CORPORATE STRATEGY

Prof. Pedrini – “I’m not your professor, I’m your coach”

13/01
Introduction to corporate strategy
• To understand what corporate strategy is, we have to start from understanding strategy, the plan that a firm sets up to
reach its objectives, a set of actions that managers coordinate and combine to reach a specific aim (value creation and
success). The success of a company is measured by value creation – discussing about success means to consider success
in a long-term perspective (how to be successful for a long time).
• Madonna represents an example of success over a long period of time – but why that? Because she has diversified.
Generally, when a company is successful it can decide to diversify; once Madonna started to earn money, she channeled
all her resources towards the objective of being successful. She was able to forecast and hop on the right trends
(boyfriends, musical tastes, fashion, dance, owning music companies), understanding the environment and using her
resources, in order to increase her success. She was the first to understand that music does not make money through
copyright, but with live shows.
• A successful strategy is given by the effective implementation of 3 ingredients:
• long-term, simple and agreed objectives
• profound understanding of the competitive environment: you cannot have a successful implementation of
your strategy if you do not take into account the fact that the world is changing and if you do not understand the
so-called tipping points (=big changes; eg. Blackberry failed in understanding the environment, so from a leader
position the company fell)
• objective appraisal of resources
• In defining strategy we have to deal with a dual issue, to compete for the present and to prepare for the future:
• competing for the present, strategy as positioning:
• where are we competing? à product market scope, geographical scope, vertical scope
• how are we competing? à what is the basis of our competitive advantage?
• preparing for the future, strategy as direction:
• what do we want to become? à vision statement
• what do we want to achieve? à mission statement, performance goals
• how will we get there? à guidelines for development, priorities for capital expenditures and R&D,
growth modes (organic growth, M&A, alliances)
This means that we need to be ambidextrous (on the left you focus on today; on the right you prepare for the future).
• LVMH is an example of corporate strategy implementation. Strategy can be implemented along different levels, but
the case of this luxury group regards corporate strategy. LVMH owns perfumes, watches, pret-a-porter and haute couture
brands, wines and champagnes. It may seem that the internal brands are in competition one with the other, but they are in
a unique group.
The advantage of putting together brands with different targets is that they cover the market, so for instance Zenith as
considered within the group will perform better than as Zenith considered alone. Within a group, we have the sum of the
risk of each brand: the reason why we need to put these brands together is that the sum of the value of the single brand
alone is lower than managing everything together. Managing these brands together in a group allows us to increase
revenues and cut costs.
For instance, it makes sense for Loro Piana to be part of this group: the main fixed cost this company faces is marketing
and advertising. If we look at Loro Piana alone and consider its marketing power (for instance in buying few adv pages
on Vogue), the firm alone will have to pay more; if we consider it as part of the group and consider the marketing power
of the whole group (eg. buys more pages), the price for an adv of all the brands of the group is lower.
Working with corporate strategy means dealing with more than one industry, thus having an advantage and creating
more value.
• Philips is another example: it works in healthcare and tools for treatments in hospitals, personal health businesses and
other businesses (IP royalties, innovation, and so on) under a unique brand – in this way, different brands can share
technologies. This means that a company working within Philips has an advantage with respect to a company working
in the same industry without being part of the group.
• Honeywell is another example, since its brands work in industries that are very far one from the other (aerospace, safety,
retail, sporting goods, supply chain, buildings…) and they are not sharing technologies: they are sharing financial
resources. They have a big wallet and they work financing companies, boosting their growth.
• To conclude, corporate strategy is “the way a company creates value through the configuration and coordination of
its multimarket activities” (Collis and Montgomery, 1997). It answers to doubts regarding the entrance into a new
industry, the launch of a brand in a new country, the choice to buy suppliers or customers and so on. It aims at combining
different industries.
Corporate strategy is a layer of strategy – as a matter of fact, multi-business companies have 2 levels of strategies:

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 • business-level strategy (competitive strategy): how to create competitive advantage in each business in which
the company competes, how to be successful in one industry (low cost or focused low cost, differentiation or
focused differentiation, integrated low cost/differentiation, blue ocean)
• corporate-level strategy (company-wide strategy): how to create value for the corporation as a whole.
At a corporate level, the question is not only how (how should the corporate office manage the array of business units?)
to compete but where (what business should the corporation be in?) to compete. Corporate strategy is what makes the
corporate whole add up to more than the sum of its business unit parts.
The need for corporate strategy:
• Most industrial activity is carried out by large corporations which compete in more than one market.
• The majority of assets are controlled by multi-business companies
• Due to the dominant role these firms play in economic activity, it is likely that most of you, regardless of their
chosen career paths, will at some point either work for, advise, or compete with a multi-business corporation.
At a corporate level, bearing in mind Porter’s 5 strategic forces model is not important for
the implementation of a cost or differentiated strategy, neither we’re interested in a SWOT
analysis; we have to use tools like the BCG matrix and an analysis of core competences.

Business and corporate strategy are related.

At a business-level strategy we need to seek for the sources of competitive advantage,
characterized as cost advantage (similar product at lower cost) or as differentiation
advantage (price premium for unique product), and also we need to look at Porter’s five
forces of competition framework (in the graph); however, these tools are not relevant at
a corporate level because they allow an analysis of only one industry, not more industries
together.

We need thus to develop a framework for corporate strategy, which is the basis of our course. This tool allows us to
analyze and unpack corporate strategy of one company. It is composed of 4 main
elements (to analyze in the group project):
• resources: we need to have the resources to be successful in the industry in which
we operate
• business
• organization: we need to have an organization that helps us in developing
resources and in being successful in our industry
• vision, goals and objectives: these elements guide our strategy
These elements must be coherent one with the other and must build harmony.

