Group 6 (11 AM):Bailey Anderson, Tucker DeVinny, Angela Chavez Corporate Strategy Group 6 (11 AM):Bailey Anderson, Tucker DeVinny, Angela Chavez

Chapter outline The concepts of economies of scope, how to manage cost complexities, and understand firm's boundaries The rationale behind multi-business activity The advantages and disadvantages of change in the firm's scope Trends in diversification and integration The techniques of portfolio analysis and understand how to apply corporate strategies

The Scope of the firm Corporate strategy vs. Business strategy The scope often changes over time Ask the question "what business are we in?" The range of product/market activities the firm undertakes includes: Product scope: How specialized the firm is in the range of products it supplies Vertical scope: The range of vertically linked activities the firm encompasses Geographical scope: The geographical spread of activities in the firm

American Airlines Approach Mission statement: "American Airlines is a founding member of the oneworld® alliance, which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members and members-elect serve more than 900 destinations with more than 10,000 daily flights to 149 countries and territories."  Narrow or broad? Narrow Merged the parent company of US airways, US Airways Group with American Airlines parent company, AMR corporation Helps with increase in revenue and decrease in costs Less competition and higher prices

Key concepts for analyzing firm scope Firms will expand or reduce their scope because they feel it is in the company's best interest Goal is to       Revenue       Costs Three key concepts: Economies of scope Transaction costs The cost of corporate complexity

Diversification The expansion of an existing firm into another product like or field of operation Can be related or unrelated to their current field Concentric – Related Conglomerate – Unrelated

Diversification in Air Transportation

Diversification In American airlines American Airlines focused on transporting U.S. mail in the 1930s to keep themselves afloat. By the late 1930s, American Airlines started branching out to passenger flights and began creating revenue this way. They started flying daily between New York and DFW, and was the first airline to make a profit from solely transporting passengers.

Benefits of Diversification Growth Keeping companies from staying stagnant Better chances of sticking to a market Risk Reduction "Don’t put all your eggs in one basket" One common ownership brings more stable profit Stable profits means job security

Porter's Essential Tests Test to check the long-run profitability of a firm trying to diversify The Attractiveness Test: industries must be structurally attractive The Cost-Of-Entry Test: cost must not outweigh future profits The Better-Off Test: new unit must gain competitive advantage from its link with corporation or vice versa The Better-Off test is the most important test when making diversification decisions.

Vertical integration Vertical integration refers to a firm's ownership of vertically related activities, or owning not only the company but the suppliers and distributors. One of the goals of vertical integration is making products in house rather than outsourcing. The more a firm makes rather than buys, the lower its costs, and the more revenue increases

Types of Vertical integration Vertical integration had two types: Backward: Firm acquires ownership and control over the production of its own inputs Forward: Firm acquires ownership and control of activities undertaken by customers Full: All components of products are manufactured, distributed, and sold through the company Partial: Some components are manufactured, distributed, and sold but allows for outsourcing. Backwards: manufacturing Forward: Adverising

Vertical Integration in American Airlines American Airlines utilizes forwards vertical integration by selling flights through their website directly to customers By not involving a retailer, they maximize their profits

Managing the corporate portfolio GE/McKinsey Matrix:  The industry attractiveness axis combines: market size, market growth rate, market profitability, cyclicality, and international potential. This analysis can guide: Allocating resources between businesses based on each business's market attractiveness and competitive position  Formulating business unit strategy Analyzing portfolio balance Setting performance targets based on each business's market attractiveness and competitive position 

MANAGING THE CORPORATE PORTFOLIO BCG’s growth-share matrix Similar to the GE/McKinsey matrix, however, it uses a single indicator as a proxy for each of these dimensions: industry attractiveness is measured by rate of market growth and competitive advantage by relative market share

MANAGING THE CORPORATE PORTFOLIO The Heartland Matrix The value-creating potential of a business within a company’s business portfolio depends on the characteristics of the business as well as the characteristics of the parent. 

References https://barthodk.com/strategy/corporate-strategy-concepts-of-corporate- strategy/corporate-strategy/ https://www.comparably.com/companies/american-airlines/mission https://expertprogrammanagement.com/2018/03/ge-mckinsey-matrix/ https://www.smartdraw.com/growth-share-matrix/ http://s21.q4cdn.com/616071541/files/doc_downloads/crr/CRR-Report- 2016.pdf