1. Business Strategy
Prof J. Ignacio Canales

2. P(Product) M(Market) What is a Business?
We can understand a business as the interception between Product or Service and a Market
P(Product)
M(Market)

3. Levels of Strategy Business Level Strategy Competitive Advantage P M
Corporate Configuration
Corporate Level Strategy
Σ (P M)
Inter-firm Relations
Σ Σ (P M)
Network Level

4. Multi Business & Head Quarters
Corporate
SBU1
SBU 2
SBU N...
SBU 13

6. Let’s Understand Firm Activities: Re-visiting the Value Chain
R&D
PURCHASING
PRODUCTION
MARKETING
DISTRIBUTION
SERVICE

7. Firm Activities in Apple’s iPhone
R&D
PURCHASING
PRODUCTION
MARKETING
DISTRIBUTION
SERVICE

8. Portfolio Analysis
Companies that use multiple product lines or business units find require an all-encompassing framework that will allow their co-ordination and management.
For our purposes we will refer to the two most characteristic:
BCG Growth Share Matrix
GE Business Screen

9. BCG Growth Share Matrix
Is nothing more than another very useful 2X2 matrix
On the horizontal axis we measure, Relative Competitive Position. (In plain English, our market share)
On the vertical Axis we measure, the growth rate of the industry

10. ? Market Growth Rate Relative Market Share Stars Dogs Low High
Question marks
Dogs
Cash cow
High
Low
Relative Market Share

11. What is the key question in Corporate Strategy?
Economists and Financers say
… No
Assumptions CO
SBU1
SBU 2
SBU...
SBU 13
Strategists say
it depends
on Value Creation
Σ ( SBi)> SB1,…,SBn

12. Difference between corporate strategy and competitive or business strategy
How to create
parental or corporate value?
Corporate strategy
Corporate center
SBU A
SBU B
SBU C
Competitive or business
strategy
How to create
competitive advantage?

13. Levels of Strategy Business Level Strategy Competitive Advantage P M
Corporate Configuration
Corporate Level Strategy
Σ (P M)
Inter-firm Relations
Σ Σ (P M)
Network Level

14. Strategic Alliances and M&A
Types of Arrangements Between Companies
Non Contractual
Contractual
Equity-Based
Multilateral
Bilateral
International Marketing Alliance
e.g. One World
Joint Standard Setting
e.g. Linux Coalition
Construction Consortium
e.g. Euro tunnel
Strategic Alliances and M&A
Market-Info Sharing
e.g. Intel & MS
Co-development contracts
e.g. Disney & Pixar
New Product J-V
e.g. Lycos and
Apollo form JV for B2B e-commerce venture

15. Strategic Alliances and M&A
Types of Arrangements Between Companies
Non Contractual
Contractual
Equity-Based
Multilateral
Bilateral
International Marketing Alliance
e.g. One World
Joint Standard Setting
e.g. Linux Coalition
Construction Consortium
e.g. Euro tunnel
Strategic Alliances and M&A
Market-Info Sharing
e.g. Intel & MS
Co-development contracts
e.g. Disney & Pixar
New Product J-V
e.g. e.g. Lycos and
Apollo form JV for B2B e-commerce venture

16. Why do they exist? Strengthen Competitive Position
Enhance Market Power
Increase Efficacies
Access new critical resources
Enter new markets
Over 20% of assets and 30% or R&D in alliances, but…

17. Between 30% and 70% of Alliances fail…
Neither meet the goals of parent companies nor do they deliver on the operational or strategic benefits they were set up for.
Alliance termination is over 50% and they result in value destruction

18. Inter-Organizational Relationships
Relational Factors
Factors that impact the relationship B A
Objectives from the relationship
Objectives from the relationship
Relational Arrangement
Expectations
Expectations
Actors
Actors
Coordination or dispute settling mechanism
Alliance, M&A or relationship with no name

19. Let’s get characters in the story
Relational Factors:
One offers the distribution
The other the product and Brand
Obj: Increase their product offer
Obj: Extend to a new market
Strategic Alliance
Joint Venture
Source: Namhex Case, IESE Business School

20. Outcome of the Coca-Cola/Nestle J-V
The product Nestle preferred, cold coffee, did not work except for Sweden.
The profitable product turned out to be Nestea, which was not Nestlé's expectations
Coca-Cola could not commit their non-owned channels to distribute Nestea or Cold Coffee
Sales relative to each Partner’s were small
They had no conflict resolution system
Cultural differences between European and American companies were irreconcilable
BUT, each one learned

21. To Summarize Alliances
There are a lot of them and they are happening more often.
The key is compatibility and sustaining the mutually useful relationship.
They are found primarily throughout the US, Europe and Japan, but are appearing elsewhere as well.
They are used to gain access to resources that can’t be made or bought by a firm.

22. M&A and Corporate Strategy
Acquisitions can create shareholders’ value by facilitating the implementation of several strategies:
Rapid expansion in existing businesses
Entry into new businesses (diversification)
Entry into new geographies (globalization)
Access new competencies
Change the competitive game in existing markets
Create new market space by serving unsatisfied or unrealized demand (value innovation)

24. Examples of M&A
Orange and T-Mobile have merged to form a new UK mobile phone giant EE, taking 37% of the mobile market to form the UK’s largest mobile phone company. EE has over 30 million users, leapfrogging previous market leaders Vodafone and O2.

25. Value Creation: Two Broad Issues
Where is the value potential contained?
Primarily within one of the two firms
In the interaction between the two firms
How is it supposed to be generated?
From the exploitation of existing resources and capabilities
From the development of new resources and capabilities

26. From Corporate Strategy to Value Creation
The existence of a clear and agreed upon strategic goal is clearly a necessary pre-condition for success
… but it is generally not sufficient
For a given corporate strategy to be successful,
The right implementation tool needs to be selected
The tool has to be used appropriately
“Success” needs to be analyzed and quantified in terms of value creation for shareholders