The aim is value creation and value destruction. If, for instance, we have 2 autonomous companies working
respectively in industry 1 (which has a value of 300) and industry 2 (whose value is
500), the total value of the companies is given by the sum of each company alone
(300+500=800). With corporate strategy, we must put together these two businesses
and find a value that is higher than the one related to the companies considered as
autonomous businesses: managing together B1 and B2 we need to have a value higher
than businesses alone (value creation). However, it may happen that the value created
together is lower than the one of businesses alone (value destruction: sign that CS
strategy is not working).
In order for CS to create value, we need to combine:
• harmonious combination of CS elements
• competitive advantage (for single businesses)
• corporate advantage (for multi-business companies)
Dealing with CS means dealing with complexity of being in more than one industry (decisions regarding what industry
to enter, how to create value working together…), identifying goals and reaching the target, identifying possibilities for
our business to grow or enter new businesses and so on and so forth. Typically, speaking about CS involves speaking
about huge companies (Apple, Google, Facebook, LVMH, Samsung…).
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The corporate identity
• If you want to be a successful company, you need to have a long-term objective. A long-term objective is powerful
because it guides people’s behavior: in a big company, you cannot plan or control everything, but having a mission, a
vision, a goal that we can share with our employees allows us to shape our identity, which will represent the guide of
people’s behavior. Corporate identity is really important, and it is composed by vision, goals and objectives (the content
of CS framework).
However, the traditional content of our framework has been subject to a change in the last years: today we have a strong
focus on the so-called purpose of the company (which is not so difference from vision, goals and objectives, but it is
something that is very stressed). In big companies there is a rising movement, pushing the idea that the purpose of a
company is not to make profits but to promote the economy and generate value (not just for the owner of the company
but the stakeholders as a whole) instead. In august 2019, 181 CEOs of USA largest corporations signed a policy statement
in which they declared that a company’s purpose is not to maximize profit, but to create value for the society and for the
environment (“an economy that serves all Americans”: this was a disruptive news in the field of big companies and that
re-measured success in long-term perspective.
• Typically, the identity is behind the strategy: it is what defines the soul of the company and it is based on 3 elements
(mission/purpose, vision/strategic intent and values). Mission is the purpose, why the company/group exists and what
is the role of the company in the society (the raizon d’etre). Values represents how the company/group behaves. Vision
is the strategic intent, what the company/group plans to achieve the mission. All these three elements inform identity
and flow into strategy, which is the detailed plan of how to reach our vision (how the company/group plans to achieve the
mission) and it takes the form of goals and targets.
The mission describes the basic role that the firm has in society in terms of products and services offered to customers
(eg. to offer high quality services for technology
development); it measures a company’s contribution to
society. Purpose is the mission with a strong focus on the
benefits generated for society (in the purpose we stress the
needs we want to satisfy and the benefits we want to generate),
while the mission is more of a focus on productive mission
(products, goods, services). Even Vodafone changed its
mission (stress on delivery) into a purpose, wanting to
generate a better connection as benefit for the whole
community.
• While the mission has a focus on actual activities (who we are and what we are doing in terms of product and services
we offer, addressed needs of consumers and know how), the vision deals with the future of the firm and answers the
question “where are we going?” (market to target, technologies, products and services, kind of organization we want to
create). Given that the vision embodies the path we want to follow, it generally is inspiring for a long term (while the
mission is related to the situation the company is experiencing). An example of how visions in the 80s were configured
as “attack visions” is given by Canon (“Beat Xerox”) and Komatsu (“Encircle Caterpillar”); this perspective changed
with Bill Gates (“a computer on every desk and in every room”), a very long-term perspective. Nokia, for instance,
changed its vision from “Our vision: Voice Goes Mobile” (1995) to “Our vision: Life Goes Mobile” (2005, related to a
broader scope of products, not only to mobile). Some visions in automotive: “to create the most compelling car company
of the 21st century by driving the world’s transition to electric vehicles” (Tesla, stress on the product), “We are globally
leading provider of sustainable mobility” (Volkswagen Group, focus both on cars and transportation means), “Ferrari,
Italian Excellence that makes the world dream” (Ferrari). Some visions in fashion: “Build the best product, cause no
unnecessary harm, use business to inspire and implement solutions to the environmental crisis” (Patagonia), “Our vision
is to lead the change towards a circular and renewable fashion industry while being a fair and equal company. Using our
size and scale, we are working to catalyze systemic changes across our own operations, our entire value chain and the
wider industry. In this way, we can continue to engage our customers and provide great fashion and design choices —
today, and into the future” (H&M). The ingredients for vision and firm success are:
• efficacy of the vision: able to reach the identified aim and target
• communication of vision: vision has to be shared with employees and stakeholders
• effort in execution: it is not enough to have a vision, vision must be implemented
The implementation of a vision assures consistency in resource allocation in the long term, focus for the efforts of
individuals in the medium term and inventiveness and involvement in the short term.
• Starting from the vision we must define our goals and objectives. While the vision is an ambitious project set for the
long term, goals are qualitative desiderata in the medium term (eg. increase efficiency of production plants or increase
global presence or cut environmental footprints: we do not have numbers) and objectives represent a specific quantitative
target (numbers defined from qualitative goals, eg. if the goal is to increase the efficiency, the related objective is to cut
the average cost per unit of 5% in 3 years) in short term and are the basis for compensation.
LOOK AT EXAMPLES OF MISSION, VISION, VALUES AND GOALS/OBECTIVES AT THE END OF SET OF
SLIDES.

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14/01
Walt Disney Case Study
• FOCUS: role of resources in multi-business companies
• The company has been successful because they cover the entire process to make movies. The advantage of having a
whole world of entertainment, present in different industries and different channels, is that the main product is of high
quality and that they differentiated maintaining the core characters.
Customers choose Walt Disney because people relate Disney movies with happy moments, family, childhood: regardless
of the content of the movie itself, knowing that we’re going to watch a Disney movie we already know that the movie
will be good for children, the quality will be predictable and he kind of message of the story of the movie will be aligned
with our culture. However, this is good for us but for Disney represents a limit in the scope: for instance, Disney does not
provide the same quality content for Muslim communities or countries which are not in line with occidental culture.
• Disney works in different industries (movies, merchandise, hotels and theme parks, tv shows and streaming tv, sport)
and it succeeds because the company is able to create a full experience basing on the same core resources. Moreover, it
gains advantage and business by the fact that such experiences (eg. hotels and cruises) are sold at higher prices with
respect to competitors, because their products are differentiated (and better than others) according to brand value,
reputation, experiences with Disney’s characters (core of the industry in which Disney is working). Characters are the
real corporate advantage of Disney and such characters are valuable for the creation of business because they are always
available 24/7 (both in presence and tv), they are always under control and predictable (eg. will never be caught drunk in
a bar), they are durable, they are unpaid and never ask for salary increase (although they do create huge value for the
company). The fact that such resources do not have a cost represents a huge opportunity for the company: appropriability
for Disney is 100%, because given that the resources have no cost all the gain is a profit.
The fact that this resource is intangible makes it possible for the company to use the resource worldwide.
• Disney bought ESPN, entering the sport broadcasting industry, because it allowed the company’s resources to create
more value, more cash to increase the bank account. Sport channels represent for Disney a cash cow business, so despite
of the distance with the original industry of Disney it represents a huge opportunity to create value.

