CORPORATE STRATEGIESSTRATEGIC MANAGEMENT IN ACTIONHeather HignojosKatie KringeleJohn Stewart

Overview What is Corporate Strategy Organizational Growth Strategies Organizational Stability Strategies Organizational Renewal Strategies How Corporate Strategy is Evaluated and

Changed

Corporate Strategy A strategy concerned with the choices of

what business to be in and what to do with those businesses

Single –Business Organization A business in one industry Coca-Cola

Multiple-Business Organization A business in more than one industry PepsiCo

Corporate Strategy Related to Other Strategies

Corporate strategy establishes the overall direction that the organization hopes to go

Functional and Competitive strategies provide the means for making sure the organization gets there Resources Distinctive capabilities Competitive advantages Core competencies

Corporate Strategic Directions

Moving an organization forward Strategic managers hope to expand the

organization’s activities or operations. Keeping an organization as is

It’s not growing or falling behind. A stability strategy.

Reversing an organization's decline An organization has declines in one or more

performance areas. They are addressed with a renewal strategy.

Growth Strategy One that expands the products offered or

markets served by an organization or expands its activities or operations either through current business or through new business

Used to meet performance goals Increase revenues or profits Increase number of clients Broaden geographic area of coverage

Growth Strategies

Concentration An organization concentrates on its primary

line of business and looks for ways to meet its growth goals by expanding its core business.

Three concentration options Product-market exploitation- attempts by the

organization to increase sales of its current products in its current markets

Product development- organizations create new products to sell to its current market.

Market development- an organization sells its current products in new markets.

Concentration An organization looks for ways to grow its

core business using different combinations of products and markets.

An advantage of this strategy is an organization becomes very good at what it does.

A disadvantage is the organization is vulnerable to both industry and other external changes.

Vertical Integration A strategy in which an organization grows by

gaining control of its inputs, its outputs, or both. Backward vertical integration- gains control of

its inputs or resources by becoming its own supplier

Forward vertical integration- gains control of its outputs by becoming it own distributor

It is still a single-business organization because it is expanding into industries connected to its primary business.

Horizontal Integration A strategy in which an organization

grows by combining operations with its competitors.

It can be an appropriate strategy as long as (1) it enables the company to meet its growth goals, (2) it can be strategically managed to attain a sustainable competitive advantage, and (3) it satisfies legal and regulatory guidelines

Diversification Growing by moving into a different industry. Two types

Related (concentric) is diversifying into a different industry but one that’s related in some way to the current business.

Unrelated (conglomerate) is diversifying into a completely different industry not related to current business

The diversification strategy is hard to use, but you can create a sustainable competitive advantage.

International A corporate strategy to look for ways to

grow by taking advantage of the potential opportunities offered by global markets or by protecting the organization’s core operations from global competitors.

It’s possible for an organization to “go international” as it pursues growth using any of the other strategies

Implementing the Growth Strategies Options for strategies to grow:

Mergers & Acquisitions

Internal Development

Strategic Partnering

Mergers & Acquisitions ‘Purchase’ what the company needs to grow

Merger- a legal transaction in which two or more organizations combine operations through an exchange of stock and create a third entity Organizations are usually about the same size and

“friendly” Acquisition- outright purchase of an organization

by another Usually organizations are different sizes, can either

be friendly or hostile Hostile Takeover- When an organization does not

want to be acquired by another

Mergers & Acquisitions Popularity goes in cycles Is possible in ANY implementation of a

growth strategy Concentration Vertical Integration Horizontal Integration Diversification

Main feature of a merger or acquisition is that the company is “buying” an expanded product line, markets, activities or operations

Internal Development When an organization grows by creating and developing new

business activities itself Occurs when decision makers believe they have the necessary

resources, distinctive capabilities and core competencies to do it themselves

Managers chose to acquire the needed resources and develop crucial capabilities to meet desired growth goals rather than deal with the hassle of combining two or more organizations

Depends on: The new industry’s barriers to entry The relatedness of the new business to the existing one The speed and development costs associated with each approach The risks associated with each approach The stage of the industry cycle

Strategic Partnering Two or more organizations establish a

legitimate partnership by combining their resources, distinctive capabilities, and core competencies for some business purpose

