1. Corporate-Level Strategy
MANA 5336

2. Directional Strategies

3. Stages in the Raw-Material-to-Consumer Value Chain
Upstream
Downstream

4. Intermediate manufacturer
Stages in the Raw-Material-to-Consumer Value Chain in the Personal Computer Industry
End user
Distribution
Assembly
Intermediate manufacturer
Raw materials
Examples:
Dow Chemical Union Carbide Kyocera
Examples: Intel Seagate Micron
Examples: Apple Hp Dell
Examples: Best Buy Office Max

5. Concentration on a Single Business
Southwest Airlines
SEARS
Coca-Cola
McDonalds 3

6. Concentration on a Single Business
Advantages
Operational focus on a single familiar industry or market.
Current resources and capabilities add value.
Growing with the market brings competitive advantage.
Disadvantages
No diversification of market risks.
Vertical integration may be required to create value and establish competitive advantage.
Opportunities to create value and make a profit may be missed.

7. Diversification Related diversification Unrelated diversification
Entry into new business activity based on shared commonalities in the components of the value chains of the firms.
Unrelated diversification
Entry into a new business area that has no obvious relationship with any area of the existing business.

8. Related Diversification
Marriott 3M
Hewlett Packard 3

9. Unrelated Diversification
Tyco
Amer Group
ITT 3

10. Diversification and Corporate Performance: A Disappointing History
A study conducted by Business Week and Mercer Management Consulting, Inc., analyzed 150 acquisitions that took place between July 1990 and July Based on total stock returns from three months before, and up to three years after, the announcement:
30 percent substantially eroded shareholder returns.
20 percent eroded some returns.
33 percent created only marginal returns.
17 percent created substantial returns.
A study by Salomon Smith Barney of U.S. companies acquired since 1997 in deals for $15 billion or more, the stocks of the acquiring firms have, on average, under-performed the S&P stock index by 14 percentage points and under-performed their peer group by four percentage points after the deals were announced.
Sources: Lipin, S. & Deogun, N Big merges of the 90’s prove disappointing to shareholders. Wall Street Journal, October 30: C1; A study by Dr. G. William Schwert, University of Rochester, cited in Pare, T. P The new merger boom. Fortune, November 28:96; and Porter, M.E From competitive advantage to corporate strategy. Harvard Business Review, 65(3):43.

11. Relationship Between Diversification and Performance
Dominant
Business
Related
Constrained
Unrelated
Business
Level of Diversification

12. Restructuring: Contraction of Scope
Why restructure?
Pull-back from overdiversification.
Attacks by competitors on core businesses.
Diminished strategic advantages of vertical integration and diversification.
Contraction (Exit) strategies
Retrenchment
Divestment– spinoffs of profitable SBUs to investors; management buy outs (MBOs).
Harvest– halting investment, maximizing cash flow.
Liquidation– Cease operations, write off assets.

13. Why Contraction of Scope?
The causes of corporate decline
Poor management– incompetence, neglect
Overexpansion– empire-building CEO’s
Inadequate financial controls– no profit responsibility
High costs– low labor productivity
New competition– powerful emerging competitors
Unforeseen demand shifts– major market changes
Organizational inertia– slow to respond to new competitive conditions

14. The Main Steps of Turnaround
Changing the leadership
Replace entrenched management with new managers.
Redefining strategic focus
Evaluate and reconstitute the organization’s strategy.
Asset sales and closures
Divest unwanted assets for investment resources.
Improving profitability
Reduce costs, tighten finance and performance controls.
Acquisitions
Make acquisitions of skills and competencies to strengthen core businesses.

