Chapter 4 corporate level strategies

1. 1. CHAPTER 4: CORPORATE LEVEL STRATEGIES

2. 2. Categories of Business Organizations• Corporation – Stock or non-
stock• Sole/ Single Proprietorship• Partnership• Cooperative
3. 3. • Group of companies/ Conglomerate – Growing number of
independently organized business organization• Mother or parent company
– Serves as the core or the unifying factor in the overall strategic direction
of the entire business.
4. 4. • Holding firm / holding company – Influences other small business
organizations known as subsidiaries• Subsidiaries / Affiliates – Partly
capitalized or wholly owned by the mother company• Diversified business
group – Involves a variety of business concerns with one given out
business opportunities for the other or one is serving as major contractor
or supplier of member or affiliates of the business empire
5. 5. The Nature of Corporate Level Strategy• Corporate strategy –
independent or single business unit (SBU) forming part of the family of
business or group business concerns needs to be bothered with its own
business level strategy
6. 6. The Nature of Corporate Level Strategy• Highly diversified business
organizations – Group of individuals business organizations with individual
charters or corporate status registered in appropriate agencies of the
government
7. 7. • Corporate level strategy – Serves as the guiding star of all the
individual business organizations belongs to the group of the
conglomerate – broad or corporate wide strategy synchronizing various
business level strategies into a cohesive and coordinated efforts to
achieve the vision of the entire business organization 3 main categories
acc. Wheelen and Hunger – Stability – Growth – Retrenchment
8. 8. The 4 E’s to addressing Corporate Strategy byThompson and Cats-Baril
a. Extend • Extending the business by going beyond its current business
model by adapting a new business model or entering into new businesses
b. Expand • This option takes the form of adding products or services
within the context of the companies’ existing business concern or present
area of operation
9. 9. The 4 E’s to addressing Corporate Strategyby Thompson and Cats-
Barila. Exit • This option takes the form of making some sacrifice by
dropping some product lines and services or business units deemed
uncompetitive or unprofitable or less profitable to operateb. Enhance •
This option takes the form of adding functionality or improving a product
or service that is currently being offered
10. 10. ENHANCEMENT EXTENSION Add functionality or improve a Adopt new
business model or product or service that is currently E enter new
businesses offered X T E N ENHANCE D EXPAND E X I T EXIT EXPANSION
Drop a product or service Add products and services line or exit a
 business within an existing businessWays that a Business Strategy can
evolve
11. 11. Key Issues in Corporate Level Strategy • The firm’s overall orientation
towards growth, stability, or retrenchment (directional strategy) • The
industries or markets in which the firm competes through its products and
business units (portfolio strategy) • The manner in which management
coordinates activities, transfers resources and cultivates capabilities
among product lines and business units (parenting stategy)
12. 12. ProsperBPR and other Adopt BestCost Cutting Trigger Practicesand
Operational Point ParityInitiatives Survive RIP Fail Yesterday Today
Tomorrow Current Choices Faced by Executives in the Digital Economy
13. 13. Strategic Choices at the Corporate Level • Business closure – An
undesired act of folding up or shutting down non-profitable business units
to control or avoid further losses • Business disposal – Calls for disposing
or unloading some of the members subsidiaries, affiliates or investments
14. 14. Strategic Choices at the Corporate Level • Business acquisition –
Option of business establishment meant to expand their size and make
their presence felt in whatever area they want to do business • Business
reorganization – This option may or may not lead to ownership changes
among members of the organization
15. 15. Strategic Choices at the Corporate Level • Business start-up –
Realizing the need create new business units to cater to market
opportunities • The impact of doing nothing different – This option is
simply status quo which also comes in the form of pause or no change
strategy
16. 16. The Corporate Expansion OptionAs shown in the next figure, a single
business organization that is well managed is likely to grow in size and in
number eventually becoming a conglomerate or highly diversified company
within many individual business organizations forming part of the family.
