1. Strategy Formulation:
Chapter 6
Strategy Formulation:
Corporate Strategy
Dr.Vijaya Kumar
Skyline College
Prentice Hall, 2002
Chapter 6
Wheelen/Hunger

2. Corporate Strategy Three Key Issues: Firm’s directional strategy
Firm’s portfolio strategy
Firm’s parenting strategy
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3. Corporate Directional Strategies
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4. Corporate Strategy Directional Strategy: Orientation toward growth
Expand, cut back, status quo?
Concentrate within current industry, diversify into other industries?
Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?
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5. Corporate Strategy Directional Strategy: Three Grand Strategies:
Growth strategies
Stability strategies
Retrenchment strategies
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6. Corporate Strategy Growth Strategies: Most widely pursued strategies
External mechanisms:
Mergers
Transaction involving two or more firms in which stock is exchanged but only one firm survives.
Acquisition
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.
Strategic Alliance
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.
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7. Corporate Strategy 2 Basic Growth Strategies: Concentration
Current product line in one industry
Diversification
Into other product lines in other industries
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8. Corporate Strategy Basic Concentration Strategies: Vertical growth
Horizontal growth
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9. Corporate Strategy Concentration: Vertical growth Vertical integration
Full integration
Taper integration
Quasi-integration
Backward integration
Forward integration
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10. Corporate Strategy Concentration: Horizontal Growth
Horizontal integration
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11. Corporate Strategy Basic Diversification Strategies:
Concentric Diversification
Conglomerate Diversification
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12. Corporate Strategy Diversification: Concentric:
Growth into related industry
Search for synergies
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13. Corporate Strategy Diversification: Conglomerate:
Growth into unrelated industry
Concern with financial considerations
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14. Green-Field Development
Corporate Strategy
Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing
Turnkey Operations
BOT Concept
Management Contracts
International
Entry
Options
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15. Corporate Strategy Stability Strategies: Pause/proceed with caution
No change
Profit strategies
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16. Corporate Strategy Retrenchment Strategies: Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation
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17. Corporate Strategy Portfolio Analysis
How much of our time and money should we spend on our best products to ensure that they continue to be successful?
How much of our time and money should we spend developing new costly products, most of which will never be successful?
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18. Corporate Strategy Portfolio Analysis
BCG (Boston Consulting Group) Matrix
Product life cycle and funding decisions
Question marks
Stars
Cash cows
Dogs
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19. BCG Matrix
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20. GE Business Screen Long-term industry attractiveness
Business strength/competitive position
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21. General Electric’s Business Screen
Winners B C
Question
Marks D F
Average
Businesses E
Losers G H
Profit
Producers
Strong
Weak
Low
Medium
High
Business Strength/Competitive Position
Industry Attractiveness
Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.
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22. International Portfolio Analysis
2 Factors:
Country’s attractiveness
Market size, rate of growth, regulation
Competitive strength
Market share, product fit, contribution margin, market support
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23. Portfolio Matrix for Plotting Products by Country
Harvest/Divest
Combine/License
Invest/Grow
Dominate/Divest
Joint Venture
Low
High
Competitive Strengths
Country Attractiveness
Selective
Strategies
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24. Corporate Strategy Portfolio Analysis Advantages:
Top management evaluates each of firm’s businesses individually
Use of externally-oriented data to supplement management judgment
Raises issue of cash flow availability
Facilitates communication
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25. Corporate Strategy Portfolio Analysis Disadvantages:
Difficult to define product/market segments
Standard strategies can miss opportunities
Illusion of scientific rigor
Value-laden terms
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26. Corporate Strategy Corporate Parenting:
Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
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27. Corporate Strategy Corporate Parenting: Strategic factors
Those elements of a company that determine its strategic success or failure
Performance improvement
Analyze fit
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28. Corporate Strategy Corporate Parenting: Parenting-Fit Matrix
Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole.
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29. Corporate Strategy Corporate Parenting: Parenting-Fit Matrix
2 Dimensions
Positive contributions parent can make
Negative effects parent can have
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30. Parenting-Fit Matrix Low Heartland Ballast Edge of
MISFIT between critical success factors
and parenting characteristics
Heartland
Alien
Territory
Value Trap
High
Low
High
FIT between parenting opportunities
and parenting characteristics
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31. Corporate Strategy Horizontal Strategy:
Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units.
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