AGENDA Week 3 Hypercompetition Current Situation Break Intel Practice Individual Case –Hershey

Current Situation What is current mission statement?

Purposes of Mission Statement Communication Tool –External –Internal Decision-Making Tool –Long-term Objectives –Corporate Strategies –Business Objectives & Strategies –Functional Strategies & Strategies –Operating Decisions

What are current long term objectives? Specific results - more than one year. Challenging, measurable, reasonable, clear. Established for overall corporation and each business/division.

Quantitative (“Hard”)Areas n Profitability Net profit margin; ROI; ROE n Productivity u Lower costs (% of sales CGS, S&A) u Activity ratios n Growth u Increases in sales, assets, net income n Competitive Position u Market Share n Shareholder Wealth u EPS; Dividends; Shareholder Value

Qualitative Areas (“Soft” ) Employee Relations Social Responsibility Reputation Technological Leadership

What are the current Corporate Strategies? The overall managerial game plan Specifies: Organization’s orientation toward growth Industries or markets in which it will compete. Multi-business corporations it also involves decisions regarding position of that business in the organization.

Existing MarketNew Market Existing Product New Product Market Penetration Product Development Market Development Diversification Related Unrelated

Alternatives for Growth Alternatives for Growth Expansion into existing Businesses Diversification into new Businesses Changes of product, market geographical scope Vertical Integration expanding the Value Chain Related Unrelated

Expansion into existing businesses Changes of product, market geographical scope Vertical Integration expanding the Value Chain Existing products and markets Market Penetration Existing products into new markets Expansion of uses and applications Market Development New Products into existing markets Product Development Expanding the breadth of product lines Forward: Getting closer to customers Backward: Getting closer to suppliers

Diversification into new businesses Related Unrelated Product Technology Process Technology Procurement Basic raw materials Processes or fabricated materials Fabricated components Assembled products Testing Distribution Marketing and sales Retailing Service Bases for relatedness Federal Gov’t looks at Standard Industrial Classification (SIC)

Rationales for Diversification Economies of Scope –Electronic calculators and digital watches Financial Synergies Economizing on Transaction Costs Managerial or Behavioral

Financial Synergies Diversification is need for adequate and stable cash flow Use profits from one business to subsidize another Underlies BCG Matrix Smooth cash flows and prop up expanding or troubled businesses –Investors can smooth out (PM & Kraft) –Other sources of expansion funds

Economizing on Transactions Costs Multiproduct firm is efficient choice when coordination between independent firms is complicated by transaction costs, and When the self-interested behavior of independent firms jeopardizes the value of investments, integration is option –similar with vertical integration

Managerial/Behavioral Reasons Maintaining or enhancing the position of executives making diversification decisions. Efficient for managers, but not for shareholders. –Divergence between management action and shareholder interests. Pursuit of growth –easier to acquire new sales than internal develop

To avoid getting fired –reducing the risk of poor performance The persistence of diversification despite –vigorous antitrust enforcement –evidence of poor performance –suggest that managerial rationales help explain diversification activity.

If managers do entrench themselves at shareholder expense, –Shareholders must be more vigorous –Use outsiders –Revise compensation

Modes of Expansion Internal development Acquiring –Horizontal Integration Collaborative arrangements –Strategic Alliances –Joint Ventures –Licensing

Other Types of Corporate Strategies

Repositioning Strategies Retrenchment –Assets and/or costs Divestiture Spin-offs

Termination Strategies Liquidation Merger Being acquired

Market Segment and Product Group Analysis What markets do we currently serve with what product group? What is the contribution to sales, –operating income; net profit, etc.?

HUDSON FOODS Market Segments: Retail Food Service Club Store International Other Group of Consumers served Geographical Location

HUDSON FOODS PRODUCTS Hudson Foods - Product Groups Chicken TurkeyPortionedLuncheonBeefOther EntreesMeats

Chicken TurkeyPortionedLuncheonBeefOther EntreesMeats Retail Food Service Club Store Int’l Other