17. 17. Customers / End Users IV NE D Forward integrationR IT RI EC CA TL
Horizontal The Horizontal diversification Company integration CI ON MT PE
EG TR Backward integration IA TT O SuppliersI RO S Horizontal integration
/ diversificationN Basic Model for Integration and Diversification Options
18. 18. Corporate strategy Business (Division level strategy) Functional c
strategyHierarchy of Strategy
19. 19. Corporate Business strategy 1 Business strategy 2 Business strategy
3 Business strategy 4Corporate Strategy and Business Strategy
20. 20. Involve engaging in business activities to the level of sources of
supply or forward in the direction of final consumersEvolves around the
notion of how far or close a business is from the source of raw materials
or the final consumer of the productVertical Integration Option
21. 21. Vertical Integration Continuum• Espoused by Harrigan postulates that
vertical integration strategy may be in full or in part ranging from
outsourcing to full integration Full Taper Quasi Long-term Integration
Integration Integration contract Continuum of Vertical Integration Option
22. 22. Forward Vertical Integration• An option where the firm engages in
business activities in the area of distribution and retailing of the product
or service directly to the customers
23. 23. Situations favoring forward integration• present distributors are
especially expensive or unreliable or incapable of meeting the firm’s
distribution needs;• availability of quality distributors is so limited as to
offer a competitive advantage to those firms that integrate forward;•
advantages of stable production are particularly high;
24. 24. Situations favoring forward integration• organization competes in an
industry that is growing and is expected to continue to grow markedly;•
organization has both the capital and human resources needed to manage
the new business of distributing its own products;• present distributors or
retailers have high profit margins
25. 25. Backward Vertical Integration• A corporate option to engage in the
business concentrating the efforts at the stage of raw materials
production or close the source of raw materials
26. 26. Situations favoring backward integration• present suppliers are
especially expensive or unreliable or incapable of meeting the firm’s
distribution needs;• The number of suppliers is small and the number of
competitors is large;• organization competes in an industry that is growing
rapidly;
27. 27. Situations favoring backward integration• Organization’s present
channels of distribution can be used to market the new products to
current customers;• New products have counter cyclical sales patterns
compared to an organization’s present products
28. 28.  a diversification option that involves investing in or buying into
business organizations whose products and/or services have nothing to do
or not related to the kind of products it is presently dealing
with.Conglomerate DiversificationConglomerate diversification
(unrelated diversification)
29. 29. Situations favoring conglomerate diversification• Organization’s basic
industry is experiencing declining annual sales and profits;• Organization
has the capital and managerial talent needed to compete successfully;•
Organization has the opportunity to purchase an unrelated business;
30. 30. Situations favoring conglomerate diversification• Financial synergy
exists between the acquired and acquiring firm;• Existing market for an
organization’s present products are saturated; and• Antitrust action could
be charged against an organization that historically has concentrated on a
single industry
31. 31. A corporate diversification option that involves engaging or dealing
with products or services that are somehow related to or associated with
what the firm is presently handling.Concentric Diversification•
Concentric diversification (related diversification)
32. 32. Situations favoring concentric diversification• Organization competes
in a no-growth or a slow-growth industry;• Adding new, but related
 products significantly would enhance the sales of current products;• New,
but related, products could be offered at highly competitive prices;
33. 33. Situations favoring concentric diversification• New, but related,
products have seasonal sales levels that counterbalance an organization’s
existing peaks and valley;• Organization’s products are currently in the
decline stage of the product life cycle; and• Organization has strong
management team
34. 34. Degree of relationship or connectivitythe relatedness in making
decisions concerning the appropriateness of the strategic moves vis-à-vis
the various operating divisions or business units of the companyStrategic
Fit
35. 35. Categories of strategic fit acc. To Thompson and Strickland• Product
fit• Operating fit• Management fit
36. 36. Directions of Corporate Level StrategiesAccording to Wheelen and
Hunger:• Growth strategy• Stability strategy• Retrenchment strategy
37. 37. Designed to achieve growth in sales, assets, profits or some
combinationCategories:• Merger• Acquisition• Strategic allianceGrowth
Strategy Options
38. 38. This option is sometimes viewed as having lck of strategy s the firm
simply opts to stay put or maintain the current array of businessesForms:•
Pause/proceed with caution• No change strategy• Profit strategyStability
strategies
39. 39. Evolves around the concept of reduction in a variety of aspects
usually in terms of size, capital, personnel complement and the
like.Forms:• Turnaround strategy – Contraction – Consolidation• Sell-
out/Divestment strategy• Bankruptcy strategy• Liquidation
strategyRetrenchment strategies
40. 40. designed to explore other markets beyond their usual or original place
of doing their businessUsually done by multinational or foreign- based
organizationsInternational and Other Entry Options
41. 41. Strategies in entering the Int’l markets• Exporting • Production
sharing• Licensing • Turnkey operations• Franchising • Management
contract• Joint venture • Build-Operate-• Acquisition Transfer or BOT•
Greenfield concept development • Outsourcing
42. 42.  Done through a process of exploration and negotiation with targeted
parties or business concerns leading to signing up an alliance document in
the form of memorandum of agreement, memorandum of understanding
and /or contracts stipulating mutual desire to attain specific objective and
expressing support for one another. Used for the purpose of achieving
mutual advantage and certain strategic or specific goalsStrategic
Alliance
43. 43. Objectives in strategic alliance• To collaborate on technology
development or new product development;• To fill gaps in technical or
manufacturing expertise;• To acquire new competencies• To improve
supply chain efficiency• To gain economies of scalein production and
 marketing; and• To acquire or improve market access via joint marketing
agreements
44. 44. Guidelines in forming strategic alliances• Pick a good partner, one
that shares a common vision;• Be sensitive to cultural differences;•
Recognize that the alliance must benefit both sides• Both parties have to
deliver on their commitments in the agreement;
45. 45. Guidelines in forming strategic alliances• Structure decision-making
process so actions can be taken swiftly when needed; and• Parties must
do a good job of managing the learning process, adjusting the alliance
agreement over time to fit new circumstances
46. 46. Success factors in alliances:• Ability of an alliance to endure depends
on how well partners work together;• Success of partners in responding
and adapting to changing conditions; and• Willingness of partners to
renegotiate the bargain.
