Chapters Corporate Level Strategy

Foods Quaker North America Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits Business Level Strategies How are we going to compete and gain a competitive advantage in each of our businesses?

Snack FoodsBeveragesFoods Corporate Level Strategy 1) What businesses do we want to compete in? 2) How do manage effectively across businesses

Goals of Corporate Strategy Moves to enter new businesses Boosting combined performance of the businesses Capturing synergies and turning them into competitive advantages Establishing investment priorities and steering resources into business units

4 Corporate Level Strategies Vertical Integration Strategic Outsourcing Horizontal Integration Diversification – two or more different businesses with distinct operations

1) Vertical Integration Forward or backwards Full integration Taper integration Benefits Build barriers to entry Facilitates investment in specialized assets Protecting product quality Improved scheduling Risks Costs Rapid technological changes Demand predictability

Alternatives to Vertical Integration Competitive bidding Long term contracts or strategic alliances Vertical Integration Markets & Competitive Bidding Hybrid & Contracts/Alliances Form of Relationship

2) Outsourcing Cost reduction and differentiation Hold-ups, scheduling and hallowing out

3) Horizontal Integration Acquiring or merging with industry competitors Reduce cost and economies of scale Increasing value through wider product line or product bundling Manage industry rivalry Increase buyer and supplier power

4) How to Diversify? 1) Internal Development - corporate entrepreneurship or internal venturing able to appropriate a larger portion of wealth avoids complexities of multiple partners time consuming and requires diversity of organizational capabilities

4) How to Diversify? 2) Strategic Alliances and Joint Ventures entering a new market via the combination of complementary resources - do more together cost reduction & sharing development/diffusion of technology Problems appropriate partners - skills and compatibility trust and commitment communication

4) How to Diversify? 3) Mergers & Acquisition

Acquisitions Reasons of Acquisitions Increase Market Power Overcome Entry Barriers Increased Speed Lower Risk Avoid Competition Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation Results Poor Performance Who Wins? Acquired Firm Shareholders

Failures of Acquisitions % average acquisition premium Acquiring firm’s value drops 4% in the 3 months following acquisitions % of acquisitions are later divested Acquirers underperform S&P by 14%, peers by 4% 3 month performance before and after 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns

Why, then, do executives acquire? Often, for personal reasons Firm size and executive compensation are related When do executives loss their jobs? 1) Acquired - larger firms harder to acquire 2) Performing poorly - employment risk is reduced as returns are less volatile

Levels of Diversification Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizonal relationships across businesses - synergies Advantages of related diversification include: ä Leveraging Core Competencies ä Sharing Activities ä Market Power

Levels of Diversification (cont.) Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses Conglomerate Diversification - no relatedness between businesses

When/Why to Diversify? To create shareholder value Porter’s Three Point Test 1) Attractiveness Test 2) Cost of Entry Test 3) Better off Test Should pass all 3

Portfolio analysis BCG Growth-Share Matrix question marks, dogs, cash cows, stars GE- Nine Cell Matrix