Wheelen 14e ch07

7/24/2019 Wheelen 14e ch07

1/40

Strategy

Formulation:Corporate

Strategy

Chapter 7

7/24/2019 Wheelen 14e ch07

2/40

Learning Objectives

Understand the three aspects of corporate strategy

Apply the directional strategies of groth! stabilityand retrenchment

Understand the di"erences beteen vertical andhori#ontal groth as ell as concentric andconglomerate diversi$cation

%dentify strategic options to enter a foreign country

Apply portfolio analysis to guide decisions incompanies ith multiple products and businesses

&evelop a parenting strategy for a multiple'businesscorporation

( )earson *ducation Limited +,-. 7'+

7/24/2019 Wheelen 14e ch07

3/40

Corporate Strategy

Corporate strategy the choice of direction of the $rm as a

hole and the management of itsbusiness or product portfolio andconcerns

( )earson *ducation Limited +,-. 7'/

7/24/2019 Wheelen 14e ch07

4/40

Corporate Strategy

Directional strategy the $rm0s overall orientation toard

groth! stability or retrenchment

Portfolio analysis industries or mar1ets in hich the $rm

competes through its products and

business units

( )earson *ducation Limited +,-. 7'2

7/24/2019 Wheelen 14e ch07

5/40

Corporate Strategy

Parenting strategy the manner in hich management

coordinates activities and transfersresources and cultivates capabilitiesamong product lines and business units

( )earson *ducation Limited +,-. 7'.

7/24/2019 Wheelen 14e ch07

6/40

Corporate &irectionalStrategies

( )earson *ducation Limited +,-.

Figure 7'-

7'3

7/24/2019 Wheelen 14e ch07

7/40

&irectional Strategy

Growth strategies e4pand the company0s activities

Stability strategies ma1e no change to the company0s

current activities

Retrenchment strategies reduce the company0s level of activities


7/24/2019 Wheelen 14e ch07

8/40

5roth Strategies

Merger a transaction involving to or more

corporations in hich stoc1 ise4changed but in hich only onecorporation survives

Acquisition -,,6 purchase of another company

( )earson *ducation Limited +,-. 7'

7/24/2019 Wheelen 14e ch07

9/40

Concentration Strategies

Vertical growth achieved by ta1ing over a function

previously provided by a supplier ordistributor


7/24/2019 Wheelen 14e ch07

10/40


Vertical integration the degree to hich a $rm operates

vertically in multiple locations on anindustry0s value chain from e4tractingra materials to manufacturing toretailing

( )earson *ducation Limited +,-. 7'-,

7/24/2019 Wheelen 14e ch07

11/40

9ertical %ntegration

Bacwar!integration assuming a

functionpreviouslyprovided by a

supplier

"orwar!integration assuming a

functionpreviouslyprovided by a

distributor

( )earson *ducation Limited +,-. 7'--

7/24/2019 Wheelen 14e ch07

12/40


#ransaction cost economies vertical integration is more ecient

than contracting for goods and servicesin the mar1etplace hen the transactioncosts of buying on the open mar1etbecome too great

( )earson *ducation Limited +,-. 7'-+

7/24/2019 Wheelen 14e ch07

13/40

9ertical %ntegrationContinuum

( )earson *ducation Limited +,-. 7'-/

7/24/2019 Wheelen 14e ch07

14/40


"ull integration a $rm internally ma1es -,,6 of its 1ey

supplies and completely controls itsdistributors

#aper integration a $rm internally produces less than half

of its on re;uirements and buys therest from outside suppliers

( )earson *ducation Limited +,-. 7'-2

7/24/2019 Wheelen 14e ch07

15/40


$uasi%integration a company does not ma1e any of its 1ey

supplies but purchases most of itsre;uirements from outside suppliers thatare under its partial control

&ong%term contracts

agreements beteen to $rms to provideagreed'upon goods and services to eachother for a speci$c period of time

( )earson *ducation Limited +,-. 7'-.

7/24/2019 Wheelen 14e ch07

16/40


'ori(ontal growth e4pansion of operations into other

geographic locations and

7/24/2019 Wheelen 14e ch07

17/40

%nternational *ntry Options for

=ori#ontal 5roth

)*porting &icensing"ranchisi

ng+oint

Venture

Acquisitions

Green%"iel!

De,elopment

Pro!uction Sharing

#urn%-ey.peration

s

B.#Concept

Management

Contracts


7/24/2019 Wheelen 14e ch07

18/40

&iversi$cation Strategies

Concentric /Relate!0!i,ersi1cation

groth into a related industry hen a$rm has a strong competitive positionbut attractiveness is lo

Synergy

the concept that to businesses illgenerate more pro$ts together thanthey could separately

( )earson *ducation Limited +,-. 7'-

7/24/2019 Wheelen 14e ch07

19/40

&iversi$cation Strategies

Conglomerate /2nrelate!0!i,ersi1cation

diversifying into an industry unrelatedto its current one

>anagement reali#es that the currentindustry is unattractive?

Firm lac1s outstanding abilities or s1illsthat it could easily transfer to relatedproducts or services in other industries?


