Chapter 6

Strategy Formulation: Corporate Strategy

PowerPoint Slides Anthony F. Chelte Western New England College

Prentice Hall, 2004

Chapter 6 Wheelen/Hunger

Corporate Strategy

Three Key Issues: Firms directional strategy Firms portfolio strategy Firms parenting strategy
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Corporate Directional Strategies

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Corporate Strategy
Directional Strategy:
Orientation toward growth
Expand, cut back, status quo? Concentrate within current industry, diversify into other industries? Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?
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Corporate Strategy

Directional Strategy:
Three Grand Strategies:
Growth strategies Stability strategies Retrenchment strategies

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Chapter 6 Wheelen/Hunger

Corporate Strategy
Growth Strategies:
Most widely pursued strategies External mechanisms:
Mergers
Transaction involving two or more firms in which stock is exchanged but only one firm survives.

Acquisition
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.

Strategic Alliance
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.

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Chapter 6 Wheelen/Hunger

Corporate Strategy
2 Basic Growth Strategies:
Concentration
Current product line in one industry

Diversification
Into other product lines in other industries

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Corporate Strategy
Basic Concentration Strategies:
Vertical growth Horizontal growth

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Chapter 6 Wheelen/Hunger

Corporate Strategy
Concentration: Vertical growth
Vertical integration
Full integration Taper integration Quasi-integration

Backward integration Forward integration

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Corporate Strategy
Concentration: Horizontal Growth
Horizontal integration

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Corporate Strategy

Basic Diversification Strategies:

Concentric Diversification Conglomerate Diversification

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Corporate Strategy
Diversification:
Concentric:
Growth into related industry Search for synergies

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Corporate Strategy
Diversification:
Conglomerate:
Growth into unrelated industry Concern with financial considerations

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Corporate Strategy
Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts

International Entry Options

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Corporate Strategy
Stability Strategies: Pause/proceed with caution No change

Profit strategies
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Corporate Strategy
Retrenchment Strategies: Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation
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Corporate Strategy
Portfolio Analysis
How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which will never be successful?

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Corporate Strategy
Portfolio Analysis BCG (Boston Consulting Group) Matrix
Product life cycle and funding decisions
Question marks Stars Cash cows Dogs

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BCG Matrix

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GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

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General Electrics Business Screen

C Winners A High Winners B Question Marks D Winners E Medium

Average Businesses F Losers

Losers G Low Profit Producers Strong Average

Losers Weak

Business Strength/Competitive Position

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Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.

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International Portfolio Analysis

2 Factors:
Countrys attractiveness
Market size, rate of growth, regulation

Competitive strength
Market share, product fit, contribution margin, market support
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Portfolio Matrix for Plotting Products by Country

Competitive Strengths High Low

Invest/Grow

Dominate/Divest Joint Venture

Selective Strategies

Harvest/Divest Combine/License

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Corporate Strategy
Portfolio Analysis Advantages:
Top management evaluates each of firms businesses individually Use of externally-oriented data to supplement management judgment Raises issue of cash flow availability Facilitates communication
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Corporate Strategy
Portfolio Analysis

Disadvantages:
Difficult to define product/market segments Standard strategies can miss opportunities Illusion of scientific rigor Value-laden terms

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Corporate Strategy
Corporate Parenting: Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

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Corporate Strategy
Corporate Parenting: Strategic factors
Those elements of a company that determine its strategic success or failure

Performance improvement Analyze fit

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Corporate Strategy
Corporate Parenting:
Parenting-Fit Matrix
Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole.

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Corporate Strategy
Corporate Parenting:
Parenting-Fit Matrix
2 Dimensions
Positive contributions parent can make Negative effects parent can have

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Parenting-Fit Matrix
Low
Heartland Ballast Edge of Heartland

Alien Territory Value Trap High Low FIT between parenting opportunities and parenting characteristics High

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Corporate Strategy
Horizontal Strategy:
Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units.

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