Analyzing resources and capabilities

• Resources are relevant for multi-business companies, especially for entering new industries in which we have an
advantage. Resources in companies are defined human, financial, physical, and knowledge factors that provide a firm
the means to perform its business processes. A main resource in a company is the focus of a firm when understanding
where to go.
It is important to split and identify resources vs flows. Resources are
factors to use to run processes, and thanks to resources you run processes
which develop resources (eg. people à R&D activities à employees à
mktg activities à strong brand). When discussing resources, we discuss
about stocks, things that we have: we can understand the factors we own
to run activities (flows).
It is typical that we have inflows and, consequently, resources which are
useful to run other activities (outflows) and hence generate new resources.
Therefore, it is necessary to understand what resources we own at the very
moment.
• Starting from the ‘90s resources were identified as essential to understand the business and develop a strategy: the
success of a company, the performance depends on:
1) Average performance of the industry
2) Deviation from average performance of the industry (competitive (dis)advantage), capacity to move away
from the average by achieving performances lower/larger than the average by developing new resources
The external view of the company is essential (Porter’s model, industry-
based view). It is different from resource-based view: the success of the
company and the capacity to move away from the market is based on the
quality of the resources, the features of the resources and the capacity to
develop the resources. Companies perform better when they have a better
portfolio of resources.
This theory is useful when you have turbulence in the external environment
(resources are an anchor in turbulence, because they are a stable asset to manage to face changes in the market) and
explains how companies work in different industries (synergies, sharing of activities…). Focusing on resources helps
understanding the long-term assets, because resources can offer a sustainable competitive asset: resources we have
today depend on our story, the process that they describe in terms of flow is the result of flow-resources relationship we
had in the past; this is related to the fact that resources are cumulative, we develop resources according to our own story
(without copying other firms, because resources are unique and related to a company’s story: resources are difficult to
be imitated).
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• To be diversified to be successful, we must start by analyzing resources & capabilities:
• Understanding role of resources and capabilities in strategy
• Identifying resources and capabilities
• Appraising resources and capabilities
• Developing strategy implications
We must start with a list of resources, and then we identify features of resources and resources of value. The first
problem of listing resources can be dealt by (1) classifying resources:
• by nature (tangible assets, intangible assets, human resources, organizational capacities)
Depending on the mechanism of the industry,
sometimes tangible resources are more relevant than
intangible ones (eg. retail of bookshops: location is
essential). Other times, at the opposite, intangible assets
are more important (eg. brand awareness valuable for
billions of dollars, like for the most valuable brands such
as Apple, Google, Microsoft, Amazon, Facebook, Coca-
Cola…)

• by activity (R&D, transformation…), typical of companies working in a single industry. For every activity,
such companies compute necessary resources

• per strategic level (corporate, business)

Then we can (2) test resources (with a DIA test: demand-inimitability-appropriability) and then (3) identify resources
that generate value. We can test resources to understand where to compete by analyzing:
• Resources are higher than competitors in the new industry?
• Resources are critical success factor in the new business?
• Additional resources are equal to those of competitors?
• Resources can be transferred and replicated?
The DIA test assesses whether resources are demanded, inimitable and
appropriate in order to acknowledge the capability of resources to generate
value.

This kind of test is not analytical and does not rely on formulas and numbers, but it is based on personal judgement so
it is essential to analyze the 3 features (d-i-a) in these stages:
1) DOES THE RESOURCE HAS A DEMAND? Demand defines the extension of the advantage.
• Customer preferences: does the resources meet the evolution of customers’ needs?
• Resource substitutability: are alternative resources available?
2) IS IT POSSIBLE TO IMITATE THE RESOURCE?
• Scarcity: is the availability of resource limited?

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 • Replicability: are barriers to imitation in place? (path dependency, causal ambiguity, economic
deterrent)
For instance, economies of scale are not difficult to
replicate, you just need money. On the other side,
brand loyalty is difficult to replicate. Patents, for
instance, are impossible to be imitated.

3) DOES THE FIRM TAKE THE PROFIT GENERATED BY THE RESOURCE? Appropriability represents the
capacity of the resource to create value for the company, depending on
• Property rights: is it possible to identify the owner of the property right on the resource? (eg. Mickey
Mouse)
• Bargaining power: does the firm influence the price for customers?

Links between resource, capabilities and competitive advantage

• From resources we build competences, and from competences we have strategy, which must keep in mind the need to
develop new resources.
We cannot assume that our competitors are worse than us: they
have resources and capabilities which we must take into account
when entering a new industry.
We must then assess a fit
between resources and
business: competitors of Bic, for
instance, had better resources to
produce the same outputs (collants), so it was a failure initially to enter the business.
Real competitive advantage comes from the combination of resources and capabilities:
when you enter an industry on the basis of your resources, it isn’t enough that resources
pass DIA test, because resources must be better than competitors’ resources.
• We have a portfolio of things companies can do when combining resources and
capabilities (organizational capabilities): we must identify those things that we do better than other (moving from
capabilities to organizational competences), and then among these competences we must focus on distinctive
competences (what makes us different and better than rivals, eg. Alibaba: expertise in building networks and systems to
enable e-commerce, Samsung: speeding new/next-generation products to market) and core competences (competences
that are central to strategy, eg. Nike: capacity in designing and marketing innovative shoes and apparel with technical
features).
• Types of CS: basic logics IMPORTANT!
We have 2 main different logics, related to the kind of resources the group
owns: if we have resources highly specialized, usually companies move to
the synergic logic; if we have general resources to apply to different
industries, corporations go ahead with a financial logic.
The financial logic means that the group is working sharing general
resources (general financial resources) among businesses: at the top there is
a company with a considerable wallet that invests in different and
autonomous businesses (eg. smartphones, advertising, automotive). They
want to create value by allocating financial resources to different businesses
in the best way: they (the holdings) provide money to the autonomous
businesses and they ask to the single business to reach specific targets
(quantitative numbers) and control the companies mainly according to
financial resources every 3 months. With the financial logic, you can create
value in a complex way starting from the same wallet to allocate in different businesses in different countries (where you
have different numbers of financial institutions and banks and where economic development is different): companies
operating in underdeveloped countries or countries with less banks can have better access to money than those operating
alone and independently. Moreover, operating within a group implies access to more info about the business portfolio
than, for instance, banks, so such companies can better allocate resources than banks. For these two reasons, organizations

