Strategy Formulation: Chapter 6 Strategy Formulation: Corporate Strategy Dr.Vijaya Kumar Skyline College Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Three Key Issues: Firm’s directional strategy Firm’s portfolio strategy Firm’s parenting strategy Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Directional Strategies Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Directional Strategy: Orientation toward growth Expand, cut back, status quo? Concentrate within current industry, diversify into other industries? Growth and expansion through internal development or acquisitions, mergers, or strategic alliances? Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Directional Strategy: Three Grand Strategies: Growth strategies Stability strategies Retrenchment strategies Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Growth Strategies: Most widely pursued strategies External mechanisms: Mergers Transaction involving two or more firms in which stock is exchanged but only one firm survives. Acquisition Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm. Strategic Alliance Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy 2 Basic Growth Strategies: Concentration Current product line in one industry Diversification Into other product lines in other industries Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Basic Concentration Strategies: Vertical growth Horizontal growth Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Concentration: Vertical growth Vertical integration Full integration Taper integration Quasi-integration Backward integration Forward integration Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Concentration: Horizontal Growth Horizontal integration Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Basic Diversification Strategies: Concentric Diversification Conglomerate Diversification Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Diversification: Concentric: Growth into related industry Search for synergies Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Diversification: Conglomerate: Growth into unrelated industry Concern with financial considerations Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Green-Field Development Corporate Strategy Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts International Entry Options Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Stability Strategies: Pause/proceed with caution No change Profit strategies Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Retrenchment Strategies: Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Portfolio Analysis How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which will never be successful? Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Portfolio Analysis BCG (Boston Consulting Group) Matrix Product life cycle and funding decisions Question marks Stars Cash cows Dogs Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

BCG Matrix Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

GE Business Screen Long-term industry attractiveness Business strength/competitive position Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

General Electric’s Business Screen Winners B C Question Marks D F Average Businesses E Losers G H Profit Producers Strong Weak Low Medium High Business Strength/Competitive Position Industry Attractiveness Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company. Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

International Portfolio Analysis 2 Factors: Country’s attractiveness Market size, rate of growth, regulation Competitive strength Market share, product fit, contribution margin, market support Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Portfolio Matrix for Plotting Products by Country Harvest/Divest Combine/License Invest/Grow Dominate/Divest Joint Venture Low High Competitive Strengths Country Attractiveness Selective Strategies Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Portfolio Analysis Advantages: Top management evaluates each of firm’s businesses individually Use of externally-oriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Portfolio Analysis Disadvantages: Difficult to define product/market segments Standard strategies can miss opportunities Illusion of scientific rigor Value-laden terms Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Corporate Parenting: Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units. Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Corporate Parenting: Strategic factors Those elements of a company that determine its strategic success or failure Performance improvement Analyze fit Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Corporate Parenting: Parenting-Fit Matrix Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole. Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Corporate Parenting: Parenting-Fit Matrix 2 Dimensions Positive contributions parent can make Negative effects parent can have Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Parenting-Fit Matrix Low Heartland Ballast Edge of MISFIT between critical success factors and parenting characteristics Heartland Alien Territory Value Trap High Low High FIT between parenting opportunities and parenting characteristics Prentice Hall, 2002 Chapter 6 Wheelen/Hunger

Corporate Strategy Horizontal Strategy: Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units. Prentice Hall, 2002 Chapter 6 Wheelen/Hunger