What Corporate Strategy Is Single-Business Organization – is in primarily one industry Ex. Coca-Cola Multiple-Business Organization – is in more than one industry Ex. PepsiCo Why is this distinction important?

Three Corporate Directions 1. Moving an organization forward – Expanding the organizations activities and/or operations 2. Keeping an organization as is – Not growing but also not falling behind 3. Reversing an organization’s decline – Organization has problems and seeing declines in one or more performance areas

© Prentice-Hall Figure 7.2 Possible Growth Strategies Organizational Growth Concentration Vertical Integration Backward Forward Horizontal Integration Diversification Related Unrelated International

Growth Strategy Expands the products offered or markets served by an organization or expands its activities/operations either through current businesses or new businesses. Goals for growth include increased revenues, profits, and financial/performance measures

© Prentice-Hall Figure 7.3 Concentration Options Customers Current New CurrentNew Product-Market Exploitation Product Development Market Development Product/Market Diversification* Product(s) * not a concentration option

Concentration Is a growth strategy in which an organization concentrates on its primary line of business and looks for ways to meet its growth goals by expanding its core business.

Vertical Integration Strategy Organization grows by gaining control of its inputs, outputs, or both Backward integration gains control of its inputs or resources by becoming its supplier Forward integration gains control of its outputs or products/services by becoming its own distributor

Diversification Strategy in which an organization grows by moving into a different industry. 1. Related (concentric) diversification Ex. Apples iTunes, iPod, iPhone 2. Unrelated (conglomerate) diversification Ex. GE, Toyota, Fortune Brands

International Corporate strategy might involve looking for ways to grow by taking advantage of the potential opportunities offered by global markets or by protecting core operations from global competitors

Horizontal Integration Strategy Strategy in which organization grows by combining operations with its competitors Keeps an organization in the same industry and provides a way to expand market share and strengthen competitive position Ex. L’Oreal acquired London based retailer “Body Shop” for 1.1 billion Failed Attempt was Coca Cola trying to purchase China’s Huiyuan Juice Group for 2.3B

Implementing the Growth Strategies Mergers/Acquisitions Internal development Strategic Partnering

Mergers/Acquisitions Merger – a legal transaction in which two or more organizations combine operations through an exchange of stock and create a third entity Acquisition – an outright purchase of an organization by another Hostile takeover – when organization being acquired doesn’t wish to be acquired.

Internal Development When an organization grows by creating and developing new business activities itself. This may be the route the firm chooses when strategic decision makers believe they have the necessary resources, distinctive capabilities, and core competencies to do it themselves.

Strategic Partnering Where two or more organizations establish a legitimate relationship by combining their resources, distinctive capabilities, and core competencies for some business purpose. Vertical Integration – Partnering with a distributor Horizontal Integration – Strategic partnering with competitor 3 main types of strategic partnering Joint venture, long term contract, strategic alliance

3 Main types of strategic partnering Joint venture – two or more separate organizations form a separate independent organization. Often used as a legal scapegoat, partners will create a new entity to do business. Involves less risk Long term contract – legal contract between organizations covering a specific business purpose. Alternative to vertical integration Strategic alliance – were two or more organizations share resources, capabilities, or competencies to pursue some business purpose. Similar to joint venture, but no separate entity

Stability Strategy This one When an organizations goals are to maintain size and current activities. When and Why? Slow, or no growth industries, there is not a market for expansion due to the red ocean of competitors. If a firm is coming off a steep incline of growth and needs to recoup its resources. If industry life cycle is in maturity or decline stage, expansion is unrealistic.

Renewal Strategies Strategies focused on reviving companies facing a recent downturn or those who have unable to achieve a competitive advantage Causes: Declining Performance Poor Management Economic Downturn

Reasons for a Renewal Strategy

Types of Renewal Strategies Retrenchment – a short run renewal strategy designed to address organizational weaknesses that are leading to performance declines Used when firm continually fails to meet strategic goals Turnaround – used in situations where organizations performance problems are more severe. Used in situations where firm faces ruin if not implemented.

Implementing Renewal Strategies Cost cutting Short run approach to gaining cash to revitalize the organizations performance in the long run Restructuring Divest and Discontinue – Selling a process to another firm Spin off – Setting up a business unit as a separate, independent business Liquidation – selling off business entirely Downsizing – laying off employees – short term fix Bankruptcy – failure of a business.

Evaluating Corporate Strategy Four Evaluation Techniques Corporate Goals and Productivity Measures Efficiency & Effectiveness Benchmarking Portfolio Analysis

Corporate Goals Corporate goals indicate the desired end results or targets that strategic managers have established.

Efficiency, Effectiveness, and Productivity measures Efficiency- Is an organizations ability to minimize resource use in achieving organizational goals. Effectiveness- is an organization’s ability to reach its goals, Productivity- Is a specific measure of how many inputs it took to produce outputs and is typically used in the production-operations area.

Benchmarking Benchmarking- The search for the best practices inside or outside an organization.

Portfolio Analysis Portfolio- An organizations various business Units A Portfolio Analysis is done with a two-dimensional matrices that summarize internal and external factors. Three Main Portfolio Analysis Approaches 1 ) The BCG Matrix 2) The McKinsey-GE Stoplight Matrix 3) The Product-Market Evolution Matrix

BCG Matrix Measure of business units relative market share. Y axis is the measure of the industry growth rate( Cash Usage). X axis is the measure of the relative market share (Cash Generation). Examples Cash Cow- JZ Star – Lady Gaga ? – Emerging Talent Dog- Blink 182

© Prentice-Hall McKinsey-GE Stoplight Matrix Industry (Product-Market) Attractiveness Business Strength-Competitive Position StrongAverageWeak (5)(3)(1) High(5) Medium(3) Low(1) Winners Profit Producers Average Business Question marks Losers

© Prentice-Hall Product-Market Evolution Matrix StrongAverageWeak The Business Unit’s Competitive Position Industry’s Stage in the Evolutionary Life Cycle Development Growth Decline Competitive Shakeout Maturity  Saturation A B C D E F G H

© Prentice-Hall When to Change Corporate Strategies When evaluation shows Growth objectives aren’t being attained Organizational stability causes organization to fall behind Organizational renewal efforts aren’t working Possible strategies to change Functional Competitive Corporate direction