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can create value. Another way to create value (especially in specific kind of companies like private equity funds and
investment funds) is to buy a company, making it up and making it better, and then sell it (eg. acquisition of soccer teams).
The synergic logic (eg. Google or Campari group) refers to sharing resources to a) cut costs or b) increase revenues;
given that companies share something, they work together, cooperating and coordinating activities, thus increasing the
value of every single business. The overall sum of costs is lower. Eg. sharing of technological skills like touchscreen
that could be applied to hospitals and banks. To create value with this kind of logic you need to know about industries
working one with the others.
• These two kinds of logics give us the chance to apply 4 classes of strategies to use at corporate level to create value.
Share activities: we can create value by sharing activities among different
businesses (eg. sharing fixed costs of R&D, like in Canon).
Competence transfer: typical of companies working in fashion&luxury
industry. Armani, for instance, designs clothes but also uses the brand in
other industries (fragrances, interior design, food): the company is
transferring the brand from one business to another in order to create value.
Walt Disney, in the same time, is creating value by transferring characters
from one channel to another. LVMH as well shares activities and the brand
in different industries.
Restructuring: you buy a company, you fix problems and then sell it. It is
typical of investment funds and private equity funds.
Business portfolio: you have different businesses that are autonomous, so
that the portfolio is balanced on the basis of different criteria. Eg. we can
have multi-business marketing driven companies or multi-business
technology driven companies: they have a lot of specific companies and
create value increasing activities and quality of marketing/technology of different companies; CAMPARI is an example
of company that is trying to create value by pushing marketing.
This scheme, however, simplifies reality, which is hybrid and made up by different solutions.

20/01
Google Alphabet
• In Google (not Google Alphabet), they are sharing resources according to a synergic logic and the main sources of value
are sharing* users’ data among different businesses and the ads of businesses placed on the search engine. Google is
sharing resources*, so it is following a strategy of synergies. The main competitors of Google are Facebook, Safari, Bing,
Microsoft, Yahoo, and generally speaking companies making money thanks to digital advertising. Google has no social
networks, so it is losing the chance to collect more information than, for instance, Facebook is doing: not having a social
network is a major weakness for Google.
• Alphabet is working in digital advertising (Google), self-driving cars (Waymo), AI, smartphones (Nest), smart cities,
wifi-balloons, longevity research, venture capitalists investing in small companies. Different businesses, in this case, rely
on the same company and create value. Google is a cash cow business (they are leader of the market and the market is
very stable, a source of cash flow): this cash can be used to payback dividends to shareholders or to invest, in a financial
logic, in order to get closer to monopoly and dominate the market (main player of the market, can access to investments
into stars). Google Alphabet is thus selecting markets with two features: huge investments (with few player that can
invest as much as Google) and huge potentiality for the future; these two features are driving the Alphabet strategy at
a corporate level.
So, while Google is pursuing a synergic logic, Alphabet is looking for future opportunities sharing financial resources
from one company to other companies (financial logic): the company is investing in risky activities (star businesses)
huge amount of money with the expectation that the new business will generate a lot of money as well.

The horizontal scope

• FINANCIAL LOGIC – The BCG model (Boston Consulting Group) is a portfolio matrix that represents a useful tool
in corporates and multi-business companies (a company with many different business areas competing in different sectors,
es. General Electric) in classifying different strategic business units. It is essential to analyze the business portfolio since
such analysis allows to understand how to allocate resources in different activities in order to succeed in the market and
achieve profitability.

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 The goals to be assigned to each business unit can be mapped according to this method. The
criteria are:
• annual rate of growth of the market (in terms of volumes, value…): negative, stable or
positive growth rate indicate the attractivity of the market. High potential sectors (top
players of the market that can dictate the rules of the market) grow with ahigh rate, so it is
important to consider the annual rate of growth because the higher is the rate of growth,
the higher is the investment needed: since the industry is not mature, we have to develop
(customers, prices, distribution network, plants…) in order to compete.
• relative market share, market share of the company and market share of the main players
in the market ratio that measures of the firm in the market (if on the left side of the matrix
we are leaders of the market and we are bigger than our competitors, otherwise on the right we are followers and
we are smaller than our competitors). It is a proxy to economies of scale since, if we are the top players and we
are bigger than competitors, we will have for long time less costs than our competitors and we can a) decrease
prices to put out of the market our competitors or b) have more margins than our competitors.
According to how these two elements are combined, our portfolio can contain different businesses:
• dog with negative growth rate in markets with low growth rates: a dog is not convenient to keep in a
portfolio, because it competes in a business with no future (they are going to disappear) and where we
aren’t in a leading position. The recommendation is to disinvest, to eliminate investments in dogs
• cash cows with low but positive cash flow (they’re highly lucrative) because of investments but with
predominant position in the market; today they are a mature and declining business and have no future,
they are going to disappear. The goal of the BU manager of a cash cow is to maintain the position (they’re
affirmed in the market and don’t need to be developed), the market share and the profitability; the main
task is to create the cash flow through little investments and high profits. The cash produced can be used
in order to support the growth of stars and the growth of question marks, creating a financial synergy.
Cash cows are those businesses or companies that are placed in an industry with low rate of annual growth
but with a high (>1) relative market share: the industry is not growing but the market share is considerable, so
the company is the leader of the market and can take advantage of economies of scale.
• stars businesses, located in growing markets and in top position: the ideal situation is to always be number one
and be profitable; the only point of weakness is that the cash flow is negative due to investments made to achieve
the goal of growth. The goal of the BU manager of a star is to maintain the market share, increase revenues,
profits ecc but not cash flow (the cash flow is negative, which is the drawback of this business). Stars are placed
in growing industries (high annual rate of growth) and with high relative market share, so they need investments.
• question marks with low market share but growing: these products are set in a growing market, but don’t have
a predominant position in it (their name is given by the uncertainty of increasing their market share). They need
more development and investments than successful businesses in order to succeed, so here the cash flow is
negative as well.
The BCG matrix is useful for CS that are developing according to a financial logic (independent businesses whose cash
can be invested in other businesses that are growing and that are in the first two steps of the industry lifecycle: introduction
and development) and it is not useful to analyze synergies (interdependent businesses). This matrix is useful if three
elements occur:
1. Independence of the businesses: the BCG matrix can only be
applied to companies that adopt a financial logic, sharing financial
resources among businesses
2. Industry life cycle: we are measuring the annual rate of growth
because, if it is high, we are in introduction and development stages and
we need investments (while, if it is low, we are in maturity and decline
stages of ilc and we don’t need investments)
3. Economies of scale: the bigger we are, the higher is the possibility
to cut costs of production.
• SYNERGIC LOGIC – The BCG matrix (quantitative matrix) is not appropriate to address synergic logics. We need the
matrix of Parenting advantage matrix (parent = head of the group)8, only used at corporate level and characterized as
a qualitative matrix based on personal perceptions and interpretation, not numbers. Parenting advantage matrix relies on
3 elements:

