© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 SESSION 13: CORPORATE LEVEL STRATEGY:...
-
Upload
michael-young -
Category
Documents
-
view
213 -
download
0
Transcript of © 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 SESSION 13: CORPORATE LEVEL STRATEGY:...
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
1
SESSION 13: CORPORATE LEVEL SESSION 13: CORPORATE LEVEL STRATEGY: Analysis and Choice in The STRATEGY: Analysis and Choice in The
Multi-Business CompanyMulti-Business Company
Rationalizing Diversification and Building Shareholder Value
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
2
The Concept of Corporate-Level StrategyThe Concept of Corporate-Level Strategy
Primary Question - Where to Compete?
Are there other business opportunities?
Entering or exiting Industries
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
3
CL Strategy – Whether to Diversify?CL Strategy – Whether to Diversify?
Synergies
Growth Opportunities
Agency Issues – “Empire Building”
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
4
Multibusiness Corporations Multibusiness Corporations
Corporations comprised of multiple businesses are often referred to as having a portfolio of
businesses
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
5
By Definition a change in Corporate Level Strategy should be reflected in a
change in Mission Statement
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
6
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
7
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
8
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
9
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
10
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
11
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
12
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
13
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
14
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
15
SONY PICTURES STUDIOS
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
16
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
17
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
18
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
19
The Portfolio Approach to Corporate Level The Portfolio Approach to Corporate Level Strategy Strategy
Research Allocation Decisions
How does Corporate Affiliation Provide Value?
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
20
GE and McKinseyGE and McKinsey
The Concept of The SBU
Corporate Review Capability
Matrices to Facilitate/Illuminate the Resource Allocation Decision
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
21
To Be Designated an SBU, Businesses had to:To Be Designated an SBU, Businesses had to:
Have a unique mission independent of other SBUs
Have a clearly definable set of competitorsCompete in external marketsBe able to carry out integrative planning
relatively independent of other SBUsBe able to manage resources in key areasBe large enough to justify senior management
attention
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
22
Balancing Financial Resources: Portfolio TechniquesBalancing Financial Resources: Portfolio Techniques
Industry Attractiveness-
Business Strength Matrix
BCG Growth-Share Matrix
Life Cycle-Competitive
Strength Matrix
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
23
BCG Growth-Share MatrixBCG Growth-Share Matrix
High
Low
Cas
h U
se (
Gro
wth
Rat
e)
StarProblem
Child
Cash Cow Dog
Cash Generation (Market Share)High Low
Market Share: Sales relative to those of other competitors in market (dividing point is usually selected to have only 2-3 largest competitors in any market fall into high market share region)
Growth Rate: Industry growth rate in constant dollars (dividing point is typically GNP’s growth rate)
Description of Dimensions
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
24
Factors Considered in Constructing an Industry Factors Considered in Constructing an Industry Attractiveness-Business Strength MatrixAttractiveness-Business Strength Matrix
Nature of Competitive Rivalry
• Number of competitors
• Size of competitors
• Strength of competitors’ corporate parents
• Price wars
• Competition on multiple dimensions
Bargaining Power of Suppliers/Customers
• Relative size of typical players
• Numbers of each
• Importance of purchases from or dales to
• Ability to vertically integrate
Threat of Substitutes/ New Entrants
• Technological maturity/stability
• Diversity of the market
• Barriers to entry
• Flexibility of distribution system
Industry Attractiveness FactorsIndustry Attractiveness Factors
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
25
Fig. 9-3: Factors Considered in Constructing an Industry Fig. 9-3: Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued) Attractiveness-Business Strength Matrix (continued)
Economic Factors
• Sales volatility
• Cyclicality of demand
• Market growth
• Capital intensity
Financial Norms
• Average profitability
• Typical leverage
• Credit practices
Sociopolitical Considerations
• Government regulation
• Community support
• Ethical standards
Industry Attractiveness FactorsIndustry Attractiveness Factors
