Chapter 4

Corporate level strategy

What is a Corporate Level Strategy?

Essentially refers to broad or corporate-wide strategy synchronizing various

business level strategies into cohesive and coordinated efforts to achieve the

vision of the entire business organization.

The 4 E’s to Addressing Corporate Strategy

• Extend. It means extending the business by going beyond its current business model by adopting a new business model or entering into new business.

• Expand. This option takes the form of adding products and/or services within the context of the company’s existing business concern or present area of operation.

• Exit. This option takes the form of making some sacrifice by dropping some product lines and services or business units deemed uncompetitive or unprofitable or less profitable to operate.

• Enhance. This option takes the form of adding functionally or improving a product or service that is currently being offered.

Key Issues in Corporate Level Strategy• The firm’s overall orientation towards

growth, stability or retrenchment (directional Strategy)

• The industries or markets in which the firm competes through its products and business units. (portfolio Strategy)

• The manner in which management coordinates activities, the transfers resources, and cultivates capabilities among product lines and business units (parenting Strategy)

Strategic Choices at the Corporate Level

Business Closure. This is an undesired act of folding up or shutting down non profitable business units to control or avoid further losses.

Business Disposal. This calls for disposing or unloading some of the members, subsidiaries, affiliates or investments in other business concerns deemed unprofitable or less profitable and/or deemed a burden to the mother organization.

Business Acquisition. This is an option of business establishments meant to expand their size and make their presence felt in whatever area they want to do business.

Business Reorganization. This option may or may not lead to ownership changes among members of the organization or the conglomerate nor it may result to business acquisition or disposal option.

Business Start-up. This option means purposely organizing another business concern instead of simply acquiring an existing business organization or investing in it.

The impact of doing nothing different. Sounding weird and uncalled for, status quo can be an option if after a thorough study and analysis such situation is deemed appropriate.

Vertical Integration Option

Involves engaging in business activities to the level of sources

of supply or forward in the direction of final consumers.

Components of Vertical Integration

Full Integration. The firm internally makes 100 percent of its key supplies and completely controls its distributors.

Taper Integration. A firm internally produces less than a half of its own requirements and buys the rest from outside suppliers.

Quasi- Integration. The company does make any of its key suppliers but purchases most of its requirements from outside suppliers that are under its partial ownership or control.

Long-Term Contracts. The company signs an agreement or contact with another firm providing agreed upon goods and services for a specified period of time.

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What are the

another Corporat

e

Expansion

Option ?

• Forward vertical integration - the firm engages in business activities in the area of distribution and retailing of the product or services directly to the customer

• Backward vertical integration– the business concentrating the efforts at the stage of raw materials production or close the source of raw materials.

• Horizontal diversification – the firm engages in adding new product or services.

Horizontal diversification can be categorized into either:

• Conglomerate diversification - involves in dealing with product s or services that have nothing to do or not related to the kind of product or services it is presently dealing with.

• Concentric diversification – involves in dealing with the product or services that are somehow related with what the firm is presently handling.

What is a Strategic fit?

refers to the relatedness in making decisions concerning the

appropriateness of the strategy moves vis-à-vis the various operating

divisions or business unit of the company.

The concept of strategic fit has been categorized into three as follows

• Product fit

• Operating fit

• Management fit

Direction of Corporate Level Strategy Three Grand Strategies

1. Growth strategy – expands the company’s activities

Growth strategy can be categorized into the following:

Merger- involving two or more corporations in which a stock is exchanged or swapped among independent business organization from which only one company survives.

Acquisition – the purchase of a company then completely

absorbed as an operating subsidiary of the acquiring corporation.

Strategic alliance- involving a partnership among two or

more corporations to achieve strategically significant objectives that are mutually beneficial.

2. Stability strategy – continuing it current activities without any significant change in direction.

Stability strategy may come in any of the following form:Pause/proceed with caution – it is the

opportunity to rest before continuing a growth or retrenchment.

No change strategy- it involves a decision to do new.

Profit strategy - it involves to do nothing new in a worsening situation and instead, to act as though the company’s problem is only temporary.

3. Retrenchment – reducing its company’s level of activities.

Retrenchment strategy takes the form in any of the ff.

Turnaround strategy – it emphasizes on the improvement of operational efficiency and is probably most appropriate when corporations problem are pervasive but and not critical.

Sell-out/divestment- this strategy is resorted when a company has a weak competitive position in its industry.

Bankruptcy strategy- giving up management of the firm to courts in return for some of settlement of corporation’s obligations.

Liquidation strategy - the termination of the firm’s business operation .

