1. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-1 Chapter 10: Corporate Development Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans

2. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-2 Preview 4 4Reviewing the Corporate Portfolio 4 4Internal New Venturing 4 4Acquisitions as an Entry Strategy 4 4Joint Ventures as an Entry Strategy 4 4Restructuring 4 4Turnaround Strategy

3. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-3 Reviewing the Corporate Portfolio Portfolio PlanningPortfolio Planning Identifying SBUsIdentifying SBUs Assessing and Comparing SBUsAssessing and Comparing SBUs –Relative Market Share –Relative Growth Rate

4. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-4 Figure 10.1: The BCG Matrix High Low Industry Growth Rate Relative Market Share Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from the Boston Consulting Group, Inc. 1970

5. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-5 High Low Industry Growth Rate Relative Market Share Figure 10.1: The BCG Matrix Stars Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from the Boston Consulting Group, Inc. 1970

6. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-6 High Low Industry Growth Rate Relative Market Share Figure 10.1: The BCG Matrix ? ? ? ? Question MarksStars Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from the Boston Consulting Group, Inc. 1970

7. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-7 High Low Industry Growth Rate Relative Market Share Figure 10.1: The BCG Matrix ? ? ? ? Question Marks Cash Cows Stars Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from the Boston Consulting Group, Inc. 1970

8. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-8 High Low Industry Growth Rate Relative Market Share Figure 10.1: The BCG Matrix ? ? ? ? Question Marks Cash Cows Dogs Stars Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from the Boston Consulting Group, Inc. 1970

9. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-9 Reviewing the Corporate Portfolio (Continued) 4 Strategic Implications –Cash Surplus from Cash Cows Used to Support Question Marks and Stars –Question Marks Divested –Exit Industry Where SBU is a Dog –Firm with Insufficient Cash Cows, Stars, or Question Marks Should Consider Acquisitions and Divestments

10. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-10 Reviewing the Corporate Portfolio (Continued) 4 Limitations of BCG Matrix –Simplistic –Connection Between Relative Market Share and Cost Savings Not Straightforward –High Market Share in a Low-Growth Industry Does Not Necessarily Create a Cash Cow

11. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-11 Figure 10.2: The McKinsey Matrix Competitive Position Industry Attractiveness Good Medium Poor High Medium Low Winner Profit Producer Average Business Question Mark Loser

12. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-12 Reviewing the Corporate Portfolio (Continued) 4 Limitations of BCG Matrix –Simplistic –Connection Between Relative Market Share and Cost Savings Not Straightforward –High Market Share in a Low-Growth Industry Does Not Necessarily Create a Cash Cow –Fails to Pay Attention to the Source of Value Creation from Diversification

13. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-13 Reviewing the Corporate Portfolio (Continued) The Corporation as a Portfolio of Core CompetenciesThe Corporation as a Portfolio of Core Competencies –Core Competence –Matrix Approach

14. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-14 Figure 10.3: Establishing a Core Competence Agenda New Existing CORECOMPETENCE Existing New MARKET Reprinted by permission of Harvard Business School Press. From COMPETING FOR THE FUTURE: BREAK- THROUGH STRATEGIES FOR SEIZING CONTROL OF YOUR INDUSTRY AND CREATING THE MARKETS OF TOMORROW by Gary Hamel and C. K. Prahalad, Boston, MA. Copyright  by Gary Hamel and C. K. Prahalad. All Rights Reserved. Premiere Plus 10 What new core competencies will we need to build to protect and extend our franchise in current markets? Megs Opportunities What new core competencies would we need to build to participate in the most exciting markets of the future? Fill in the Blanks What is the opportunity to improve our position in existing markets by better leveraging our existing core competencies? White Spaces What new products or services could we create by creatively redeploying or recombining our current core competencies?

15. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-15 Reviewing the Corporate Portfolio (Continued) The Corporation as a Portfolio of Core CompetenciesThe Corporation as a Portfolio of Core Competencies –Core Competence –Matrix Approach Entry StrategyEntry Strategy –Internal Ventures –Acquisition –Joint Ventures

16. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-16 Internal New Venturing The Attractions of Internal New VenturingThe Attractions of Internal New Venturing New Venture PitfallsNew Venture Pitfalls –Scale of Entry

17. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-17 Figure 10.4: Scale of Entry, Profitability, and Cash Flow Large Scale (+) (-) O Profitability/Cash Flow Small Scale Time

18. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-18 Internal New Venturing –Commercialization –Poor Implementation Guidelines for Successful Internal New VenturingGuidelines for Successful Internal New Venturing The Attractions of Internal New Venturing The Attractions of Internal New Venturing New Venture Pitfalls New Venture Pitfalls – Scale of Entry

19. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-19 Acquisitions as an Entry Strategy When Firm Lacks Important Competencies in a New Business AreaWhen Firm Lacks Important Competencies in a New Business Area When Speed Is ImportantWhen Speed Is Important Perceived to Be Less RiskyPerceived to Be Less Risky When the Incumbent Firms Enjoy Significant Protection from Barriers to Entry in an Established IndustryWhen the Incumbent Firms Enjoy Significant Protection from Barriers to Entry in an Established Industry Attractions of Acquisitions

20. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-20 Acquisitions as an Entry Strategy Post-Acquisition IntegrationPost-Acquisition Integration Overestimating Economic BenefitsOverestimating Economic Benefits The Expense of AcquisitionsThe Expense of Acquisitions Inadequate Preacquisition ScreeningInadequate Preacquisition Screening Acquisition Pitfalls

21. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-21 Target Identification and Preacquisition ScreeningTarget Identification and Preacquisition Screening Bidding StrategyBidding Strategy IntegrationIntegration Guidelines for Successful Acquisition Acquisitions as an Entry Strategy

22. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-22 Share the Substantial Risks and Costs Involved in a New ProjectShare the Substantial Risks and Costs Involved in a New Project May Increase the Probability of Success in Establishing a New BusinessMay Increase the Probability of Success in Establishing a New Business Attractions Joint Ventures as an Entry Strategy

23. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-23 Requires the Firm to Share the ProfitsRequires the Firm to Share the Profits Runs Risk of Giving Away Critical Know-how to a Possible Future CompetitorRuns Risk of Giving Away Critical Know-how to a Possible Future Competitor Venture Partners Must Share ControlVenture Partners Must Share Control Drawbacks Joint Ventures as an Entry Strategy

24. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-24 Restructuring Why Restructure?Why Restructure? Exit StrategiesExit Strategies –Divestment –Management Buyout (MBO) –Harvest and Liquidation

25. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-25 Turnaround Strategy Poor ManagementPoor Management OverexpansionOverexpansion Inadequate Financial ControlsInadequate Financial Controls High CostsHigh Costs New CompetitionNew Competition Unforeseen Demand ShiftsUnforeseen Demand Shifts Organizational InertiaOrganizational Inertia The Causes of Corporate Decline

26. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-26 Turnaround Strategy 4Changing the Leadership The Main Steps of Turnaround

27. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-27 Turnaround Strategy 4Redefining the Strategic Focus The Main Steps of Turnaround

28. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-28 Turnaround Strategy 4Asset Sales and Closures The Main Steps of Turnaround

29. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-29 Turnaround Strategy 4Improving Profitability The Main Steps of Turnaround

30. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-30 Turnaround Strategy 4Acquisitions The Main Steps of Turnaround

31. Copyright  1998 by Houghton Mifflin Company. All rights reserved. 10-31 Chapter Summary   REVIEWING THE CORPORATE PORTFOLIO   INTERNAL NEW VENTURING   ACQUISITIONS AS AN ENTRY STRATEGY   JOINT VENTURES AS AN ENTRY STRATEGY   RESTRUCTURING   TURNAROUND STRATEGY