15. Adaptive Strategies
Maintenance of Scope
Enhancement
Status Quo

16. Market Entry Strategies
Acquisition: a strategy through which one organization buys a controlling interest in another organization with the intent of making the acquired firm a subsidiary business within its own portfolio
Licensing: a strategy where the organization purchases the right to use technology, process, etc.
Joint Venture: a strategy where an organization joins with another organization(s) to form a new organization
Mergers, Acquisitions, and Takeovers
Stats and Background (p. 242)
There were five waves of mergers and acquisitions in the 20th century, with the last two
in the 1980s and 1990s. About 40%–45% of the acquisitions in recent years were made
across country borders. There were 55,000 acquisitions valued at $1.3 trillion in the
1980s, but acquisitions in the 1990s exceeded $11 trillion in value. The annual value of
mergers and acquisitions peaked in 2000 at about $3.4 trillion and fell to about $1.75 trillion
in Slightly more than 15,000 acquisitions were announced in 2001 compared
to over 33,000 in 2000.
Although acquisitions have slowed, their number remains high. Firms make acquisitions
to increase market power, reduce competitive threat, to enter a new market, to
spread risk, or as a way to obtain options that allow shifts in core business. Studies show
that shareholders of acquired firms often earn above-average returns from an acquisition,
while shareholders of acquiring firms typically earn returns from the transaction that are
close to zero.

17. Reasons for Making Acquisitions
Learn and develop
new capabilities
Increase
market power
Reshape firm’s
competitive scope
Acquisitions
Overcome
entry barriers
Increase
diversification
Cost of new
product development
Lower risk compared
to developing new
products
Increase speed
to market

18. Problems With Acquisitions
Integration
difficulties
Resulting firm
is too large
Acquisitions
Inadequate
evaluation of target
Managers overly
focused on acquisitions
Large or
extraordinary debt
Problems with Acquisitions
Problems in Achieving Acquisition Success (p. 249)
Research suggests that about 20% of all mergers and acquisitions (M&A) are successful,
60% produce disappointing results, and the last 20% are clear failures. Successful acquisitions
demand a well-conceived strategy, avoiding paying too high a premium, and an
effective integration process. As shown in Figure 8.1 in the text, several problems may
prevent successful acquisitions. Integration is complex and involves a large number of
activities. For instance, Intel acquired (DEC) Digital Equipment Corporation’s semiconductors
division. Successful integration was crucial. On the day Intel began to merge the
acquired division into its operations, hundreds of employees working in dozens of different
countries needed to complete 6,000 deliverables.
Too much
diversification
Inability to
achieve synergy

19. Strategic Alliance A strategic alliance involves
A strategic alliance is a cooperative strategy in which
firms combine some of their resources and capabilities
to create a competitive advantage
A strategic alliance involves
exchange and sharing of resources and capabilities
co-development or distribution of goods or services

20. Strategic Alliance Firm A Firm B Resources Capabilities
Core Competencies
Resources
Capabilities
Core Competencies
Combined
Resources
Capabilities
Core Competencies
Mutual interests in designing, manufacturing,
or distributing goods or services

21. Types of Cooperative Strategies
Joint venture: two or more firms create an independent company by combining parts of their assets
Equity strategic alliance: partners who own different percentages of equity in a new venture
Nonequity strategic alliances: contractual agreements given to a company to supply, produce, or distribute a firm’s goods or services without equity sharing

22. Strategic Alliances Vertical Alliance Supplier
Margin
Primary Activities
Support Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Firm Infrastructure
Human Resource Mgmt.
Technological Development
Procurement
vertical complementary strategic alliance is formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms
outsourcing is one example of this type of alliance
Supplier
Vertical Alliance
Margin
Primary Activities
Support Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Firm Infrastructure
Human Resource Mgmt.
Technological Development
Procurement

23. Potential Competitors
Strategic Alliances
Buyer
Buyer
Margin
Primary Activities
Support Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Firm Infrastructure
Human Resource Mgmt.
Technological Development
Procurement
Potential Competitors
Margin
Primary Activities
Support Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Firm Infrastructure
Human Resource Mgmt.
Technological Development
Procurement
horizontal complementary strategic alliance is formed between partners who agree to combine their resources and skills to create value in the same stage of the value chain
focus on long-term product development and distribution opportunities
the partners may become competitors
requires a great deal of trust between the partners