larger group
• Corporate brand recognition may lift some SBU
• A larger organisation can can aggregate purchasing and so reduce costs, or cross-subsidise
Conglomerate: extreme form of unrelated diversification. “a combination of multiple business entities operating in different industries under one corporate group, usually involving a parent companyandmanysubsidiaries” |
| What reasons might a firm have to diversify (Hence using the diversification strategy)? | 1. Exploiting currently superior internal processes / successes
2. Seeking synergies, where activities or assets complement new ones.
3. Exploiting economies of scope, gains through applying the organisation’s existing resources or competences to new markets or services. e.g. Exec Ed using university residences in the summer
4. Stretching corporate management competences across a wider portfolio. (Corporate managerial capabilities applied across a portfolio of businesses is known as “the dominant logic”)
5. Cross-subsidisation. Diversification increases power to cross-subsidise one business from the profits of the others.
6. Increasing market power via “mutual forbearance.” Having the same or wider portfolio of products vs. competitor increases ability to retaliate if they attack
7. When the industry is at a mature phase / no further growth
8. (Bonus item) Facilitates transfer-pricing shenanigans |
| What are the dangers of diversifying? | There are some limits and dangers to diversification:
1. Management egos, ambition (“size matters” etc.)
2. Addressing declining results by “starting new things” instead of fixing what is wrong (incl. strategic renewal)
Diversification should be used before industry sales start to decline. If a firm has not diversified, their sales will start to decline and as they have no other products/services so will overall business performance: |
| When looking at the industry lifecycle, when should a diversifying strategy be used? | When the industry has reached a maturity point and beginning to decline. |
| What is vertical integration? | Vertical integration: where the firm becomes its own supplier or customer. It is a form of diversification as it increases corporate scope. |
| What are the limits / dangers of vertical integration? | There are some limits and dangers to vertical integration:
1. Investment risk. New activities may be less profitable than the original core business. Also financing strain
2. Lack of synergies, including cultural fit
3. Lack of resources and capabilities. e.g. car manufacturers forward-integrating into car servicing find managing networks of small service outlets very different to managing large manufacturing plants. |
| What are some ways of vertical dis-integration? | Outsourcing and sub-contracting
If a vertically integrated part is not adding value to the overall business, it can be offloaded.
Offloaded entity may lower costs or improve quality:
• External supplier may have superior capabilities. More specialized systems. More updated tech. Skill-focused employees. etc.
• Supplier may have scale or experience economies
Outsourcing allows the principal firm to:
• “stick to its knitting”
• Reduce the size of its balance sheet
• Flexibly adjust to market demand |
| What is subcontractor opportunism? | When a subcontractor exploits their power to decrease quality / increase price.
Subcontractor opportunism is found where:
• There are few alternatives to the subcontractor
• The product or service is complex and changing, and therefore hard to specify in a legally binding contract
• Principal firm investments have been made in specific assets, which the subcontractor knows will have little value if they withhold their product or service. (Supplier Power) |
| What are the limits and dangers of outsourcing? | “Subcontractor Opportunism” - where suppliers take advantage of their position, either to reduce standards or to extract higher prices. |
| What is international diversification and what are the challenges? | Diversification across borders.
Challenges:
• Different customer types and preferences
• Local economic, regulative, political, and cultural institutions that often differ substantially from home.
= competitive disadvantage vs local competitors who have superior knowledge of local market, institutions, supply chain contacts, etc.
Therefore the foreign entrant needs to balance this with significant resources and capabilities advantages. These can be global brand recognition; access to more advanced technology/manufacturing; marketing or sales skills; access to capital. |
| What are some trade-offs between global vs local in terms of international strategy? | The fundamental issue in an international strategy is to balance global integration vs local responsiveness.
Pressures for global integration: centralize and coordinate activities across diverse countries to gain efficient operations, lower costs and higher quality via activities on a global scale.
Pressures for local responsiveness: Values, attitudes, institutions, cultures and laws differ across countries, which demands need to disperse operations and adapt to local demand.
For some products e.g. Flat-screen TVs, markets appear similar across the world = offering huge potential scale economies. |
| What are the 4 types of international strategy? | • Export strategy. Leverages home country capabilities, innovations and products in different foreign countries.
• Multi-domestic strategy. Maximises local responsiveness and is loosely coordinated internationally. Appropriate when there is strong need to adapt to local needs, and limited efficiency gains.
• Global strategy. Maximises global integration efficiencies, focuses on capturing scale economies.
• Transnational strategy. Combination of centralised scale and efficiency with distributed assembly and local adaptations.
(The complexity of transnational strategy makes it harder to implement) |
| What is corporate parenting? | Corporate parenting relates to the relationship between head office and SBUs (Strategic business units).
Head office can “parent” the SBUs in the following ways value-adding ways:
1. Envisioning (Setting the strategic direction)
2. Facilitating synergies (increase corporation between SBUs)
3. Coaching
4. Providing central services and resources
5. Intervening |
| What are the benefits of corporate parenting? | It has the following benefits:
• Redefining, restructuring or reengineering the business
• Correcting strategic errors: e.g. excess capacity, under-investment
• Linking skills & resources with other SBUs
• Providing expertise, e.g. global expansion, acquisition
• Managing relationships, e.g. suppliers, government
• Replacing failing managers |
| What are the downsides to corporate parenting? | However, corporate parenting can lead to the following value-destroying activities:
• Adding management costs
• Adding bureaucratic complexity
• Obscuring financial performance
Corporate parents must create more value than they cost! |
| What are portfolio models and what is the corporate parants role in this? | Portfolio models are use to determine these portfolio choices i.e. the balance of a corporate portfolio (The products and services a firm sells).
Among its various roles, the corporate parent needs to assess:
• which industries and businesses should be part of the corporation (added or divested)
• whether any individual business is worth more under corporate umbrella, or would be worth more stand-alone.
There are many models that managers can use to determine SBU portfolio choices. Each model pays attention to three criteria:
1. The balance of the portfolio
2. The attractiveness of the business units (how strong they are individually, and the growth rates of their markets or industries)
3. The ‘fit’ that the business units have with each other (potential synergies, or the extent to which the corporate parent can add value
The BCG Matrix is the most common model to use in this regard. |
| What is the BCG matrix? | The BCG matrix is a model to manage the portfolio of products and services/business units a firm offer. Each product, business unit etc. is ranked based of market share and market growth. This creates the following 4 ways to classify each product/business unit:
1. A star: SBU that has a high market share in a growing market.
2. A question mark (or problem child) is an SBU in a growing market, but it does not yet have high market share
3. A cash cow is an SBU that has a high market share in a mature market
4. A dog is an SBUs with low market share in a static or declining market. |
| What are the limits and dangers of the BCG matrix? | • Assumption that financing investment must come from internal sources (cash cows), when capital can be raised from external markets
• Commercial linkages between business units are ignored, but there may be important dependencies.
• Underfunding, low parent attention, and motivation problems (towards cow and dog SBUs) may lead to self-fulfilling prophecy of decline. |
| What are the 4 corporate growth methods? | 1. Organic growth: when a firm builds on and develops its own capabilities over time.
2. Strategic alliance: where two or more firms agree to share resources and activities, and/or to pursue a common strategy.
3. Merger: when two firms agree to become one entity on a relatively equal basis.
4. Acquisition: when an acquirer takes control by purchasing a target company (via the stock market for a listed company) or a controlling interest in another, with the intent of making the acquired firm a subsidiary business within its own portfolio. (Can be ‘hostile’ i.e.the target did not solicit the bid) |
| What is the purpose of M&A? | See pic |
| What are some problems with M&A? | See pic |
