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Corporate-Level Strategy: Three Key Issues Facing The Corporation
Corporate-Level Strategy: Three Key Issues Facing The Corporation
THE FIRMS ORIENTATION TOWARD GROWTH, STABILITY, AND RETRENCHMENT (Directional Strategy)
THE INDUSTRIES OR MARKETS IN WHICH THE FIRM COMPETES (Portfolio Strategy) THE MANNER IN WHICH MANAGEMENT COORDINATES ACTIVITIES AND TRANSFERS RESOURCES AND CULTIVATES CAPABILITIES AMONG PRODUCT LINES AND BUSINESS UNITS (Parenting Strategy) Corporate headquarters must play the parent as it deals with its various lines of business (children).
2.
VERTICAL INTEGRATION
BACKWARD
Long-Term Contracts Quasi-integration Tapered Integration Full Integration
FORWARD
DIVERSIFICATION 1. CONCENTRIC
Related
2.
CONGLOMERATE
Unrelated
GROWTH-ENTRY STRATEGIES
DOMESTIC ENTRY INTERNAL DEVELOPMENT & EXPANSION
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MERGING THE FUNCTIONS CONGLOMERATE DIVERSIFICATION FIND FIRMS WHOSE ASSETS ARE UNDERVALUED FIND FIRMS THAT ARE FINANCIALLY DISTRESSED FIND FIRMS WITH BRIGHT PROSPECTS BUT ARE SHORT ON $$$
CONS
1--TOP MANAGEMENT COMPETENCE
Can they tell a good acquisition from a bad one? Can they select good managers to run each business? Do they know what to do if a business unit stumbles?
2--DIVERSIFICATION DOES NOTHING TO ENHANCE THE COMPETITIVE STRENGTH OF INDIVIDUAL BUSINESS UNITS Each business unit is on it own No corporate synergy can be achieved 3--ARE THE FIRMS PROFITS MORE STABLE? Do the up and down cycles cancel out? 4--HOW MUCH DIVERSITY CAN THE FIRM MANAGE SUCCESSFULLY? How broad should our portfolio be?
POST-DIVERSIFICATION STRATEGIES
MAKE NEW ACQUISITIONS Related or Unrelated? DIVEST SOME BUSINESS UNITS Poor Performers? Poor Strategic Fit? RESTRUCTURE THE WHOLE PORTFOLIO NARROW THE DIVERSIFICATION BASE BECOME A DIVERSIFIED MULTINATIONAL, MULTI-INDUSTRY COMPANY (DMNC)
TURNAROUND
Help subsidiaries become profitable Belt-tightening and consolidation
CAPTIVE COMPANY
Give up independence for securitysell mostly to one large customer angel Can scale back on some functions, like marketing
SELL-OUT/DIVEST
Sell the entire operation to someone as an ongoing business Divest a healthy firm that doesnt fit our portfolioor a low-producing business
LIQUIDATION
The last resortno one wants to buy the entire business The assets are worth more than the businessso theyre sold piece by piece
DIMENSIONS Industry Growth Rate Compared to GDP Relative Market Share Uses ratios instead of absolute market shares CLASSIFICATIONS Question Marks (or Problem Children or Wildcats) Stars Cows Dogs ADVANTAGES & IMPLICATIONS It is quantifiable and easy to use Easy to remember terms and their meaning when referring to business units Assumes large market shares => economies of scale => cost leadership Each business unit moves across the matrix in predictable ways over time Focuses attention on cash flows and needs