Covers anything from loose partnerships to formal partnerships – umbrella term

3 Main types: Joint Venture Long-term Contracts Strategic Alliance

Strategic Partnering Joint Venture- two or more separate

organizations for a separate independent organization for strategic purposes Often used when the partners do not want

to or cannot legally join together permanently

Poplar in international growth GM and Toyota formed New United Motor

Manufacturing Company (NUMMC) Created to introduce a new automobile

production system in the US… Still in use today

Strategic Partnering Long-term Contract- a legal contract between

organizations covering a specific business purpose Typically used between a business and its

suppliers Locks a supplier into a long-term relationship in

which both partners understand the importance of developing resources, capabilities and core competencies for a sustainable competitive advantage

Both sides benefit from knowing they will always have the other partners business

Strategic Partnering Strategic Alliance- two or more organizations share

resources, capabilities or competencies to pursue some business purpose

Different from a joint venture because there is no separate entity created, they simply just share the resources they already have

Usually used to encourage product innovation PepsiCo and Lipton- canned ice tea Pepsi brought its strong marketing in canned

beverages Lipton brought its recognized tea brand and customer

base

When is Stability an Appropriate Strategic Choice?

Stability Strategy- which an organization maintains its current size and activities

When the industry is in a period of rapid upheaval with several forces drastically changing

When the future is highly uncertain When the industry is facing little or no growth

Allows them time to analyze their strategic options When the organization has had rapid growth and

needs some “down” time Organization is in a mature stage

Implementing the Stability Strategy Involves not growing, but also not

shrinking Must maintain a certain level at all times

No new products, programs or adding production capacity

Usually just an opportunity to let an organization rest in between growth periods

More of a short-run strategy Susceptible to losing its competitive

advantage

Renewal Strategies Businesses periodically fall short of

strategic objectives. Why they’re important:

Designed to reverse any decline in productivity Designed to get the company functioning as it

should be Designed to re-align goals

Two renewal strategies: Retrenchment Turnaround

Retrenchment The retrenchment strategy is designed

to address weaknesses that are leading to performance decline.

Usually designed to achieve strategic goals Meeting strategic goals usually means

making more profit Goal is to stabilize operations, replenish or

revitalize resources and capabilities

Turnaround This renewal strategy is for companies in

severely bad condition. Only losses being reported Performance results are significantly low Company is in danger of collapsing

Managers must conduct a complete overhaul of operations, and strategic planning. Ex: K-Mart, Delta Airlines, General Motors

Putting the Plan in to Action Implementing these renewal strategies

is a challenge. This consists of:

Restructuring Refocuses on the primary business Proven to be the most beneficial action

Cutting Costs Bring results back in line with expectations Eliminates redundancies, and inefficiencies

Evaluating Corporate Strategies This is a follow up action taken in order

to make sure that implemented strategies are working.

Evaluation focuses on four areas: Corporate goals Efficiency, effectiveness, and productivity Benchmarking Portfolio Analysis

Corporate Goals Corporate Goals indicate the desired end

results or targets that strategic managers have established.

These goals are broader, more comprehensive, and longer-term.

If functional and competitive goals aren’t met, neither are the corporate goals.

Corporate Goals (cont.)

Efficiency, Effectiveness, Productivity Three very important measures that can

be used in evaluating an organization’s corporate strategy.

Efficiency The ability to minimize resource use in

achieving goals Effectiveness

The organization’s ability to reach it’s goals Productivity

A measure of how many inputs it took for an output

Benchmarking Essential in setting goals to compete in

an industry. Used to observe strategic management

in relation to competitors, and determine where improvement is needed.

Southwest Airlines: Studied Indy 500 pit crews to determine

how they could get their gate crews to achieve a faster turnaround time at the airline gate

Portfolio Analysis Usually the final step in the evaluation

process. Used to evaluate all areas of the

organization, and determine overall performance.

Three main portfolio analysis approaches: BCG Matrix McKinsey-GE Stoplight Matrix Product-Market Evolution Matrix

BCG Matrix

Take Aways Corporate strategies and their function.

Strategies for single & multiple organization businesses

Growth, stability, an renewal strategies Strategies used to impact overall

performance Evaluation and implementation

Techniques used to make sure the company is on track