Chapter 15 Corporate strategy Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Business and corporate strategy Business-level strategy: which strategy for this business? position on the quadrant? Corporate strategy: which businesses should we be in? how should growth be managed? Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

5 types of corporate strategy Specialisation: expansion with narrow range of businesses Advantage: simplicity, focus Vertical integration: integration of suppliers and/or distributors Advantage: market power, control over resources Economies of scope: exploiting resources and capabilities across businesses Advantage: leveraging value-added across activities Economies of search: leveraging distribution channels and customer relationships Advantage: leveraging customer relationships Unrelated diversification: no relationship between businesses Advantage: risk management Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Specialisation: examples Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Vertical integration: example Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Economies of scope: example Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Economies of search: examples Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Unrelated diversification: example Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Mixing and matching Most firms develop a corporate strategy that combines more than one type There is usually one ‘dominant’ corporate strategy Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Mixing and matching: example Casinos & betting TV Broadcasting Magazines events & cinemas Web TV & cinema production Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.3: WineRidge WineRidge’s corporate strategy: Is it a “pure” strategy or a combination? _________________________________________________________________________________________________________________________________________________________ What’s the dominant type? What are the other types? Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.3: WineRidge WineRidge’s corporate strategy: Is it a “pure” strategy or a combination? Combination of: specialisation (wine making in Australia + US JV), vertical integration (grape growing, wine making, wholesale distribution, internet retailing) What’s the dominant type? Specialisation (wine making) Grape growing is 10% of needs, internet retailing is small, so vertical integration is not dominant. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Corporate strategy: portfolio “Which businesses should we be in?” Generate answers using portfolio analysis: evaluate the businesses one by one Two tools used, depending on corporate strategy: Unrelated diversification: BCG Other corporate strategies: McKinsey Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

BCG Matrix Stars Question Ma Cash Cows Dogs Market Share High Industry growth rate High (faster than the economy as a whole) Low (slower than the economy as a whole) Market Share Question marks Cash cows Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

BCG Matrix Growth rate as estimate of attractiveness Market share as proxy for profit potential Assumptions: businesses are independent one from another (no synergies, no shared resources or capabilities) economies of scale Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Industry attractiveness McKinsey Matrix Business strength Average Weak Strong Medium Low High Winners Industry attractiveness Question marks business Losers Profit producers Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

McKinsey Matrix Same as BCG, but: 3*3 design to look different qualitative, case-based evaluations Assumptions: Use external analysis (Porter’s 5 forces, PEST) to evaluate attractiveness Use resource and capabilities analysis to evaluate business strength (synergies, shared resources and capabilities are possible) Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.9 Worked example: Woolworths 2000-2004 Supermarkets Dick Smith/Tandy Big W Sector growth High Very High Medium Woolworths growth +27% (>sector) +40% (=sector) +18% (<sector) 2004 sales $22bn $0.9bn $2.7bn 2004 EBIT margin 4.0% 5.0% 4.3% Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Industry Attractiveness 15.9 Worked solution Business Strength Strong Average Weak High Medium Low DS/T Supermarkets Industry Attractiveness BigW Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Matrices and lifecycle Introduction Growth Maturity Decline Dog Cash cow Star Question mark Sales Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

Signature brands Overdiversification, poor portfolio management 6 Pulp juice bars, Koala Blue wines, Ozi Varmints kid’s clothing, Brian Rochford swimwear Went bankrupt in 2006, lost $ millions 3 juice bars operating at a profit all other businesses making a loss 3 bars sold as going concern. Rest will be liquidated Overdiversification, poor portfolio management Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.10 WineRidge Position the businesses of WineRidge on the McKinsey matrix (grape growing, Australian wines, international operations, on-line retail distribution) Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.10 WineRidge Position the businesses of WineRidge on the McKinsey matrix (grape growing, Australian wines, international operations, on-line retail distribution) international operations on-line retail Australian wines grape growing Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.10 WineRidge - justification Grape growing: dominant player (largest grape grower) in an unattractive industry (oversupply) Australian wines: industry attractiveness is medium (retailer power) and WineRidge is losing market share at home International: attractive market in medium term (high growth) WineRidge is the largest exporter (16% growth) Online retail: potentially attractive (high margins), but online achieves only small volumes at present (1%) Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak

15.10 Recommendations Grape growing: reduce to supply premium wines only Australian wines: invest in marketing and distribution to regain share in home market International: continue export growth, no further investment abroad Online retail: no further investment until volume growth is significant Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee Slides prepared by Robert Waldersee and Stephane Tywoniak