LOW
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HIGH
STARS
QUESTION MARKS
1.0
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COWS
LOW
DOGS
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RELATIVE MARKET SHARE Your market share divided by largest rivals share INDUSTRY GROWTH RATE Industry growth percentage compared to GDP SIZE OF CIRCLES The significance (revenues) of each SBU to the firm
Industry Attractiveness
MARKET SIZE & GROWTH RATE INDUSTRY PROFITABILITY INTENSITY OF COMPETITION BARRIERS TO ENTRY / EXIT SEASONALITY / CYCLICALITY TECHNOLOGICAL & PRODUCT CONSIDERATIONS CAPITAL REQUIREMENTS EMERGING OPPORTUNITIES & THREATS SOCIAL, ENVIRONMENTAL, & POLITICAL FACTORS STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS
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WINNER
WINNER
LONG-TERM INDUSTRY
AVERAGE
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WINNER
ATTRACTIVENESS
---------------------------------------LOW
PROFIT PRODUCER
LOSER
---------------------------------------INDIVIDUAL PRODUCT LINES Identified by letter SIZE OF EACH CIRCLE Represents the total revenues in the industry PIE SLICES Represents your share of that market
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EVOLUTION
-----------------------------MATURITY / SATURATION -----------------------------DECLINE / STAGNATION -----------------------------ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREEN Except for the Stage of Market Evolution, this model is identical to the GE Business Screen
2--SUBJECTIVELY CLASSIFY EACH INDUSTRY FACTOR INTO ONE OF THREE CATEGORIES HIGHLY ATTRACTIVE AVERAGE NOT ATTRACTIVE
INDUSTRY PROFITABILITY
INTENSITY OF COMPETITION BARRIERS TO ENTRY/EXIT SEASONALITY/CYCLICALITY TECHNOLOGY & PRODUCT CONSIDERATIONS CAPITAL REQUIREMENTS EMERGING OPPORTUNITIES & THREATS SOCIAL, REGULATORY, & POLITICAL FACTORS STRATEGIC FIT WITH OTHER CURRENT LINES OF BUSINESS
ATTRACTIVE
UNATTRACTIVE UNATTRACTIVE AVERAGE AVERAGE UNATTRACTIVE AVERAGE AVERAGE ATTRACTIVE
UNATTRACTIVE = 0, 1, 2, 3 AVERAGE = 4, 5, 6 ATTRACTIVE = 7, 8, 9, 10 --------------------------------------------------------------INDUSTRY FACTOR ASSIGNED NUMBER MARKET SIZE & GROWTH RATE INDUSTRY PROFITABILITY INTENSITY OF COMPETITION BARRIERS TO ENTRY/EXIT SEASONALITY/CYCLICALITY TECHNOLOGY & PRODUCT CONSIDERATIONS CAPITAL REQUIREMENTS EMERGING OPPORTUNITIES & THREATS SOCIAL, REGULATORY, & POLITICAL FACTORS STRATEGIC FIT WITH OTHER LINES OF BUSINESS 6 9 2 3 6 5 1 5 4 8
.10 .10 .15 .05 .05 .08 .12 .10 .10 .15
MARKET SIZE & GROWTH RATE INDUSTRY PROFITABILITY INTENSITY OF COMPETITION BARRIERS TO ENTRY/EXIT SEASONALITY/CYCLICALITY TECHNOLOGY & PRODUCT CONSIDERATIONS CAPITAL REQUIREMENTS EMERGING OPPORTUNITIES & THREATS SOCIAL, REGULATORY, & POLITICAL FACTORS STRATEGIC FIT WITH OTHER LINES OF BUSINESS
