1. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1 Corporate Strategy: Leveraging Resources to Extend Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Chapter 7

2. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2 What you will learn… The concept of corporate strategy The notion of a “resource-based view” of corporate strategy How effective corporate strategy can be used to extend and leverage a firm’s distinctive competence The broad types of corporate strategy, including vertical integration, related diversification, and unrelated diversification. Slide 1 of 2

3. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3 What you will learn… Economic forces that motivate the pursuit of different corporate strategies. How to balance the benefits and costs of diversification Benefits of sharing and leveraging resources among businesses or activities Costs accompanying diversification and the limits of sharing Why corporations undertake restructuring How spin-offs and divestitures represent a form of restructuring designed to regain focus Slide 2 of 2

4. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4 Kellogg’s Corporate Strategy Addressing slowdown in growth of earnings Moving into vegetarian and alternative foods Finding growth through snack foods

5. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5 Tyco’s Corporate Strategy A finely tuned acquisition strategy A broad array of businesses –Medical products –Electronics products –Security systems Recent initiatives

6. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6 Resources and Strategy Resource-Based View of the Firm An evolving set of strategic management ideas that place considerable emphasis on the firm’s ability to distinguish itself from rivals by means of investing in hard-to- imitate and specific resources, such as: Technologies Skills Capabilities Assets Management approaches

7. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7 Resource-Based View: Key Concepts Ideally, distinctive resources are hard for competitors to duplicate A firm’s resources should be highly specialized and durable Firms need to monitor the environment so that their corporate resources do not suffer from easy substitution by rivals

8. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8 Ex. 7-1. Common Avenues to Enlarging the Firm’s Scope of Operations Entrance into… New stages of activity (i.e., vertical integration) New businesses/ industries (i.e., industry-based diversification)

9. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9 Ex. 7-2. Benefits of Diversification A.More attractive terrain Faster growth Greater profitability More stability B.Access to resources Physical assets and access to markets Technologies and skills Expertise C.Sharing of activities (any activity)

10. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10 Ex. 7-3. Sharing Expertise Among Businesses Slide 1 of 6 Partial List of Businesses Computer/workstations Calculators Laser printers Digital imaging Engineering systems Microprocessors Shared Expertise Engineering skills Rapid product development Distinctive manufacturing quality Leverage design skills Hewlett-Packard

11. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11 Ex. 7-3. Sharing Expertise Among Businesses Slide 2 of 6 Partial List of Businesses Nationwide system of low-cost, super-efficient banks Shared Expertise Efficient management of banking activities (especially electronic data processing) New product introduction (e.g., leasing, commercial lending Banc-One

12. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12 Ex. 7-3. Sharing Expertise Among Businesses Slide 3 of 6 Partial List of Businesses Weight loss centers Cosmetic dentistry centers Shared Expertise Operation of retail centers devoted to enhancing physical appearance Nutri/System

13. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13 Ex. 7-3. Sharing Expertise Among Businesses Slide 4 of 6 Partial List of Businesses Campgrounds Printing shops Shared Expertise Franchising expertise Selling franchises to small investors KOA

14. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14 Ex. 7-3. Sharing Expertise Among Businesses Slide 5 of 6 Partial List of Businesses Soft drinks (Pepsi, Mountain Dew) Snack food (Frito Lay) Gatorade Quaker Oats Tropicana juices Shared Expertise Operating a wide geographic network of franchised outlets Marketing research Segmentation skills Consumer advertising Brand development Advertising PepsiCo

15. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15 Ex. 7-3. Sharing Expertise Among Businesses Slide 6 of 6 Partial List of Businesses Heart devices Pacemakers Spinal surgery Nervous system disorders Shared Expertise Shared R&D skills Wireless initiatives Advanced techniques for less invasive medicine Medtronic

16. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16 Ex. 7-4. Sharing Activities Among Businesses Slide 1 of 2 Firm Partial List of Businesses Key Shared Activities 3M Sandpaper, tapes, fabric treatments, sealants, weather-stripping, Post- It notes, medical patches, signs Technology development, coatings adhesives, thin-film substrates Philip- Morris Cigarettes, packaged foods, consumer notdurables Marketing: distribution, advertising, market research, promotion

17. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17 Ex. 7-4. Sharing Activities Among Businesses Slide 2 of 2 Firm Partial List of Businesses Key Shared Activities IBM Semiconductors, computers, network systems, disk drives, software, electronic commerce Technology: silicon etching, systems integration, advanced materials, miniaturization. Fidelity Investments Mutual funds, brokerage, securities, annuities Operations: network management, telecommunications, internal logistics. Marketing: distribution, sales, service, Internet

18. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18 Ex. 7-5: Costs of Diversification Ignorance (about newly entered fields) Ignorance (about newly entered fields) Coordination Communication Compromise Accountability Coordination Communication Compromise Accountability Neglect (of core business) Neglect (of core business)

19. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19 Slide 6-10© 2000 South-Western Publishing Ex. 7-6. Balancing the Benefits & Costs of Diversification BenefitsCosts More attractive terrain Access to key resources Sharing resources Ignorance Neglect Coordination

20. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20 Ex. 7-7. Conditions Leading to Powerful Diversification Benefits Achieving more attractive terrain (This is rarely a source of powerful benefits for all stakeholders) Transferring resources which are… Competitively important to receiving businesses Difficult for receiving businesses to duplicate on their own Hard for competitors to imitate Shared activities must be… Large in dollar terms Susceptible to economies of scale & experience

21. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21 Ex. 7-8. Limiting Diversification Costs Limit Costs of Ignorance by... entering familiar fields entering new areas internally rather than by acquisition Limit Costs of Neglect by... ensuring new businesses fit easily with existing ones leveraging a distinctive competence systemwide Limit Costs of Cooperation by… carefully managing the sharing of activities designing organizational support systems that promote that promote interrelationships

22. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22 Ex. 7-9. Steps in Corporate Restructuring Selective focus on carefully chosen activities or niches Divestitures and spinoffs Corporation SBU-1 SBU-2 SBU-n