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 1) Parenting characteristics, features we have at corporate level in our group:
competences, resources, processes, managers’ cognitive perceptions, CEO, top
management… these characteristics are not listed but are elements that one
shall identify by himself
2) Key success factors, elements at business/industry level: factors we need
to be successful in a specific industry like brand, logistics, production capacity,
distribution… (each different industry is characterized by different KSFs)
3) Parenting opportunities: room for improvement and development for each
specific single company (firm level). Eg. we have 2 companies in 2 groups
working in automotive: they have different characteristics, similar KSF but
different parenting opportunities due to specific features of single companies
The perfect situation is a situation in which the parenting companies has
specific features (parenting characteristics) that are aligned with those specific characteristics you need to be successful
in the industry (so they match the KSF): in this case the corporate level can provide the companies of specific industries
the things they need to be successful in the industry. At the same time, the best situation could be a situation in which we
have parenting characteristics that fit with KSFs but the characteristics of our parents fit with the need of improvement
and opportunities of development of specific companies we have in our portfolio: the parenting company could thus
provide what the company needs to be successful in the industry (KSFs) and what the company needs to development of
specific needs (parenting opportunities). What makes this matrix complicated is that we have 3 elements but there also
are 2 fittings within such elements:
• fit of parenting characteristics with KSFs
• fit of parenting characteristics with parenting opportunities
Combining these 2 fittings means that the parent company could provide to the single business what it needs to be
successful in the industry (eg. ballast). Such fitting is represented in the Parenting advantage matrix by 5 types of mix:
• Heartland: high fit between parenting characteristics and KSFs and parenting
opportunities; the parent can provide the single business what the business needs to
be successful in the industry and what the business needs specifically to develop. A
company in heartland could have an advantage from the parent company.
• Hedge of heartland: high level of fit between KSFs and parenting characteristics
but not full fit between what the parent can provide to specific businesses for their
development. A company in hedge of heartland could have an advantage from the
parent company.
• Alien territory: company that cannot receive from the parent what it needs to be
successful in the industry (KSF) and what it needs to develop (parenting
opportunities). It does not have any kind of advantage.
• Ballast: parenting company could provide to the business what it needs to be successful (KSF) but not what it
needs to exploit all the opportunities. This company will be under-developed because it does not receive what it
needs to develop (eg. printing for Mondadori group: big plants of production but group needed to sell the business
because, to be successful, it had to exploit the full production capacity of the plants and to produce more, to print
books for other companies; printing could not exploit the opportunities because it couldn’t reach full production
capacity)
• Value trap (most tricky part): the company and the parenting company have a perfect fit with regard to the
opportunity of specific development (eg. increase efficiency in production), but the parenting company cannot
provide the company what it needs to be successful in the industry (eg. market asking high quality services, but
parenting company only offering investments to boost efficiency). This specific lack of fit is hard to
acknowledge, so it is a tricky part. Eg. radio business for Mondadori group, weakened by lack of advertising
skills.
An example of adoption of this matrix is given by Mondadori’s businesses.

21/01
The horizontal scope
• The horizontal scope represents diversification: a group working in more than one industry, hence needing a corporate
strategy. We are moving on the business side of our CS triangle after having analyzed resources.
In this graph the three lines represent the relationship between performance and diversification:
• Blue line: the more we diversify, the better performance we have; not realistic* because when we enter
a new industry, diversifying, we must be successful in the industry, so we need appropriate and valuable
resources. Resources are not suitable to enter all industries (eg. Apple cannot enter the gardener
services): there is a limit in diversification, given by our resources, meaning that if we diversify more
than this limit what happens is that the performance will decrease and we will have more costs than
revenues*.
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 • Red line: the more we diversify, the more we have a performance until we reach a limit and we decline.
This is traditional shape of performance and diversification and it represents the scenario of
overdiversification (realistic scenario*) given by the fact that he resources we have are not generating
value in the industry we enter, because we are too far away from our core business (heartland).
Even if we have overdiversification problems, we can see that top
100 companies increase year by year their number of employees:
companies enlarge as they diversify. When overdiversifying,
companies have to rationalize the strategy and to decide the industry
in which they don’t want to stay (downsizing, restructuring…); as
overdiversifying occurs, the number of employees decreases and the
focus shifts to specific industries, reducing the number of industries
in their portfolio.

• The choice behind the strategy relates to 3 dimensions of scope for the firm:
• vertical scope
• product/horizontal scope
• geographical scope
We have 2 basically different scopes: autonomous specialized scopes
(specialized firm) or playing in the industry as a single unit buddy
(single integrated firm). In the industry of electric cars, there are
players operating (Electric Ford Focus) as collaboration among
different specialized companies (Ford, LG, Magna) and other players
operating as a single integrated firm (Tesla produces everything in the
value chain). In the industry of entertainment, we have single
specialized players operating at a horizontal scope (Nintendo
specializing on video games, Panasonic working for the consumer
electronics and MGM working on movie production) and other players
working at the same time on the three aspects (Sony). From the
geographical perspective, we have examples of banks working in specific geographical context (Wells Fargo, Lloyds
Banking, Banco Bradesco) and others working worldwide (HSBC). Alphabet is a single integrated firm with a horizontal
scope moving around technology.
• The drivers of diversification are:
• economies of scale: if you increase production capacity, you reduce
the average cost per unit due to splitting costs among units. If we
increase the size, we reduce the cost per unit: the bigger we are, the lower
costs we have per unit.
• economies of learning: the more we produce (cumulative production),
less average cost per unit we have because we learn (experience
increases our skills). Economies of learning are not automatic: if we
produce more, the single employee learns more and we need to find a
way to transfer the knowledge of the employee also to other employees
through mechanisms to share the knowledge; we need to keep our
employees (so we need low turnover) and we need to share the learnings.
If we relate annual sales and average cost for advertising, we can see
that for instance Coca cola is selling more than other brands and the
average cost per advertising for every single unit is lower than
competitors: this is an example of how economies of scale are a proxy of market share. It is hard for other players
to challenge Coke.
Having a large market share means to have larger economies of scale and learning, to have less cost per unit.
Market share is a proxy of economies of scale: the main player in the market has economies of scale and
economies of learning.