47. 47. Failure factors in alliances:• Diverging objectives and priorities of
partners;• Inability of partners to work well together;• Emergence of more
attractive technological paths;• Marketplace rivalry between one or more
allies; and• Merger and acquisition strategies.
48. 48. Benefits of mergers and acquisition• More or better competitive
capabilities;• More attractive line-up of products/services;• Wider
geographic coverage;• Greater financial resources to invest in R&D, add
capacity, or expand;• Cost-saving opportunities;• Filling in of resource or
technological skills;• Greater ability to launch next-wave
products/services
49. 49. Pitfalls of merger and acquisition• Resistance from rank-and-file
employees;• Hard-to-resolve conflicts in management styles and corporate
cultures;• Tough problems in combining and integrating the operations of
the once-different companies; and• Greater-than-anticipated difficulties in
achieving expected cost-savings, sharing of expertise, and achieving
enhanced competitive capabilities
50. 50. Advantages of Outsourcing• Improves firm’s ability to obtain high
quality and/or cheaper components or services;• Improves firm’s ability to
innovate by interacting with “best-in-the-world” suppliers;• Enhances
firm’s flexibility• Increases firm’s ability to assemble diverse kinds of
expertise speedily and efficiently;• Allows firm to concentrate its
resources on performing those activities internally
51. 51. Conditions to consider in outsourcing:• Activity can be performed
better or more cheaply by outside specialists• Activity is not crucial to
achieve a sustainable competitive advantage• Risk exposure to changing
technology and/or changing buyer preferences is reduced
52. 52. Conditions to consider in outsourcing:• Operations are streamlined to
– Cut cycle time – Speed decision-making – Reduce coordination costs•
Firm can concentrate on doing those “core” value chain activities that
best suit its resource strengths and capabilities
53. 53. Situations favoring Joint Venture:• When privately owned organization
is forming a joint venture with a publicly owned organization;• When a
 domestic organization is forming a joint venture with a foreign company;•
The distinctive competencies of two or more firms complement each other
especially well;
54. 54. Situations favoring Joint Venture:• When some project is potentially
very profitable, but requires overwhelming resources and risks;• When two
or more smaller firms have trouble competing with a large firm; and• When
there exists a need to introduce a new technology quickly.
55. 55. Situations favoring Retrenchment:• An organization has a clearly
distinctive competence but has failed to meet its objectives and goals
consistently over time;• An organization is one of the weaker competitors
in a given industry;• An organization is plagued by inefficiency, low
profitability, poor employee morale, and pressure from stockholders
improve performance;
56. 56. Situations favoring Retrenchment:• An organization has failed to
capitalized on external opportunities, minimize external threats, take
advantage on internal strengths, and overcome internal weakness over
time;• An organization has grown so large so quickly that major internal
reorganization is needed.
57. 57. Situations favoring Divestiture:• When an organization has pursued a
retrenchment strategy and it failed to accomplish needed improvements;•
When a division needs more resources to be competitive than the
company ca provide;• When a division is responsible for an organizations
overall poor performance; and• When a division is a misfit with the rest of
the organization.
58. 58. Situations favoring Liquidation:• When an organization has pursued
both retrenchment strategy and a divestiture strategy;• When an
organization’s only alternative is bankruptcy;• When the stockholders of a
firm can minimize their losses by selling the organization’s assets.
59. 59. THE END...
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