Chapter 7:

Methods for strategic

development

1. Development method:
Acquisition
Advantage
Quick way to grow
Synergistics gains
Strategic capability
Overcome barrier to entries
Can choose target for best portfolio
Enhance reputation

Disadvantage
Expensive
Synergy not automatic
Cultural clashes
Legal barriers to overcome
Acquire all parts including problem
Difficult in management

Synergentic gain:
Profitability

Financial Position

Market position

Organic grow

Joint venture

Sales syn: through sharing

database, complementary and
distribution channel
Cost syn: Economies of scale, staff.
Premises, central services
Better use of assets. Capital cheaper
financing
Cash flow
Sharing skills and knowledge, risk
reduction, manamgent/ corporate
parenting
Advantage
Spread the cost
No cultural clashes
Less risk
Easier to terminate and setup
Get access to government gran

Disadvantage
Barriers to organic entry
Lack of capability, knowledge in new area
May be too slow
Less attractive to finance providers

Advantage
Share setup running cost

Disadvantage
Lead to dispute
May become competitor in core area as have
access to capability
Lack of commitment
Transfer pricing, lack of performance
appraisal ( complex )
Require strong central support

share knowledge
Focus on relative strength
Reduce political and cultural risks

Strategic Alliance
Characteristics

Synergy
Positioning opportunity : one to gain
leadership position
Limited resource availability
Cooperative spirit
Clarity of purpose
Win Win

Franchising
Advantage

Disadvantage

Quick capital injection

Spread brand quickly
A way to test the market
Easy to terminate
Can focus on strategic rather than
operation issues
Gain local knowledge
Advantage
Franchiser

Low risk in each franchisee

Can achieve economy of scales
Local knowledge
Rapid expansion

Franchisee

Corporate parenting

Lack of control over quality

Inconsitency between each franchise
Maybe lack of goal congruence
Share profits
Difficult to attract franchise
May give acces to strategic cap -> partner can
compete con core areas
Disadvantage
Franchisee are independent -> Franchiser
may lack of control over quality/ deviation
from standards
Franchisee can stop franchise and become
independent
Franchisee may be slow to get updated
Clash between culture of local position and
strategy

Adopt a brand name

Less risk
Receive training from franchiser
Relationship between HO and
Subsidiaries , importation for
acquisition

Parenting Style

Goold and campell

Strategic planning

Advantage
Focus on limited BUS where sig syn
exists-> concentration few core
areas
Copr Mana major roles in setting
strat
Good Integration across the unit

Disadvantage
Diff in com and co ordination -> slow down
development
Less ownership of strategies by operating unit
mana -> low risk strategy is pursued
Resistance to closingdown of bus as strategy
sanctioned at centre

Less likely hood of short term view

as decision at management level
Financial control

Shorter timescales
Set a short term financial objective
Enable diversity, wide corp portfolio

Disadvantage

Strategic control

Low risk strat is pursued but with

result -> higher profit ratios
Risk averse -> milk the company
Low synergy
Control framework -> constraint
flexibility
Take middle course , sub
responsible for own strat , provided
by HO expertise
More diversity than strat

Failure = divestment

Evaluation based on strategic obj as

growth , Oper effective, technology
dev
Danger of greater ambiguity
Adding value in CR

Destroying value

Providing : resouces, central service, Slow decision making due to added

acces to market, finance, expertise bureaucaracy
Improve performance thorugh
monitor and action

Add cost in admin

Strategic direction to SBU

Complex .> prevent clarity, strategic direction

diff to understand

Strategic development or
management expertise enhance
How to add value
Portfolio manager

Synergy manager

Parental developers

Portfolio Analysis

Find under value Bus -> improve

them
Minimize cost of centre low , use
targe and incentive to encourage
performance
Manage a large number of May be
unrelated bus
sharing resouces and activity
Bring subtantial cost of management
integration
Diff in syn as imcompatible system
culture
may need to intervene at the bus to
ensure syn
Use centrol competences to add
value by applying skills
Need to have a clear understading of
value adding cap of parent and need
of bus
Need to ensure being to provide
value or .> divest
to reveal current position of products
( how profit/ growth potential )
Impact on resouce allocation
Apply to SBU
Assessing how the balance of
activites contributes strategic cap

BCG

Balance porfolio

Growth ( asess using PESTEL)

Market share
Sufficient size of CC and stars
Problem child has future aspect
No dog

Critic

Only use 2 measurees

Encourage holding rather increase
total demand . Manamgent maybe
tempted into pull back investment/
treat CC as safe water
Imply only those with large market
share should remain, however there
is niche makret
Link btw profitability and market
share is weak
Imply high growth mean profit
Not all dogs should be comdened

BCG for Public sector

H
Public need and funding Public sector star
effectiveness
Golden fleece

Value for money

L
Political hot box
Back drawer issues

Ashridge portfolio anal

Ability to add value

Ballast
Alien territory
L

Opportunity to add value

Heartland
Value trap
H

H
L

H
L