7/24/2019 Wheelen 14e ch07

20/40

Controversies in

&irectional Strategies

%s vertical groth better thanhori#ontal groth@

%s concentration better thandiversi$cation@

%s concentric diversi$cation better

than conglomerate diversi$cation@

( )earson *ducation Limited +,-. 7'+,

7/24/2019 Wheelen 14e ch07

21/40

Stability Strategies

Pause3Procee! with caution strategy an opportunity to rest before continuing a groth

or retrenchment strategy

4o%change strategy decision to do nothing nea choice to continue

current operations and policies for theforeseeable future

Pro1t strategies decision to do nothing ne in a orsening

situation but instead to act as though thecompany0s problems are only temporary

( )earson *ducation Limited +,-. 7'+-

7/24/2019 Wheelen 14e ch07

22/40

Betrenchment Strategies

Retrenchment strategies used hen the $rm has a ea1

competitive position in some or all of itsproduct lines from poor performance

( )earson *ducation Limited +,-. 7'++

7/24/2019 Wheelen 14e ch07

23/40


#urnaroun! strategy emphasi#es the improvement of operational

eciency hen the corporation0s problems

are pervasive but not critical

Contraction e"ort to ;uic1ly stop the bleedingD across the

board but in si#e and costsConsoli!ation

stabili#ation of the ne leaner corporation

( )earson *ducation Limited +,-. 7'+/

7/24/2019 Wheelen 14e ch07

24/40


Capti,e company strategy company gives up independence in e4change

for security

Sell%out strategy management can still obtain a good price for

its shareholders and the employees can 1eeptheir jobs by selling the company to another$rm

Di,estment sale of a division ith lo groth potential

( )earson *ducation Limited +,-. 7'+2

7/24/2019 Wheelen 14e ch07

25/40


Banruptcy company gives up management of the

$rm to the courts in return for somesettlement of the corporation0sobligations

&iqui!ation management terminates the $rm

( )earson *ducation Limited +,-. 7'+.

7/24/2019 Wheelen 14e ch07

26/40

)ortfolio Analysis

Portfolio analysis management vies its product lines and

business units as a series ofinvestments from hich it e4pects apro$table return


7/24/2019 Wheelen 14e ch07

27/40

EC5 5rothShare >atri4

( )earson *ducation Limited +,-.

Figure 7'/

7'+7

7/24/2019 Wheelen 14e ch07

28/40

EC5 >atri4

$uestion mars ne products ith the potential for success

but need a lot of cash for development

Stars mar1et leaders that are typically at or

nearing the pea1 of their product life cycle

and are able to generate enough cash tomaintain their high share of the mar1et andusually contribute to the company0s pro$ts

( )earson *ducation Limited +,-. 7'+

7/24/2019 Wheelen 14e ch07

29/40

EC5 >atri4

Cash cows products that bring in far more money

than is needed to maintain their mar1etshare

Dogs products ith lo mar1et share and do

not have the potential to bring in muchcash


7/24/2019 Wheelen 14e ch07

30/40

EC5 >atri4Limitations

Use of highs and los to form categories istoo simplistic?

Lin1 beteen mar1et share and pro$tability

is ;uestionable?5roth rate is only one aspect of industry

attractiveness?

)roduct lines or business units areconsidered only in relation to one competitor?

>ar1et share is only one aspect of overallcompetitive position?

( )earson *ducation Limited +,-. 7'/,

7/24/2019 Wheelen 14e ch07

31/40

Advantages and Limitations of

)ortfolio Analysis

A!,antages

*ncourages top management to evaluateeach of the corporation0s businesses

individually and to setobjectivesandallocate resources for each

Stimulates the use of e4ternally oriented

data to supplementmanagement0sjudgment

Baises the issue of cash o availability touse in e4pansion and groth

( )earson *ducation Limited +,-. 7'/-

7/24/2019 Wheelen 14e ch07

32/40

Advantages and Limitations of

)ortfolio Analysis

&imitations

&e$ning product

7/24/2019 Wheelen 14e ch07

33/40

Gas1s Hecessary for >anaging aStrategic Alliance )ortfolio

-?&eveloping and implementing aportfolio strategy for each businessunit and a corporate policy formanaging all the alliances of theentire company

+?>onitoring the alliance portfolio interms of implementing businessunits0 strategies and corporatestrategy and policies

( )earson *ducation Limited +,-. 7'//

7/24/2019 Wheelen 14e ch07

34/40

Gas1s Hecessary for >anaging aStrategic Alliance )ortfolio

/?Coordinating the portfolio to obtainsynergies and avoid conicts amongalliances

2?*stablishing an alliancemanagement system to supportother tas1s of multi'alliancemanagement

( )earson *ducation Limited +,-. 7'/2

7/24/2019 Wheelen 14e ch07

35/40

Corporate )arenting

Corporate parenting vies a corporation in terms of

resources and capabilities that can beused to build business unit value as ellas generate synergies across businessunits

( )earson *ducation Limited +,-. 7'/.

7/24/2019 Wheelen 14e ch07

36/40

Corporate )arenting

5enerates corporate strategy byfocusing on the core competenciesof the parent corporation and thevaluecreated from the relationshipbeteen the parent and itsbusinesses


7/24/2019 Wheelen 14e ch07

37/40

&eveloping a Corporate

)arenting Strategy

-?*4amine each business unit in termsof its strategic factors

+?*4amine each business unit in termsof areas in hich performance canbe improved

/?Analy#e ho ell the parentcorporation $ts ith the businessunit


7/24/2019 Wheelen 14e ch07

38/40

=ori#ontal Strategy and

>ultipoint Competition

'ori(ontal strategy cuts across business unit boundaries to

build synergy across business units andto improve competitive position in oneof more business units

( )earson *ducation Limited +,-. 7'/

7/24/2019 Wheelen 14e ch07

39/40

=ori#ontal Strategy and

>ultipoint Competition

Multipoint competition large multi'business corporations

compete against other large multi'business $rms in a number of mar1ets


7/24/2019 Wheelen 14e ch07

40/40

Wheelen 14e ch07

Documents

Transcript of Wheelen 14e ch07