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Prentice Hall, Inc. © 2006 7-1
STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 7 Strategy Formulation: Corporate Strategy
Prentice Hall, Inc. © 2006 7-2
Corporate Strategy
3 Key Issues –
–Firm’s directional strategyThe firm’s overall orientation towards growth, stability or retrenchment
–Firm’s portfolio strategyThe industries or markets in which the firm competes
–Firm’s parenting strategyThe manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units
Prentice Hall, Inc. © 2006 7-3
Corporate Strategy
Directional Strategy –3 Grand Strategies
•Growth strategies– Concentration or diversification– Internal development or acquisitions, mergers, or alliances
•Stability strategies-status quo
•Retrenchment strategies -contraction
Prentice Hall, Inc. © 2006 7-4
Corporate Directional Strategies
Prentice Hall, Inc. © 2006 7-5
Corporate Strategy
Growth Strategies --
–External mechanisms
•Mergers
•Acquisitions
•Strategic alliances
Prentice Hall, Inc. © 2006 7-6
Corporate Strategy
Growth Strategies --
–2 Basic forms
•Concentration»Vertical growth»Horizontal growth
•Diversification»Concentric Diversification (RELATED)»Conglomerate Diversification (UNRELATED)
Prentice Hall, Inc. © 2006 7-7
Corporate Strategy
Vertical Growth --
–Vertical integration•Full integration•Taper integration•Quasi-integration•Long-term contract
Prentice Hall, Inc. © 2006 7-8
Corporate Strategy
Vertical Growth --
–Backward integration
–Forward integration
Prentice Hall, Inc. © 2006 7-9
Corporate Strategy
Concentration --
–Horizontal Growth
– New Geographic Markets
– Acquiring New Companies
Prentice Hall, Inc. © 2006 7-10
Corporate Strategy
Basic Diversification Strategies --
–Concentric Diversification (RELATED)
»Growth into related industry»Search for synergies
–Conglomerate Diversification (UNRELATED)
»Growth into unrelated industry»Concern with financial considerations
Prentice Hall, Inc. © 2006 7-11
Corporate Strategy
International Entry Options --
–Exporting–Licensing–Franchising–Joint Ventures–Acquisitions–Green-Field Development–Production Sharing (Outsourcing)–Turnkey Operation–BOT Concept (Build, Operate, Transfer)–Management Contracts
Prentice Hall, Inc. © 2006 7-12
Corporate Strategy
CONTRAVERSIES IN DIRECTIONAL GROWTH STRATEGIES
Although research in not in complete agreement, growth into areas related to a company’s current product lines is generally more successful than in growth into completely unrelated areas
Cisco’s three criteria for takeover:
-It must be relatively small-It must be comparable in organizational culture-It must be physically close to one of the existing affiliates
Prentice Hall, Inc. © 2006 7-13
Corporate Strategy
Stability Strategies --
–Pause/proceed with caution
–No change
–Profit strategies
Prentice Hall, Inc. © 2006 7-14
Corporate Strategy
Retrenchment Strategies --
–Turnaround–Captive Company Strategy–Selling out–Bankruptcy–Liquidation
Prentice Hall, Inc. © 2006 7-15
Corporate Strategy
Portfolio Analysis --
–Resource commitment on best products to ensure continued success
–Resource commitment on new costly products high risk
Prentice Hall, Inc. © 2006 7-16
Corporate Strategy
Portfolio Analysis --
…Puts the corporate headquarters into the role of an internal banker
…Top management views its product lines and business units as a series of investments from which it expects a profitable return
Prentice Hall, Inc. © 2006 7-17
BCG Matrix (Portfolio Analysis)
Prentice Hall, Inc. © 2006 7-18
GE Business Screen (Portfolio Analysis)
AWinners Winners
B
C
Question Marks
D
F
Average Businesses
EWinners
Losers
GLosers H
LosersProfit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Indu
stry
Att
ract
ive
ness
Prentice Hall, Inc. © 2006 7-19
Corporate Strategy
Portfolio Analysis --
Disadvantage: because it tends to primarily view matters financially, it regards business units and product lines as separate and independent.
It fails to deal with the question of :-- what industries a corporation should enter or -- with how a corporation can attain synergy among its product lines and business units.
These questions are addressed by;
“Corporate Parenting Strategy”
Prentice Hall, Inc. © 2006 7-20
Corporate Strategy
Corporate Parenting Strategy –
…views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units …
–Strategic factorsExamine each business unit in terms of its strategic factors
–performance improvementExamine each business unit in terms of areas in which performance can be increased
–Analyze fitAnalyze how well the parent corporation fits with the business unit