Business Strategy Prof J. Ignacio Canales

P(Product) M(Market) What is a Business? We can understand a business as the interception between Product or Service and a Market P(Product) M(Market)

Levels of Strategy Business Level Strategy Competitive Advantage P M Corporate Configuration Corporate Level Strategy Σ (P M) Inter-firm Relations Σ Σ (P M) Network Level

Multi Business & Head Quarters Corporate SBU1 SBU 2 SBU N... SBU 13

Let’s Understand Firm Activities: Re-visiting the Value Chain R&D PURCHASING PRODUCTION MARKETING DISTRIBUTION SERVICE

Firm Activities in Apple’s iPhone R&D PURCHASING PRODUCTION MARKETING DISTRIBUTION SERVICE

Portfolio Analysis Companies that use multiple product lines or business units find require an all-encompassing framework that will allow their co-ordination and management. For our purposes we will refer to the two most characteristic: BCG Growth Share Matrix GE Business Screen

BCG Growth Share Matrix Is nothing more than another very useful 2X2 matrix On the horizontal axis we measure, Relative Competitive Position. (In plain English, our market share) On the vertical Axis we measure, the growth rate of the industry

? Market Growth Rate Relative Market Share Stars Dogs Low High Question marks Dogs Cash cow High Low Relative Market Share

What is the key question in Corporate Strategy? Economists and Financers say … No Assumptions CO SBU1 SBU 2 SBU... SBU 13 Strategists say it depends on Value Creation Σ ( SBi)> SB1,…,SBn

Difference between corporate strategy and competitive or business strategy How to create parental or corporate value? Corporate strategy Corporate center SBU A SBU B SBU C Competitive or business strategy How to create competitive advantage?

Levels of Strategy Business Level Strategy Competitive Advantage P M Corporate Configuration Corporate Level Strategy Σ (P M) Inter-firm Relations Σ Σ (P M) Network Level

Strategic Alliances and M&A Types of Arrangements Between Companies Non Contractual Contractual Equity-Based Multilateral Bilateral International Marketing Alliance e.g. One World Joint Standard Setting e.g. Linux Coalition Construction Consortium e.g. Euro tunnel Strategic Alliances and M&A Market-Info Sharing e.g. Intel & MS Co-development contracts e.g. Disney & Pixar New Product J-V e.g. Lycos and Apollo form JV for B2B e-commerce venture

Strategic Alliances and M&A Types of Arrangements Between Companies Non Contractual Contractual Equity-Based Multilateral Bilateral International Marketing Alliance e.g. One World Joint Standard Setting e.g. Linux Coalition Construction Consortium e.g. Euro tunnel Strategic Alliances and M&A Market-Info Sharing e.g. Intel & MS Co-development contracts e.g. Disney & Pixar New Product J-V e.g. e.g. Lycos and Apollo form JV for B2B e-commerce venture

Why do they exist? Strengthen Competitive Position Enhance Market Power Increase Efficacies Access new critical resources Enter new markets Over 20% of assets and 30% or R&D in alliances, but…

Between 30% and 70% of Alliances fail… Neither meet the goals of parent companies nor do they deliver on the operational or strategic benefits they were set up for. Alliance termination is over 50% and they result in value destruction

Inter-Organizational Relationships Relational Factors Factors that impact the relationship B A Objectives from the relationship Objectives from the relationship Relational Arrangement Expectations Expectations Actors Actors Coordination or dispute settling mechanism Alliance, M&A or relationship with no name

Let’s get characters in the story Relational Factors: One offers the distribution The other the product and Brand Obj: Increase their product offer Obj: Extend to a new market Strategic Alliance Joint Venture Source: Namhex Case, IESE Business School

Outcome of the Coca-Cola/Nestle J-V The product Nestle preferred, cold coffee, did not work except for Sweden. The profitable product turned out to be Nestea, which was not Nestlé's expectations Coca-Cola could not commit their non-owned channels to distribute Nestea or Cold Coffee Sales relative to each Partner’s were small They had no conflict resolution system Cultural differences between European and American companies were irreconcilable BUT, each one learned

To Summarize Alliances There are a lot of them and they are happening more often. The key is compatibility and sustaining the mutually useful relationship. They are found primarily throughout the US, Europe and Japan, but are appearing elsewhere as well. They are used to gain access to resources that can’t be made or bought by a firm.

M&A and Corporate Strategy Acquisitions can create shareholders’ value by facilitating the implementation of several strategies: Rapid expansion in existing businesses Entry into new businesses (diversification) Entry into new geographies (globalization) Access new competencies Change the competitive game in existing markets Create new market space by serving unsatisfied or unrealized demand (value innovation)

Examples of M&A Orange and T-Mobile have merged to form a new UK mobile phone giant EE, taking 37% of the mobile market to form the UK’s largest mobile phone company. EE has over 30 million users, leapfrogging previous market leaders Vodafone and O2.

Value Creation: Two Broad Issues Where is the value potential contained? Primarily within one of the two firms In the interaction between the two firms How is it supposed to be generated? From the exploitation of existing resources and capabilities From the development of new resources and capabilities

From Corporate Strategy to Value Creation The existence of a clear and agreed upon strategic goal is clearly a necessary pre-condition for success … but it is generally not sufficient For a given corporate strategy to be successful, The right implementation tool needs to be selected The tool has to be used appropriately “Success” needs to be analyzed and quantified in terms of value creation for shareholders