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STRATEGIC MANAGEMENT
Lecture 9
Dr. John Kraft
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2. Abell’s Framework for Defining the Business
Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.
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Source: Publisher’s PowerPoint, Ch1-Slide 13

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Strategy in Action
Oracle Strives to become biggest and best.
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Opening Case
News Corp. Forges Ahead
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5. Corporate-Level Strategy
Corporate-Level Strategy should allow a company, or its business units, to perform the value-creation functions at lower cost or in a way that allows for differentiation and premium price.
Corporate strategy is used to identify:
Businesses or industries that the company should compete in
Value creation activities that the company should perform in those businesses
Method to enter or leave businesses or industries in order to maximize its long-run profitability
Companies must adopt a long-term perspective
Consider how changes in the industry and its products, technology, customers, and competitors will affect its current business model and future strategies.
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6. Repositioning and Redefining A Company’s Business Model
Corporate-level strategies are primarily directed toward improving a company’s competitive advantage and profitability in its present business or product line:
Horizontal Integration
The process of acquiring or merging with industry competitors
Vertical Integration
Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products
Strategic Outsourcing
Letting some value creation activities within a business be performed by an independent entity
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Overview
Horizontal integration
The process of acquiring or merging with industry competitors
Acquisition and merger
Vertical integration
Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products
Strategic outsourcing
Letting some value creation activities within a business be performed by an independent entity
Source: Publisher’s PowerPoint, Ch9-Slide 2
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8. Benefits of Horizontal Integration
Profits and profitability increase when horizontal integration:
Lowers the cost structure
Creates increasing economies of scale
Reduces the duplication of resources between two companies
Increases product differentiation
Product bundling – broader range at single combined price
Total solution – saving customers time and money
Cross-selling – leveraging established customer relationships
Replicates the business model
In new market segments within same industry
Reduces industry rivalry
Eliminate excess capacity in an industry
Easier to implement tacit price coordination among rivals
Increases bargaining power
Increased market power over suppliers and buyers
Gain greater control
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9. Benefits of Horizontal Integration
Reducing costs
Increasing value
Product bundling
Cross selling
Managing industry rivalry
Increasing bargaining power
Market power (monopoly power)
Source: Publisher’s PowerPoint, Ch9-Slide 3
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10. Drawbacks and Limits of Horizontal Integration
Majority of mergers and acquisitions do not create value
Implementing a horizontal integration strategy is not easy
Mergers and acquisitions often fail to produce the anticipated gains
Can bring the company into conflict with antitrust law
Source: Publisher’s PowerPoint, Ch9-Slide 4
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11. Increasing Profitability Through Vertical Integration
Building barriers to entry
Facilitating investments in specialized assets
Protecting product quality
Improved scheduling
Source: Publisher’s PowerPoint, Ch9-Slide 8
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Real World
“Bombardier”
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Film
Domino’s
Click for Video Domino’s
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Running Case
Wal-marts’ Chain of “ Neighborhood Markets”
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Strategy in Action
McDonald’s a Leader at Vertical Integration
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Strategy in Action
Specialized Assets and Vertical Integration in the Aluminum Industry
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17. Strategic Outsourcing of Primary Value Creation Functions
Source: Publisher’s PowerPoint, Ch9-Slide 11
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18. Benefits of Outsourcing
Reducing costs
The specialist company is less than what it would cost to perform the activity internally
Differentiation
The quality of the activity performed by the specialist is greater than if the activity were performed by the company
Focus
Distractions are removed; the company can focus attention and resources on activities important for value creation and competitive advantage
Source: Publisher’s PowerPoint, Ch9-Slide 12
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Real World
Luxottica Agrees $400M Deal to Buy Cole National Chain of Stores”
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Real World
“Have Dealmakers Wised Up?”
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Real World
“Buying Spree By China Firms is a Bet on Value of US Brands”
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Closing Case
Beating Dell
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End of Lecture 9
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