Chapter 9-10

Corporate Level Strategy

Snack Foods Beverages

Foods

Frito-Lay North AmericaFrito-Lay International

Pepsi-Cola North AmericaGatorade/Tropicana North AmericaPepsiCo Beverages International

Quaker North America

Snack Foods

Frito-Lay North America

Lay’sRuffles DoritosSantitasFritos CheetosRold Gold

Funyuns Sunchips Cracker Jack Chester’s popcornGrandma’s cookiesMunchos Smartfood Baken-ets fried pork skinsOberto meat snacks

Snack Foods

Frito-Lay International

Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks

Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks

Snack Foods

Frito-Lay International

Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks

Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks

Beverages

Pepsi-Cola North America

Pepsi-ColaMountain DewSliceMugSierra MistFruitWorks

Lipton Dole Aquafina Frappuccino SoBe AMP

Beverages

Gatorade/Tropicana North America

GatoradePropelTropicanaDole juices

Beverages

PepsiCo Beverages International

Loóza juices and nectarsCopella juicesFrui’Vita juicesTropicana 100 juices

Foods

Quaker North America

Quaker OatsCap’n Crunch cerealLife cerealQuisp cerealKing Vitaman cerealMother’s cereal

Quaker rice cakes and granola barsRice-A-Roni side dishesNear East couscous/pilafsAunt Jemima mixes & syrupsQuaker grits

Foods

Quaker North America

Quaker OatsCap’n Crunch cerealLife cerealQuisp cerealKing Vitaman cerealMother’s cereal

Quaker rice cakes and granola barsRice-A-Roni side dishesNear East couscous/pilafsAunt Jemima mixes & syrupsQuaker grits

Business Level Strategies

How are we going to compete and gain a competitive advantage in each of our businesses?

Snack Foods Beverages

Foods

Corporate Level Strategy1) What businesses do we want to compete in?2) How do manage effectively across businesses

Where did they go?

Goals of Corporate Strategy

Moves to enter new businesses

Boosting combined performance of the businesses

Capturing synergies and turning them into competitive advantages

Establishing investment priorities and steering resources into business units

4 Corporate Level Strategies

• 1) Vertical Integration• 2) Strategic Outsourcing• 3) Horizontal Integration• 4) Diversification – two or more different

businesses with distinct operations

1) Vertical Integration

Forward or backwards Full integration Taper integration

Benefits Build barriers to entry Facilitates investment in specialized assets Protecting product quality Improved scheduling

Risks Costs Rapid technological changes Demand predictability

Alternatives to Vertical Integration

Competitive biddingLong term contracts or strategic

alliances

VerticalIntegration

Markets &Competitive Bidding

Hybrid &Contracts/Alliances

Form of Relationship

2) Outsourcing

Cost reduction and differentiationHold-ups, scheduling and hallowing out

3) Horizontal Integration

Acquiring or merging with industry competitorsReduce cost and economies of scale Increasing value through wider product line

or product bundlingManage industry rivalry Increase buyer and supplier power

4) How to Diversify?

1) Internal Development - corporate entrepreneurship or internal venturingable to appropriate a larger portion of wealthavoids complexities of multiple partners time consuming and requires diversity of

organizational capabilities

4) How to Diversify?

2) Strategic Alliances and Joint Ventures entering a new market via the combination of

complementary resources - do more together cost reduction & sharing development/diffusion of technology

Problems appropriate partners - skills and compatibility trust and commitment communication

Who Makes a Geo?

Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.

Geo Prizm = Toyota Corolla

Geo Tracker = Suzuki Sidekick

Geo Metro = Suzuki Esteem or Swift w/hatchback

No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

4) How to Diversify?

3) Mergers & Acquisition

Mergers & Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

Results

Poor Performance

Who Wins?

Acquired FirmShareholders

Monday October 27th WSJ

Bank of American – Boston Fleet FinancialBoA down $8.29, or 10%, BFF rose 23%

Anthem – WellPoint Health NetworksAnthem down 8.2%, WellPoint up 8.8%

United Health – MidAtlantic Med ServicesUH down 4.9%, MAMS up 9.7%

Failures of Acquisitions

30 - 40% average acquisition premium

Acquiring firm’s value drops 4% in the 3 months following acquisitions

30 - 50% of acquisitions are later divested

Acquirers underperform S&P by 14%, peers by 4%

3 month performance before and after30% substantial losses, 20% some losses,

33% marginal returns, 17% substantial returns

Why, then, do executives acquire?

Often, for personal reasons

Firm size and executive compensation are related

When do executives loss their jobs?1) Acquired - larger firms harder to acquire2) Performing poorly - employment risk is

reduced as returns are less volatile

Related Diversification at Disney

Entertainment/Production

Theme Parks

Resorts

Entertainment/Broadcasting

Cruise Lines

Retailing

Levels of Diversification

Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizontal relationships across businesses - synergies

Advantages of related diversification include: Leveraging Core Competencies Sharing Activities Market Power

Tyco ElectronicsTyco Telecommunications

Tyco Fire and SecurityTyco Safety Products

Tyco HealthcareTyco Plastics

Tyco AdhesivesTyco Flow Control

Tyco Electrical and Metal ProductsTyco Fire and Building Products

Tyco Infrastructure Services

Levels of Diversification (cont.)

Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses

Conglomerate Diversification - no relatedness between businesses

When/Why to Diversify?

To create shareholder value

Porter’s Three Point Test

1) Attractiveness Test

2) Cost of Entry Test

3) Better off Test

Should pass all 3

Portfolio analysis

BCG Growth-Share Matrixquestion marks, dogs, cash cows, stars

GE- Nine Cell Matrix

Gro

wth

Rat

eRelative Market Share

StarsQuestion

Marks

CashCows

Dogs

Boston Consulting Group Matrix

Gro

wth

Rat

e

Relative Market Share

1.0High Low

Soft Drinks

FritoLay

KFC

PizzaHut

TacoBell

Low

High

10%

BCG Matrix for PepsiCo - Early 1990s

Gro

wth

Rat

e

Relative Market Share

.75High Low

Soft Drinks

FritoLay

KFC

PizzaHutTaco

Bell

Low

High

5%

BCG Matrix for PepsiCo - Early 1990s

Competitive StrengthsA

ttra

ctiv

enes

s

Invest Grow

Low

High

LowHigh

HarvestDivest

Hold

GE 9 Cell Matrix

Competitive StrengthsA

ttra

ctiv

enes

s

Low

High

LowHigh

GE 9 Cell Matrix for Pepsico

Soft Drinks

Snack Foods