Corporate Strategy
-
Upload
laith-oneal -
Category
Documents
-
view
30 -
download
0
description
Transcript of Corporate Strategy
Corporate Strategy
• What is it?
• What are its main concerns?
• How is it different from business-level
strategy?
History of Corporate Strategy: 1950s & 1960s
• Conglomerates• Undervalued companies & general mgmt skills• The reality of this period• Contributions to C.S.:
– Concept of corporate strategy
– SWOT
– Structure follows strategy
– Strategic fit
Examples of Strategic Fit
• Resource strengths are well matched to the KSFs of industries the firm competes in
• Adequate managerial expertise exists to cope with problems of current businesses
• Ability exists to transfer resources and capabilities from one business to another
• Good financial fit is when a business:– Contributes to achievement of corporate objectives– Enhances shareholder value
History of Corporate Strategy: 1970s
• Unrelated diversification still in vogue
• Search for portfolio planning tools
• Contributions to C.S.:– BCG Matrix & GE Matrix– Rumelt’s diversification typology– Valuable internal capital allocation (Williamson ‘75)
The BCG Growth-Share Business Portfolio Matrix
Circle Size = proportion of total revenue business contributes to corp.
Weaknesses of the BCG Matrix
• No average position
• Oversimplification
• Position in matrix investment success
• Cash cows defending shrinking market share
• 2 dimensions -- inadequate
• Cash flow emphasis
Constructing a GEAttractiveness/Strength Matrix
• Use quantitative measures of industry attractiveness and business strength to plot location of each business in matrix
• Each business unit appears as a circle– Area of circle is proportional to size of
business as a percent of company revenues (Or area of circle can represent relative size of
industry with pie slice showing the company’s market share)
Procedure: Rating the RelativeRelative Attractiveness of Each Industry
Step 1: Select industry attractiveness factors
Step 2: Assign weights to each factor (sum of weights = 1.0)
Step 3: Rate each industry on each factor (use scale of 1 to 10)
Step 4: Calculate weighted ratings; sum to get an overall industry attractiveness rating for each industry
Example: Rating Industry Attractiveness
Attractiveness Rating
5
8
2
6
4
7
4
5
Weighted Industry Rating
0.75
2.40
0.10
0.30
0.20
1.05
0.60
0.50
5.90
Weight
0.15
0.30
0.05
0.05
0.05
0.15
0.15
0.10
1.00
Industry Attractiveness Factor
Market size and projected growth
Intensity of competition
Emerging industry opportunities and threatsSocial, political, regulatory, and environmental factors
Seasonality and cyclical influences
Resource requirements
Industry profitability
Degree of risk and uncertainty
Sum of weights
Industry attractiveness rating
Rating Scale: 1 = Unattractive; 10 = Very attractive
Rating the Competitive Strength of Each Business
Step 1: Select competitive strength factors
Step 2: Assign weights to each factor (sum of weights = 1.0)
Step 3: Rate each business on eachfactor (use scale of 1 to 10)
Step 4: Calculate weighted ratings; sum to get an overall attractiveness rating for each business
Example: Rating a Business Unit’s Competitive Strength
Strength Rating
5
8
2
6
4
7
4
5
Weighted Strength Rating
1.00
2.00
0.10
0.60
0.20
1.05
0.40
0.50
5.85
Weight
0.20
0.25
0.05
0.10
0.05
0.15
0.10
0.10
1.00
Competitive Strength Measure
Relative market share
Ability to compete on cost
Ability to match rivals on quality or service
Technology/innovation capabilities
How well resources match KSFs
Brand name reputation/image
Degree of profit relative to rivals
Sum of weights
Competitive strength rating
Rating Scale: 1 = Weak ; 10 = Strong
Bargaining leverage
General Electric’s Industry Attractiveness-Business Strength Matrix
Low
High
Medium
AverageStrong Weak• Market Size• Growth Rate• Profit Margin• Intensity of Competition• Seasonality• Cyclicality• Resource Requirements• Social Impact• Regulation• Environment• Opportunities & Threats
• Relative Market Share• Reputation/ Image• Bargaining Leverage• Ability to Match Quality/Service
• Relative Costs• Profit Margins• Fit with KSFsIndustry
Attractiveness
Business Strength
Rating Scale: 1 = Weak ; 10 = Strong
6.7
3.3
10.0
1.0
1.03.36.7
Strategy Implications of Attractiveness/Strength Matrix
• Businesses in upper left corner– Accorded top investment priority– Strategic prescription is grow and build
• Businesses in three diagonal cells– Given medium investment priority– Invest to maintain position
• Businesses in lower right corner– Candidates for harvesting or divestiture– May be candidates for an overhaul and reposition
strategy
The Attractiveness/Strength Matrix
• Allows for intermediate rankings between high and low and between strong and weak
• Incorporates a wide variety of strategically relevant variables
• Stresses allocating corporate resources to businesses with greatest potential for
– Competitive advantage and
– Superior performance
Rumelt’s Diversification Typology
Levels of Diversification Source of Revenues Linkages Between Business
Low Level: Single Business > 95% from a single
businessN/A
Low Level: Dominant Business
70% to 95% from a single business
Linkages between two businesses
Moderate-High Level:
Related-Constrained< 70% from dominant
businessAll businesses share linkages
Moderate-High Level:
Related Linked< 70% from dominant
businessOnly some businesses share
linkages
Very High Level:
Unrelated< 70% from dominant
businessNo linkages
History of Corporate Strategy: 1980s• Sticking to the Knitting• Restructuring: Downsizing, Downscoping, &
LBOs• Corporate Raiders
• Contributions to C.S.:– Value-Based Strategy– New Concepts: Market for Control & Free Cash Flows– Porter’s Generic Corporate Strategies– Resource-Based View of the Firm
Value-Based Strategy
• Computed Value:– Discount forecasted cash flows using WACC– Compute share value
• Imputed Value:– Apply industry average P:E ratio to company
earnings to get imputed share value.
• Computed < Imputed … improve or sell
Porter’s Generic Corporate Strategies
• Portfolio Management
• Restructuring
• Transferring Skills
• Sharing Activities
Corporate Strategy in the ‘90s & Beyond
• Restructuring & Refocusing Continues, yet ...• Record Number of Mergers & Acquisitions
• Issues Confronted in this Course:– Are there generic corporate strategies?– What are the key elements of C.S.?– How do you achieve a corporate advantage?– Is any corporate advantage sustainable?– How far should one diversify?