ch 06 - my ppt [f07]
TRANSCRIPT
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Prentice Hall, Inc. 2006 7-1
CHAPTER 6Strategy Formulation: Corporate Strategy
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Prentice Hall, Inc. 2006 7-2
Corporate Strategy
Corporate Strategy Deals with 3 KeyIssues:
Firms directional strategy
Firms portfolio strategy
Firms parenting strategy
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Prentice Hall, Inc. 2006 7-3
Corporate Directional Strategies
Directional Strategy
Refer to the Orientation Toward Growth
Managers decide on 3 grand strategies based on the following questions:
1. Expand, cut back, or stays the same (status quo)?2. Concentrate within current industry or diversify into other
industries?
3. If expansion then decide if through internal development,
acquisitions, mergers, or strategic alliances?
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Prentice Hall, Inc. 2006 7-4
Corporate Directional Strategies
1. Growth Strategies --External mechanisms:
Mergers - Transaction involving two or more firms in which stock is
exchanged but only one firm survives.
Acquisition - Purchase of a firm that is absorbed as an operating
subsidiary of the acquiring firm.
Strategic Alliance - Partnership of two or more firms to achieve
strategically significant objectives that are mutually beneficial.
2Basic forms:Concentration
Diversification
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Prentice Hall, Inc. 2006 7-5
Corporate Directional Strategies
Basic Concentration Strategies --
Vertical Growth --Vertical integration
Full integration
Taper integration (make less then 50% of components)
Quasi-integration (partial Ownership of supplier
Long-term contract
Backward integration
Forward integration
Horizontal Growth / Concentration --Horizontal integration:
Degree firms operate in multiple locations at the same point in value
chain
Expand in multiple locations or increase range of products/services
offered to current markets
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Prentice Hall, Inc. 2006 7-6
Corporate Directional Strategies
Basic Diversification Strategies
Concentric (Related) Diversification --
Growth into related industrySearch for synergies
Conglomerate (Unrelated) diversification --Growth into unrelated industry
Concern with financial considerations
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Corporate Directional Strategies
InternationalEntry
Options
Exporting
Licensing
Franchising
Joint VenturesAcquisitions
Green-Field Development
Production Sharing
Turnkey Operations
BOT ConceptManagement Contracts
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Corporate Directional Strategies
2. Stability Strategies --
Pause/proceed with caution
No change
Profit strategies
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Corporate Directional Strategies
3. Retrenchment Strategies --
Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation
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Prentice Hall, Inc. 2006 7-10
Corporate Strategy
II. Portfolio Analysis --
Resource commitment on best products to
ensure continued successHow much of our time and money should we spend
on our best products to ensure that they continue tobe successful?
Resource commitment on new costly products
high riskHow much of our time and money should we spend
developing new costly products, most of which will
never be successful?
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Prentice Hall, Inc. 2006 7-11
BCG Matrix (Portfolio Analysis)
Funding Decisions and Product Life Cycle
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Prentice Hall, Inc. 2006 7-12
GE Business Screen (Portfolio Analysis)
AWinners Winners
B
C
QuestionMarks
D
F
Average
Businesses
EWinners
Losers
GLosers
H
LosersProfit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
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Portfolio Analysis
Portfolio Analysis: Pros & Cons
Advantages:
Top management evaluates each of firms businesses
individually
Use of externally-oriented data to supplement managementjudgment
Raises issue of cash flow availability
Facilitates communication
Disadvantages:
Difficult to define product/market segments
Standard strategies can miss opportunities
Illusion of scientific rigor
Value-laden terms
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Prentice Hall, Inc. 2006 7-14
Corporate Strategy
III. Corporate Parenting Strategy --
Views the corporation in terms of resources and
capabilities that can be used to build business
unit value as well as generate synergies across
business units
If there is good fit between Parents skills and
resources with the needs and opportunities of
the business units, the corporation is likely to
create value
STEP
S:1. Identify Strategic Factors responsible for firms success
and/or failure
2. Identify areas for performance improvement
3. Analyze fit between parent and business units
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Parenting-Fit Matrix
Edge of the
Hart
Heartland
AlienTerritory
Low
High
HighLow
FIT between parenting opportunitiesand parenting characteristics
Ballast
Value Trap