6 9 2 3 6 5 1 5 4 8
OUR RELATIVE MARKET SHARE OUR RELATIVE PRICE v. RIVALS OUR QUALITY & SERVICE v. RIVALS OUR RELATIVE COST POSITION v. RIVALS OUR PROFIT MARGINS v. RIVALS KNOWLEDGE OF CUSTOMERS & MARKETS TECHNOLOGICAL CAPABILITY / LEADERSHIP FINANCIAL & PHYSICAL RESOURCES CALIBER OF MANAGEMENT & STAFF COMPETENCIES MATCH KEY SUCCESS FACTORS
STRONG AVERAGE AVERAGE STRONG STRONG AVERAGE WEAK AVERAGE STRONG AVERAGE
WEAK = 0, 1, 2, 3
AVERAGE = 4, 5, 6
STRONG = 7, 8, 9, 10
--------------------------------------------------------------INDUSTRY FACTOR ASSIGNED NUMBER RELATIVE MARKET SHARE RELATIVE PRICE v. RIVALS QUALITY & SERVICE v. RIVALS RELATIVE COST POSITION v. RIVALS PROFIT MARGINS v. RIVALS KNOWLEDGE OF CUSTOMERS & MARKETS TECHNOLOGICAL CAPABILITY & LEADERSHIP FINANCIAL & PHYSICAL RESOURCES CALIBER OF MANAGEMENT & STAFF COMPETENCIES MATCH KEY SUCCESS FACTORS 7 5 6 8 8 5 2 4 8 6
WEAK = (0 3)
AVERAGE = (4 6)
STRONG = (7 10)
.08 .08 .15 .12 .06 .15 .05 .10 .06 .15
RELATIVE MARKET SHARE RELATIVE PRICE v. RIVALS QUALITY & SERVICE v. RIVALS RELATIVE COST POSTION v. RIVALS PROFIT MARGINS v. RIVALS KNOWLEDGE OF CUSTOMERS & MARKETS TECHNOLOGICAL CAPABILITY / LEADERSHIP FINANCIAL & PHYSICAL RESOURCES CALIBER OF MANAGEMENT & STAFF COMPETENCIES MATCH KEY SUCCESS FACTORS
7 5 6 8 8 5 2 4 8 6
STRATEGIC FIT ANALYSIS STRATEGIC ATTRACTIVENESS Does this business have cost-sharing or skills-transfer opportunities? FINANCIAL ATTRACTIVENESS Does this business contribute to corporate performance objectives?
RANK THE BUSINESS UNITS ON INVESTMENT PRIORITY Which units should get the highest priority regarding financial support?
UNIT A
UNIT B
UNIT C
UNIT D
SALES GROWTH GROWTH IN PROFITS CONTRIBUTION TO CORP EARNINGS (Omit 000s) RETURN ON ASSETS GENERATED CASH FLOWS
(Omit 000s)
STRATEGICALLY ATTRACTIVE
No
Yes
Yes
No
FINANCIALLY ATTRACTIVE
INVESTMENT PRIORITY
Yes
4
Yes
1
No
2
Yes
3
1. 2. 3. 4. 5. 6. 7. 8.
DOES THE PORTFOLIO HAVE ENOUGH BUSINESSES IN ATTRACTIVE INDUSTRIES? DOES THE PORTFOLIO CONTAIN TOO MANY MARGINAL BUSINESSES OR QUESTION MARKS? DOES THE CORPORATION HAVE ENOUGH CASH COWS TO FINANCE THE STARS AND EMERGING WINNERS? DO THE CORE BUSINESSES GENERATE DEPENDABLE PROFITS OR CASH FLOWS? IS THE PORTFOLIO VULNERABLE TO SEASONAL OR RECESSIONARY INFLUENCES? DOES THE PORTFOLIO CONTAIN BUSINESSES THAT THE CORPORATION DOESNT NEED TO BE IN? IS THE CORPORATION BURDENED WITH TOO MANY BUSINESSES IN AVERAGE-TO-WEAK COMPETITIVE POSITIONS? DOES THE MAKEUP OF THE PORTFOLIO PUT THE CORPORATION IN A GOOD POSITION FOR THE FUTURE?
1. 2. 3. 4. 5. 6.
IDENTIFY THE PRESENT CORPORATE STRATEGY CONSTRUCT BUSINESS PORTFOLIO MATRICES PROFILE THE INDUSTRY AND COMPETITIVE ENVIRONMENT OF EACH BUSINESS UNIT EVALUATE THE COMPETITIVE STRENGTH OF EACH INDIVIDUAL BUSINESS COMPARE PERFORMANCE RECORDS OF EACH BUSINESS UNIT HOW WELL DOES EACH BUSINESS UNIT FIT WITH CURRENT CORPORATE STRATEGY?
7.
8.