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
26
Fig. 9-3: Factors Considered in Constructing an Industry Fig. 9-3: Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (continued) Attractiveness-Business Strength Matrix (continued)
Cost Position
• Economies of scale
• Manufacturing costs
• Overhead
• Scrap/waste/rework
• Experience effects
• Labor rates
• Proprietary processes
Level of Differentiation
• Promotion effectiveness
• Product quality
• Company image
• Patented products
• Brand awareness
Response Time
• Manufacturing flexibility
• Time needed to introduce new products
• Delivery times
• Organizational flexibility
Business Strength FactorsBusiness Strength Factors
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
27
Fig. 9-3: Factors Considered in Constructing an Industry Fig. 9-3: Factors Considered in Constructing an Industry Attractiveness-Business Strength Matrix (concluded) Attractiveness-Business Strength Matrix (concluded)
Financial Strength
• Solvency
• Liquidity
• Break-even point
• Cash flows
• Profitability
• Growth in revenues
Human Assets
• Turnover
• Skill level
• Relative wage/salary
• Morale
• Managerial commitment
• Unionization
Public Approval
• Goodwill
• Reputation
• Image
Business Strength FactorsBusiness Strength Factors
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
28
Fig. 9-4: Industry Attractiveness-Business Strength MatrixFig. 9-4: Industry Attractiveness-Business Strength Matrix
InvestSelective Growth
Grow or Let Go
SelectiveGrowth
Grow orLet Go
Harvest
Grow orLet Go
Harvest DivestLow
High
Medium
Bu
sin
ess
Str
engt
h
MediumHigh Low
Industry Attractiveness
Industry Attractiveness: Subjective assessment based on broadest possible range of external opportunities and threats beyond control of management
Business Strength: Subject assessment of how strong a competitive advantage is created by a broad range of a firm’s internal strengths and weaknesses
Description of Dimensions
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
29
Advantages of the Industry Attractiveness-Business Advantages of the Industry Attractiveness-Business Strength Matrix over the BCG Matrix Strength Matrix over the BCG Matrix
Terminology is less offensive and more understandable
Multiple measures associated with each dimension tap many factors relevant to business strength and market attractiveness
Allows for broader assessment during both strategy formulation and implementation for a multibusiness company
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
30
Fig. 9-5: Market Life Cycle-Competitive Strength MatrixFig. 9-5: Market Life Cycle-Competitive Strength Matrix
Stage of Market Life Cycle: See page 182
Competitive Strength: Overall subjective rating, based on wide range of factors regarding likelihood of gaining and maintaining a competitive advantage
Description of Dimensions
Low
High
Moderate
Com
pet
itiv
e St
ren
gth
GrowthIntroduction Maturity
Stage of Market Life Cycle
Decline
Push:
Invest
Aggre
ssively
Caution:
Invest
Selecti
vely
Danger:
Harvest
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
31
Contributions of Portfolio ApproachesContributions of Portfolio Approaches
Convey large amounts of information about diverse businesses and corporate plans in a simplified format
Convey large amounts of information about diverse businesses and corporate plans in a simplified format
Illuminate similarities and differences among businesses, conveying the logic behind corporate strategies for each business
Illuminate similarities and differences among businesses, conveying the logic behind corporate strategies for each business
Simplify priorities for sharing corporate resources across diverse businesses
Simplify priorities for sharing corporate resources across diverse businesses
Provide a simple prescription of what should be accomplished - a balanced portfolio of businesses
Provide a simple prescription of what should be accomplished - a balanced portfolio of businesses
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
32
Limitations of Portfolio ApproachesLimitations of Portfolio Approaches
Does not address how value is created across business unitsDoes not address how value is created across business units
Accurate measurement for matrix classification not as easy as matrices implied
Accurate measurement for matrix classification not as easy as matrices implied
Underlying assumption about relationship between market share and profits varies across different industries and market segments
Underlying assumption about relationship between market share and profits varies across different industries and market segments
Limited strategic options viewed as basic strategic missionsLimited strategic options viewed as basic strategic missions
Portrays notion that firms need to be self-sufficient in capitalPortrays notion that firms need to be self-sufficient in capital
Fails to compare competitive advantage a business receives from being owned by a particular company with costs of owning it
Fails to compare competitive advantage a business receives from being owned by a particular company with costs of owning it