Chapter Eight Corporate Strategies

Concentration Strategies Market Penetration Market Development Product Development Response: Everybody wants to be a superhero. Penetration: gaining additional share of existing markets with existing products. Pepsi challenge blind taste test. Market Development: existing products in new markets. Nintendo Wii in nursing homes. Product Development: New products to serve existing markets. Gillette Fusion is first six-blade razor, now new delivery mechanisms, new types of razors. 8-2

Strategies for Growth Acquisition: Takes place when one company purchases another company The acquired company is (generally) smaller than the firm that purchases it Merger: Joining of two companies into one Involves similarly sized companies Takeover A special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership. Gold and Nugget: Why code names? Wall Street Trailer: http://www.youtube.com/watch?v=r1YjwFty7-I If shareholders don’t gain value from acquisitions, then why do firms acquire other firms? --Increase market power --Learn and gain new capabilities --Reduce speed to market --Reshape the competitive landscape --Overcome entry barriers --Reduce dependence on specific markets (GE Capital: http://www.youtube.com/watch?v=UlathE1TQw4) 8-3

How is this like a marriage? Cultures: Stanford Telecomms story. Integration challenges such as: Melding two disparate corporate cultures Linking different financial and control systems Resolving problems regarding the status of the newly acquired firm’s executives Loss of key personnel weakens the acquired firm’s capabilities and reduces its value Inadequate Due Diligence High debt leaves the acquiring firm inflexible Managers over-invest their time in acquisitions

Strategies for Getting Smaller Retrenchment: Reducing the size of part of a firm’s operations, often through laying off employees Divestment: Selling off part of a firm’s operations Spin-off: Creating a new company whose stock is owned by investors out of a piece of a bigger company Liquidation: Shutting down portions of a firm’s operations, often at a tremendous financial loss 8-5

Portfolio Planning BCG Matrix TEAMS: Put each of your CAPSIM products into one of these categories. Limitations to portfolio planning: Oversimplifies the reality of competition by focusing on just two dimensions when analyzing a company’s operations within an industry Can create motivational problems among employees Does not help identify new opportunities 8-6