EXECUTIVE JULY 2008 IPMI Graduate School of Business 1 CORPORATE STRATEGY.
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Transcript of EXECUTIVE JULY 2008 IPMI Graduate School of Business 1 CORPORATE STRATEGY.
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EXECUTIVE JULY 2008
IPMI Graduate School of Business
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CORPORATE STRATEGY
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Mustafa I. Yatim
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Corporate Strategy Module
Session 5-6 Corporate Strategy FrameworkSession 7-8 Corporate Strategy In ActionSession 9-10 Related and Unrelated Diversification
Session 11-12 Vertical IntegrationSession 13-14 Merger and AcquisitionSession 15-16 DivestitureSession 17-18 Strategic Alliance
Session 19-20 Group Presentation (Final Exam)
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BS CS
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What What is is d difference ifference between between B Bususiness iness & & CorpCorporateorate StratStrategy egy ??Simple draw single bus and multi-busSimple draw single bus and multi-bus
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Corporate Strategy Corporate Strategy FrameworkFramework
BUSINESS MIX(industry, biz strategy, ownership)
CORP HQ ROLE (organization,
control, process)
RESOURCES(assets, skill, competence)
VISION
OBJECTIVE
SKILL TRANSFER SHARING ASSETS
PORTFOLIO STRATEGY
SHARED ACTIVITIES TIGHT CONTROL
CORPORATE ADVANTAGE
• __________
• __________
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OBJECTIVES ALTERNATIVES CHOICES
IMPLEMENTATION RESULTS
FEEDBACK
PREDICTIVE MODEL
REWARDS SYSTEM
FACTORS INFLUENCEDBY:GOVERNMENTCOMPETITORSCUSTOMERS
CORPORATE STRATEGY MODULE
THE STRATEGY CONTROL FRAMEWORK (1)
Source: Janek Ratnatungga
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Internal Appraisal
Continous Review
PreliminaryObjectives
Internal/ExternalEvents
External Appraisal
Major - SWOT -STRENGTHS, WEAKNESSES, THREATS, AND OPPORTUNITIES ( Core Skills)
MODIFIED OBJECTIVES STRATEG
YPROD/MKTPORTFOLIO PLANS
DEV of New Biz Ideas (NBA)
EVALUATION of NBA
INTERNAL GROWTH orACQUISITION
DEV. ORG. STRUCTURES
DESIGN CONTROL PROC and FUNCTIONAL PLANS
EVALUATION of STRATEGY
CORPORATE STRATEGY MODULE
THE STRATEGY CONTROL FRAMEWORK (2)
<- - - - - - PERCEPTION OF PROBLEM- - - - - - - > < - - - - - - - - - - - - - - - - -- - - - - - - - APPRAISAL - - - - - - - - - - - - - - - - - - - ->
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< -- -FOCUS ON NEW BUSINESS AREA- - - - - - >
< - - - - - - - - - - IMPLEMENTATION - - - - - - - - - - - - - - - - - - - - - - - - - >
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Sessions 11 + 12: Vertical IntegrationSessions 13 + 14: Mergers & AcquisitionsSessions 15 + 16: DivestitureSessions 17 + 18: Strategic Alliance 8
Corporate StrategyCONTINUED
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Sessions 11 + 12
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VERTICAL INTEGRATION
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Corporate Strategy Where to Compete
• Product ScopeCoca-Cola ; chinese-food restaurant ; contractors ; packaging
• Geographic ScopeAutomobile ; cement ; ceramic products ; padang-food restaurant
• Vertical ScopeCigarette ; automobile ; dairy produces ; textile
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Strategy In Action
• Concentric Diversification
• Conglomerate Diversification
• Horizontal Integration
• Vertical Integration
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Vertical & Horizontal Integration
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Vertical Integration: Acquisition of supplier / Customer
Horizontal Integration: Acquisition of competing biz
Textile Producer
Shirt Mfc
Clothing Store
Textile Producer
Shirt Mfc
Clothing Store
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Vertical Integration
The extent of vertical integration is indicated by the ratio of the firm’s value added to it’s sales revenue .
Full integration exists when all of the 1st stage’s production is transfered to 2nd stage with no sales or purchase from third parties.
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Why Integrate Vertically ?
The administrative cost factor :• Optimal scale difference,• Managing different businesses,• developing distictive capabilities,• the incentive / agency problem,• competitive effects of vertical integration,• Flexibility• Compounding risk
The administrative cost of organizing within the firm involves all the cost of production + the divided attention of management.14
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Evaluating Diversification Strategy:Horizontal and Vertical Diversification
Better-off test:Does parent improve competitive advantage of businesses
above what they can do themselves?Does it lead to reduce costs : C[y1,y2]<C[y1,0]+C[0,y2])?Does it lead to increased revenue : R[y1,y2]>R[y1,0]+R[0,y2])?
Ownership test:Does parent ownership produce greater competitive advantage
than an alternative contractual arrangement?Depends on legal environment (contract enforcement)
Do ownership costs outweigh the economic benefits?
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Characteristics of VI
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How many firms in the vertically related activity ?Do transaction-specific investments need to be made by either
party ?How well distributed is information between the vertical stages ?Are market transactions in intermediate products subject to tax
regulations ?Are two stages similar in terms of the optimal scale of operations?How great is the need for continual investment in upgrading
capabilities within individual activities ?How uncertain is market demand ?
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Cost - Benefitof Vertical Integration?
17 Buzzell, “Is Vertical Integration Profitable” (1983)
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Case: ARAUCO
• Explain about ARAUCO
• Appoint 2 groups to make separate presentations:• First Group : Perception of Problem
(internal + external events , SWOT)
• Second Group : What is/are Objective(s) and Strategy
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Case: AraucoVertical Integration
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Paper
• None
Pulp
• Cellulosa Arauco
Forestry
• Forestal• Bioforest
Plywood/ Panel
SawmillForestry
• Paneles Arauco
• Aserraderos Arauco
• Forestal• Bioforest
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Case: AraucoWhat to Do with USD 1 billion?
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Forestry
Pulp Paper Sawmill Panel
Pro
Cons
A more comprehensive
thinking, including impact among value chain, is
required to develop a good
strategy for vertically integrated business
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• Reason for vertical integration should be clear, and really bring benefits
• Comprehensive consideration of existing businesses in the value chain is mandatory. Benefits of vertical integration varies by industry
• Market and competitive situation, and competitive advantage should also be considered.
• VI is a tempting growth engine, but it should be evaluated carefully
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Case: AraucoLessons Learned
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Individual Assignment:
• Task : In your own words, explain the FOURdiversification strategic actions that you’velearned in this course subject.
Give an example of each, from Indonesian companies that you know, that are practicing these strategies. Explain and elaborate !
one-and-half pages minimum, maximum 3.
Submit via email, latest : Fri – 16 July 2010.22