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 • economies of scope: working in more sub-businesses units and
businesses, the average cost per unit decreases because we share
costs among different businesses. It is related to synergies (eg.
R&D cost shared for touchscreen used in different industries), to
cutting costs and to increase quality throughout the learning
process.

• network externalities: most powerful economy we have (especially on digital platforms).

If we increase the number of users, the benefit for the single user increases: if I use
whatsapp, the more users there are the more benefits I have as single user (eg. I can send
more messages to my friends). From the business perspective, if we have a business based
on a network, we can provide the consumer many benefits and the consumer will hardly
switch to another company. However, if our business is based on a network, the problem is
to enlarge the network in order to provide higher benefits to users and keep users close the
business. In the technology industry, the leader takes all the market: if the top player is able to set a network and
to reach a large number of users, the benefits that are generated are so high that the top player will take all the
market (eg. Amazon).
The reasons why companies diversify could be very different:
• offensive (to attack competitors) vs defensive (to respond to competitors’ attack, eg. Xbox: Microsoft enters
the videogame industry because Sony was doing so)
• external (search for opportunities, companies for sales) vs internal (demand reduction in the core business,
under-utilization of resources)
• generic (they do not suggest the direction) vs specific (resources are so specific that they already do suggest
the direction themselves)
• Usually, companies diversify around the core business: if we enter an industry related to our core business, it is more
likely that we will have success in creating value. Moreover, when companies are in trouble, it is important to re-focus
on the core business (eg. when overdiversifying, we shall go back to our activities by selling activities that are not related
to our core business, so to generate money to reinvest in our core business like Sole24Ore did). Therefore, it is essential
to identify the core business (which is difficult and personal). The core business is the primary area of products, capacity,
customers, channel and geographical areas that define what the firm is or wants to be. Core business is the set of products,
capacities, customers, channels and geographical areas that define what are company’s ambitions. The criteria to define
core business are:
• history
• industry features
• resources and core competences
• figures (market share, revenues, investments)
The pattern of diversification starts from the core business and gradually moves away from
it (eg. from core business of cars to banking and renting of cars, merchandising…). This
means that we can have a related diversification (starting from the core business, we
gradually move away from it, looking for a link between the new activities and the core
business; typical of synergic logic) or an unrelated diversification (no relationship
between new activities and core business, businesses are not related one with the other;
typical of financial logic) or a dominant diversification (we don’t have a huge
diversification).
This implies that the perception of risk when diversifying is different
between shareholders and managers: the perception of managers is to have
businesses that are not related for the company to grow (because
managers’ bonuses are related to the profit of the group, so if the group
works in different industries they can have a balance of the annual
performance of unrelated businesses so that at the end of the year their
bonus will be granted); on the other side, shareholders want related
businesses and aim to have a unique business that is very strong, with some
small connected businesses deeply related to the core business
(shareholders don’t need managers to diversify the risk, they can do it
themselves by buying shares of other companies). To conclude, in corporate
strategy different interests have to be balanced (agency theory: we have an
agent – the manager – and shareholders that are giving the agent the right to
operate, so a problem rises due to the fact that not always the interests are
aligned). However, if we take a look at the objective side, we have to enter
new industries and diversify in order to create value: we shoud only enter
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industries in which our resources are better than competitors’ in order to have a competitive advantage. Eg. Virgin
started producing a sort of Cola (Virgin Cola), but couldn’t place it on GDO shelves: the CEO had to close the company,
he didn’t provide something unique so the Virgin Cola failed.
• To picture the development of a company we can use this adjacency map, where we represent the idea that, starting
from the core business, companies can develop by moving away from the business step by step following 6 different
drivers:
• new geographies: local or global expansion
• new value chain steps: the company moves on vertical diversification,
starting to do something that was previously done by a customer or a
supplier
• new businesses: development in a horizontal way (eg. new industry,
new products in same industry, new customer segments, new distribution
channels). Eg. we were producing cars, we start to produce trucks
• new products: horizontal. Eg. we were producing smartphones, we start
to produce a new line, a new generation
• new customer segments: horizontal. Eg. we were producing
videogames, now we start to enter women segment (like Nintendo Wii or
Nintendo Switch)
• new channels: horizontal (eg. LVMH opens new online store for Louis
Vuitton, Apple opens Apple Stores – great novelty in the industry,
populated by multi-brand stores)
Alessi depicts an example of expansion with product development: they moved from
ceramics to design cars, moving away from the original business step by step and
experimenting with different materials.

We can enter new industries when our resources give us something unique, otherwise it will be a failure. To understand
if the resources will allow us to develop something unique, we can run Porter’s three essential tests to see if we have
potential in diversification:
1. Attractiveness: we need to assess if the industry in which we want to enter is attractive, if it is growing, if
it is competitive, if we have problems with suppliers etc. If we have a company that has a ROI of 5%, we
will not enter in an industry in which the average ROI is 3% but we will enter in industries that are more
profitable (=more attractive) than the industry in which we are
2. Cost of entry: the industry we enter shall be such that the investment we make to enter is less than the profit
we can have by entering
3. Better-off test: do we have something that gives us the chance to be successful in the industry or give us a
competitive advantage? If we are just one of the players of the market we enter, we will not be successful
James Dyson started attorney to develop one electric car, moving far away from the core business of vacuum cleaners
because they had better resources than the existing producers. Because the main problem of electric cars is autonomy,
they believe that the patents they have on their own batteries will allow them to provide something unique to their
customers.

