Corporate strategies Chapter 6

Corporate strategy Corporate strategy involves the firm’s definition of its domain – the selection of business areas in which the organization will compete. A firm’s growth strategy dictates its propensity to expand its domain – into a different group of products or markets (including international markets). Approaches to corporate strategy: Single-business concentration Vertical integration Diversification

Single-business concentration Advantages: The firm can master one business and industry environment. All resources and capabilities are directed at doing one thing well. It can prevent the proliferation of management levels and staff functions that are usually needed to manage multi-business firms. The firm can invest profits back into the business. Disadvantages: Dependence on one business can create uneven cash flow and profitability. Product obsolescence and industry maturity can leave the firm without a growth area. It becomes more difficult for the company to develop new competencies. It can lead to organizational inertia and limited career path for managers.

Avenue for growth: Vertical integration Component Manufacturing Assembly Retail

Avenue for growth: diversification RELATED DIVERSIFICATION UNRELATED DIVERSIFICATION

Reasons for diversification Strategic Reasons: Risk reduction Improvement of earnings Lack of growth in mature businesses Application of resources and capabilities to related areas (synergy) Economies of scope (ability to support multiple businesses) Use of excess debt capacity Desire to learn new technologies Increase in market power Desire to turn around a failing business CEO Motives: Desire to increase power and status Desire to increase compensation from running a large enterprise Desire to increase value of the firm Craving for a more interesting and challenging management environment

Portfolio management BUSINESS GROWTH RATE High Low Strong Average Weak INDUSTRY ATTRACTIVENESS Stars Question Marks Cash Cows Dogs High High Medium Low Low RELATIVE MARKET SHARE COMPETITIVE POSITION BOSTON CONSULTING GROUP (BCG) MATRIX GENERAL ELECTRIC (GE) BUSINESS SCREEN