4. Corporate Level Strategy
Chapter 9-10
Corporate Level Strategy

5. Snack Foods Beverages Foods
Frito-Lay North America
Frito-Lay International
Quaker North America
Pepsi-Cola North America
Gatorade/Tropicana North America
PepsiCo Beverages International

6. Snack Foods Frito-Lay North America Lay’s Funyuns Ruffles Sunchips
Doritos
Santitas
Fritos
Cheetos
Rold Gold
Funyuns
Sunchips
Cracker Jack
Chester’s popcorn
Grandma’s cookies
Munchos
Smartfood
Baken-ets fried pork skins
Oberto meat snacks

7. Frito-Lay International
Snack Foods
Frito-Lay International
Bocabits wheat snacks
Crujitos corn snacks
Fandangos corn snacks
Hamkas snacks
Niknaks cheese sticks
Quavers potato snacks
Sabritas potato chips
Twisties cheese snacks
Walkers potato crisps
Walkers Square potato snacks
Walkers Monster Munch Corn snacks
Miss Vickie’s potato chips
Gamesa cookies
Dippas
Sonric’s sweet snacks

8. Frito-Lay International
Snack Foods
Frito-Lay International
Bocabits wheat snacks
Crujitos corn snacks
Fandangos corn snacks
Hamkas snacks
Niknaks cheese sticks
Quavers potato snacks
Sabritas potato chips
Twisties cheese snacks
Walkers potato crisps
Walkers Square potato snacks
Walkers Monster Munch Corn snacks
Miss Vickie’s potato chips
Gamesa cookies
Dippas
Sonric’s sweet snacks

9. Beverages Pepsi-Cola North America Pepsi-Cola Mountain Dew Slice Mug
Sierra Mist
FruitWorks
Lipton
Dole
Aquafina
Frappuccino
SoBe
AMP

10. Beverages Gatorade/Tropicana North America Gatorade Propel Tropicana
Dole juices

11. Beverages PepsiCo Beverages International Loóza juices and nectars
Copella juices
Frui’Vita juices
Tropicana 100 juices

12. Foods Quaker North America Quaker Oats
Cap’n Crunch cereal
Life cereal
Quisp cereal
King Vitaman cereal
Mother’s cereal
Quaker rice cakes and granola bars
Rice-A-Roni side dishes
Near East couscous/pilafs
Aunt Jemima mixes & syrups
Quaker grits

13. Foods Business Level Strategies
How are we going to compete and
gain a competitive advantage in
each of our businesses?
Foods
Business Level
Strategies
Quaker North America
Quaker Oats
Cap’n Crunch cereal
Life cereal
Quisp cereal
King Vitaman cereal
Mother’s cereal
Quaker rice cakes and granola bars
Rice-A-Roni side dishes
Near East couscous/pilafs
Aunt Jemima mixes & syrups
Quaker grits

14. Snack Foods Beverages Foods
Corporate Level Strategy
1) What businesses do we want to compete in?
2) How do manage effectively across businesses

15. Where did they go?

16. Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the businesses
Capturing synergies and turning them into competitive advantages
Establishing investment priorities and steering resources into business units

17. 4 Corporate Level Strategies
Vertical Integration
Strategic Outsourcing
Horizontal Integration
Diversification – two or more different businesses with distinct operations

18. 1) Vertical Integration
Forward or backwards
Full integration
Taper integration
Benefits
Build barriers to entry
Facilitates investment in specialized assets
Protecting product quality
Improved scheduling
Risks
Costs
Rapid technological changes
Demand predictability

19. Alternatives to Vertical Integration
Competitive bidding
Long term contracts or strategic alliances
Form of Relationship
Markets &
Competitive Bidding
Vertical
Integration
Hybrid &
Contracts/Alliances

20. 2) Outsourcing Cost reduction and differentiation
Hold-ups, scheduling and hallowing out

21. 3) Horizontal Integration
Acquiring or merging with industry competitors
Reduce cost and economies of scale
Increasing value through wider product line or product bundling
Manage industry rivalry
Increase buyer and supplier power

22. 4) How to Diversify?
1) Internal Development - corporate entrepreneurship or internal venturing
able to appropriate a larger portion of wealth
avoids complexities of multiple partners
time consuming and requires diversity of organizational capabilities

23. 4) How to Diversify? 2) Strategic Alliances and Joint Ventures
entering a new market via the combination of complementary resources - do more together
cost reduction & sharing
development/diffusion of technology
Problems
appropriate partners - skills and compatibility
trust and commitment
communication

24. Who Makes a Geo?
Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.
Geo Prizm = Toyota Corolla
Geo Tracker = Suzuki Sidekick
Geo Metro = Suzuki Esteem or Swift w/hatchback
No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

27. 4) How to Diversify?
3) Mergers & Acquisition

28. Mergers & Acquisitions
Reasons of Acquisitions
Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition

29. Acquisitions Reasons of Acquisitions Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation

30. Acquisitions Poor Performance Who Wins? Acquired Firm Shareholders
Reasons of Acquisitions
Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation
Results
Poor
Performance
Who Wins?
Acquired Firm
Shareholders

31. Monday October 27th WSJ Bank of American – Boston Fleet Financial
BoA down $8.29, or 10%, BFF rose 23%
Anthem – WellPoint Health Networks
Anthem down 8.2%, WellPoint up 8.8%
United Health – MidAtlantic Med Services
UH down 4.9%, MAMS up 9.7%

32. Failures of Acquisitions
% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months following acquisitions
% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by 4%
3 month performance before and after
30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns

33. Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are related
When do executives loss their jobs?
1) Acquired - larger firms harder to acquire
2) Performing poorly - employment risk is reduced as returns are less volatile

36. Related Diversification at Disney
Entertainment/Production
Theme Parks
Resorts
Entertainment/Broadcasting
Retailing
Cruise Lines

37. Levels of Diversification
Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizonal relationships across businesses - synergies
Advantages of related diversification include:
Leveraging Core Competencies
Sharing Activities
Market Power

39. Tyco Telecommunications Tyco Fire and Security Tyco Safety Products
Tyco Electronics
Tyco Telecommunications
Tyco Fire and Security
Tyco Safety Products
Tyco Healthcare
Tyco Plastics
Tyco Adhesives
Tyco Flow Control
Tyco Electrical and Metal Products
Tyco Fire and Building Products
Tyco Infrastructure Services

40. Tyco
Limits itself to businesses that can be held strictly accountable for a few key financial measures
Mature, stable, low-tech industries which face certain environments and little R&D investments

41. Levels of Diversification (cont.)
Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses
Conglomerate Diversification - no relatedness between businesses

42. When/Why to Diversify? To create shareholder value
Porter’s Three Point Test
1) Attractiveness Test
2) Cost of Entry Test
3) Better off Test
Should pass all 3

43. Portfolio analysis BCG Growth-Share Matrix GE- Nine Cell Matrix
question marks, dogs, cash cows, stars
GE- Nine Cell Matrix