Vertical integration
• A vertically integrated firm is one that performs value chain activities
along more than one stage of an industry’s value chain system. A vertical
integration strategy expands the firm’s range of activities backward into its
sources of supply (start to run activities before suppliers) and/or forward
toward end users of its products (start to run activities performed by
customers). Eg. Apple, forward vertical integration (Apple stores are
distribution) and backward (production of processors ecc)
There are 3 types of vertical integration:
• full integration: a firm participates in all stages of the vertical activity chain.

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 • partial integration: a firm builds positions only in selected stages of the vertical chain.

• tapered integration: involves a mix of in-house and outsourced activity in any stage
of the vertical chain; there is a part of capacity production that is managed internally and
a part managed by external suppliers. If you have a big plant but cannot use it
completely, you produce with higher costs à internal production set on certain level of
production (stable production), and to deal with internal and external production you
rely on external productors (to avoid fixed costs). Eg. soft drinks production: stable production based on winter
production, to let external suppliers manage summer peaks; Apple: macbook in Apple store (integrated) as well
as other retailers (external suppliers).
• It is possible to create value through vertical integration through building entry barriers to new competitors by denying
them inputs and customers, facilitating investment in efficiency-enhancing assets that solve internal mutual dependence
problems, protecting product quality through control of input quality and distribution and service of outputs and by
improving internal scheduling (e.g., JIT inventory systems) responses to changes in demand.
The 4 main drivers for vertical integration are, thus, building entry barriers (we set a barrier towards potential
competitors if, eg., we own the production of raw materials), improving quality (eg. Apple opening Apple Stores: control
experience, increase quality of the service, customers’ perception of exclusivity of computers; eg. Gucci controls directly
production to have products of quality), increasing efficiency and cutting costs thanks to economies of scope (eg. Zara
managing together design and production: cut cost of coordination and testing products), speeding up production and
adaptation and enhancing efficiency or profitability. The balance between these elements has to be found in the bet on
the future: Apple Store, for instance, was a huge bet (pioneer in vertical integration in the industry) but managed to
balance quality, entry barriers and efficiency.
• Guidelines for forward integration:
• When an organization’s present distributors are especially expensive or unreliable, or incapable of meeting
firm’s distribution needs.
• When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that
integrate forward.
• When an organization competes in an industry that is growing and expected to continue to grow markedly.
• When an organization has both the capital and human resources needed to manage the new business.
• When the advantages of stable production are particularly high.
• When present distributors have high profit margins.
• Guidelines for backward integration:
• When an organization's present suppliers are especially expensive, or unreliable, or incapable of meeting the
firm's needs for parts, components, assemblies, or raw materials;
• When the number of suppliers is small, and the number of competitors is large;
• When an organization competes in an industry that is growing rapidly;
• When an organization has both capital and human resources to manage the new business of supplying its own
raw materials;
• When the advantages of stable prices are particularly important;
• When present supplies have high profit margins; and
• When an organization needs to quickly acquire needed resources.
• Disadvantages of a vertical integration strategy:
• Increased business risk due to large capital investment (eg. risk of failure; smartphone industry killed mobile
industry).
• Slow acceptance of technological advances or more efficient production methods (eg. majority of fashion
companies don’t want to run production: every year there’s a shift in technology, so they rely on different
suppliers)
• Less flexibility in accommodating shifting buyer preferences that require non-internally produced parts.
• Internal production levels may not be of sufficient volumes to allow for economies of scale.
• Capacity matching problems for efficient production of internally-produced components and parts: if we
have internal problems of production, we have to run these problems directly and find solutions. We cannot stop
internal production due to internal problems, while if the production is external and problems occur we can stop
production and switch from one supplier to another (in a couple years)
• Requirements for different resources and capabilities.
• Cost disadvantages of internal supply purchasing.
• Remaining tied to obsolescent technology. If we are bottling, we have plants for plastic and we have a problem
if the environmental awareness challenges plastic consumption
• Aligning input and output capacities with uncertainty in market demand is difficult for integrated companies.
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• Outsourching (one activity of the value chain is run by external suppliers): benefits of outsourching are lower cost
structure specialist cost is less than performing activity internally, enhanced
differentiation quality of activity performed by specialist is greater than if activity
were performed by the company, focus on the core business (distractions are
removed and company can focus attention/resources on activities important for value
creation/competitive advantage). The main reasons are strategic and economic
reasons: companies outsource activities that are not adding value (=not at the center
of the strategic activity) and that are cheaper if run outside.
Generally, outsourced activities are marketing, legal, tax, payroll systems, call
centers.
When externalizing, a tricky point is represented by the fact that running activities
internally means that you have on an excel file the costs demanded to run the activity in a very precise and detailed way,
but when comparing internally and externally make-or-buy, internal costs are perfect but external costs are not as clear
(additional costs in negotiating, controlling the activity, checking if the supplier is respecting costs): the problem is the
hidden cost of control (beuraucratical costs included in transactional costs), which are hard to assess in externalizing
production. Bureaucratic costs reduce the value of vertical integration.
Vertical integration can result more attractive than outsourching
The costs of running an organization rise with integration due to:
– The lack of an incentive for internal suppliers to reduce their operating
costs.
– The lack of strategic flexibility in times of changing technology or
uncertain demand.

• Designing vertical relationships: long-term contracts and quasi-vertical

integration

• Different types of vertical relationships:

• long term contracts: series of transactions over a period of time and
specify the terms and responsibilities for each party (eg. McDonalds with
Burgy in the ‘80s)
• spot contracts: market transactions or normal purchases (contract for just
one delivery)
• relational contracts: a contract whose effect is based upon a relationship
of trust between the parties.
• franchise: a contractual agreement between the owner of a business system
and a trademark.
• joint venture: solution in the middle between having an internal
production/distribution and external supplier (eg. having a company
together with a supplier)

Zara
• Value chain of the fashion industry: a vertical integrated company is such if it manages more than one process