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International and Other Entry Options

International and Other Entry OptionsExporting Licensing

Franchising Joint venture Acquisition

Greenfield development Production sharing Turnkeys operations

Management contract Build-Operate Outsourcing

Strategic Alliance Is an option to take where it might be costly

or disadvantageous to engage in any of the other strategies already discussed?

Strategic alliance can be done through process of exploration and negotiation with targeted parties or business concerns leading to signing up an alliance document in the form of memorandum of agreement, memorandum of understanding and/or contracts stipulating mutual desire to attain specific objectives and expressing support for one another

Objectives in Strategic alliances 

to collaborate on technology development or new product development

to fill  gaps in technical or manufacturing expertise

to acquire new competencies

to improve supply chain efficiency

to gain economies of scale in production and/or marketing

to acquire or improve market access via joint marketing agreement.

Other justification for strategic alliances Collaborative arrangement can help a company

lower its costs or gain access to needed expertise and capabilities.

Firms often lack the resources and competitive skills to be successful in every demanding competitive races.

  Allies can be useful in helping a company establish a stronger presence in global market and helping it win the race for global market leadership.

Allies with competitively useful technological know-how or expertise can greatly aid a company racing against rivals for leadership “industries of the future” now

are created by today’s technological and information age revolution.

Collaborative arrangements with foreign partners can be very helpful in perusing opportunities in unfamiliar national markets.

Potential benefits of alliances to achieve global and industry leadership.

Get into critical country markets quickly to accelerate process of building a global presence.

Gain inside knowledge about unfamiliar market and cultures.

Access valuable skills and competencies

concentrated in particular geographic locations.

Establish an inherent advantage for participating in target industry.

Master new technologies and build new expertise faster than would be possible internally.

Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners.

Some useful guidelines in forming strategic alliances  

Pick a good partner, one that shares a common vision;

Be sensitive to cultural differences Recognize that the alliance must benefit both

sides Both parties have to deliver on their commitment

in agreements Structure decision-making process so actions can

be taken swiftly when needed; and Parties must do a good job of managing the

learning process, adjusting the alliance agreement over time to fit new circumstances.

Success and failure factor in alliances

The direction to succeed in the partnership is determined by certain factors such as the

following:

Ability of an alliances to endure depends on how well partners work together

Success of partners is responding and adapting to changing conditions

Willingness of partners to renegotiate the bargain

Factors and reasons that can lead to failure are as follow:

Diverging objectives and priorities of partners

Inability of partners to work well together

Emergence of more attractive technological paths

Marketplace rivalry between one or more allies

Merger and acquisition strategies

Benefits and pitfall of mergers and acquisitions

Combining operations by way of merger and acquisition or joint venture may result in:

More or better competitive More attractive line-up of productions/services; Wider geographic coverage; Greater financial resources to invest in R& D,

add capacity, or expand Cost-saving opportunities Filling in of resource of technological gaps Stronger technological skills Greater ability to

launch next-wave product/services.

Pitfalls or disadvantages are the following:

Resistance from rank-and-file employees

Hard-to-resolve conflict in management style corporate cultures

Tough problems in combining and integrating the operations of the once-different companies

Greater-than-anticipated difficult in achieving expected cost-saving, sharing of expertise, and achieving enhanced competitive capabilities

Outsourcing: advantages and conditions to consider

Its advantages lie in the following:

Improves firm’s ability to obtains high quality and/or cheaper components or services

Improves firm’s ability to innovate by interacting with “best in the world” suppliers

Enhances firm’s flexibility should customer needs and market conditions suddenly shift

Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently

Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsider

When does outsourcing make sense?

Activity can be performed better or more cheaply by outside specialists

Activity is not crucial to achieve a sustainable competitive advantage

Risk exposure to changing technology and/or changing buyers preferences is reduced

Operation are streamlined       i.   Cut cycle time  ii.    Speed decision-making    iii.  Reduce coordination cost Firm can concentrate on doing those “core” value

chain activities that best suit its resources strengths and capabilities

Situation on Favoring Joint Venture

There are specific situations; however, that favor venturing into joint venture and here are some of them:

When a privately owned organization is forming a joint venture with a publicly owned organization; there are some advantages of being privately held such as close ownership; there are some advantage of being, publicly held, such as access stock issuances as a source of capital. Sometimes, the unique advantages of being privately and publicly held can be synergistically combined in a joint venture

b)      When a domestic organization is forming a joint venture with a foreign company; a joint venture can provide a domestic company with the opportunity for obtaining local management in a foreign country, thereby reducing risk such as expropriation and harassment by host country officials;

When the distinctive competencies of two o more firms complement each other specially well

When some projects is potentially very profitable, but requires overwhelming resources and risk; the alas an pipeline is an example

When two or more smaller firms have trouble competing with large firm

When there exists a need to introduce a new technology quickly.

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