Zara vertically integrated from the beginning

Strategy: analisi richieste dei customer e trend, risposta più fast del settore (ogni 2 sett riallestiscono i negozi), inizia a
delocalizzare con espandersi di rete distributiva, pioneer in business w/ blue ocean strategy (cerchi business in cui non
c’è competizione), tanti brand di diverso range, corporate identity in stores di design e sales assistant, non acquistano
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prodotti da altri ma hanno tutto integrato fino alla vendita (non vendono ad altri wholesale, fanno solo B2C), costi
produzione bassissimi
Impone Prezzo materia prima x alto potere di mercato, overproduction per rispondere a trend, continuare su strategia
attuale perché modello di business permette di adattarsi velocemente a mercato
• Vertically integrated company, even if they start from textiles (they do not have fields of cotton) à faster business. Zara
is vertically integrated but, differently from Gucci, is vertically integrated for other reasons: Zara wants to be fast and to
play in the fast fashion (2-3 weeks between idea of clothes and distribution of the garment, ≠ Gucci which takes 8 months)
by copying ideas. Managing directly the steps of the value chain allows to cut negotiations time, eg. w/suppliers and
logistics. Zara is increasing its size, meaning that it needs to improve formal communication. Thes business model of zara
is not complicated, but other players are copying
• What often happens in vertical integrated companies is that such integration helps improving quality.
In fashion industry we have the following value chain. Vertical integration means that these are steps in a single industry
(vertical integrated is a company that manage more than one part of this process).
Zara is vertical integrated, It operates in fast fashion (2/3 weeks time to market), they can copy from higher brands.
Vertical integration allows to avoid negotiation and they can cut costs (better coordination and communication and
control) and applies lower prices. Thanks to vertical integration we can have different department but less step of working.
The problem is that they are increasing the side and this informal method of communication is not so efficient.
Zara and gucci are vertical integrated for different reason. Increase quality (not the case of zara) for instance Gucci
because you can control the quality of production.
The problem is the life cycle of the problem, the t-shirt of zara has a very small life cycle.
With vertical integration
• cut cost
• Fast
• Increase quality (case of gucci)
Challenge
• sustainability
• Control for the increase of the size
The business model is not so complicated (Zara is copying other company) but other company are copying from Zara.

27/01
Tiziano Furlan, CEO MDA Consulting – The international (geographical) scope of the firm
• Open up the market, understand the potential and expand internationally. From simple exporting overseas to opening
branches and M&A in overseas markets
• Organic growth: increase production capacity, bring in prod capacity with new firms overseas, improve line of
products/covered countries ecc. Acquiring ≠ companies is not organic growth
Case study of motorcycle production location: Ducati (Audi
group). Good reputation for styling, speed, made in Italy
brand, enthusiasm and strong brand appreciation
(“Ducatisti”). Always analyze what is the fastest growing
market and developing countries where new needs emerge.

Ducati had to plan new models. Ducati Monster was best

seller in Asia and south-east Asia because it was the most affordable
motorbike, so the firm decided to move its production to a factory in
Asia and cover the market. To consider the country in Asia to open
the factory, Ducati put down some selection parameters to make sure
that ROI in 10 years is good.
Supply chain is the first and most important parameter in case of
complicated products (like motorbikes) since it offers a parameter for quickness,
quality and efficiency n production à move factory where I have good suppliers
(eg. plastic, metals). The factory has to be as close as possible to the market where I intend to expand (captive to market)
and has to consider how to avoid entry barriers to growing markets (eg. entering Asia: avoid barriers that increase prices
by double). PEST(EL) is an analysis to do on target countries (political, economic, social and technological + legal and
environmental analysis). If in the targeted country there are fiscal incentives available, I should also consider this factor.
Just-in-time (I want my supplier providing me components to be very effective in supply-time: I do not want to store
pieces in warehouses, because products take weeks for shipment: suppliers have to be near by the assembly line; Toyota:
most suppliers of semi-finished parts, are not more than 20km away from the factory), so proximity is considered to be a
part of the assumptions to make with regard to the supplier à important that supplier is close for costs and timing

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Where do I find parameters matching my needs?
In a short list of selected countries (Thai, Vietnam): other eastern countries were not
offering the same fiscal incentives, manpower is low, growth opportunities of the local
market are large, closer logistic platforms (helpful for shipping overseas parts and
consumers)
Selected country: Thailand. Why?
• production capacity of 2.5 millions cars/year
(Toyota, Mitsubischi… were there)
• available clusters of components manufacturers
made by Japanese investors, other investors and
thai investors: the first cars assembled by Japanese
were importing parts from japan and assembling there. Over the years, also
production started to be located in thai (without importing)
• fiscal incentives: getting 8 years tax free operations allowed to have profits tax-
freeà money for new investments, research and development ecc
• available skilled and reliable manpower in an established manufacturing country (+ boost to education and
implementation of technical school)
• good logistic location, industrial part dedicated to automotive
After the ideation of strategies, execution:
BOI = board of investors that gives investments
Production of lower power monster for the Asian market. Demand increased since
the Monster was ad-hoc for the Asian market and appropriate to the culture of the
market. 5 years later: new model (Scrambler), developed and produced in thai and
now best seller of Ducati.
Ducati sold more motorbikes at higher prices because they could avoid entry
barriers and custom duties, which were “released” to the market: the cost savings
were partly gave to the market and part was kept in the company. Higher profit due
to production in thai, high ROI (no taxes). Free production spaces in Bologna factory
in order to produce other modelsà higher value production in bologna thanks to a
free production plant that was congested. Result: 7 years later we produced 70k
motorbikes (50% more sales thanks to organic growth). There were no compromises
because everything was planned in a proper way and Asian market was more aware of the fame of Ducati brand.
manpower cost is not critical, otherwise they would have chosen Vietnam
Asian version of the monster
Scrambler: new product at lower implementation cost

The international (geographical) scope

• The internationalization analysis is divided into:
• analysis
• decision
In the case of Ducati, internalization was an ambition to cover more markets. However, sometimes internationalization is
a matter of survival.
There are companies that need to manufacture close to the HQ. Do I want to get close to the
market or do I want the product to travel? Cost is never the answer to this strategic answer,
since it is not a critical factor.

• WHY – Is my growth process driven (driven by ambition) or pulled (eg. automotive: customer is going to make an
overseas factory, ask supplier to keep manufacturing close to their factoryà growth pulled not by ambition but by
customer who asks to put factory close to him)?
• HOW – Organic (direct = I can have a market that covers my costs vs or indirect = delegate market and sales to third
parties eg. with agent, distributor… not always room for investing in countries, you do not control the market, so your
success is due to the success of the third party à very carefully taken decision based on reliability), external (JV, merge,
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acquisition), one factory (green field, existing), many factories, what resources (financial and human, two most
important resources)
PEST(EL) analysis is the first thing to do, but also, we need to conduce a macroeconomic analysis (gross domestic
product, demographics…), to consider political constraints (eg. embargo on Iran or Russia), technical standards
constraints (eg. we are an Asian producer, in order to export to EU I need to have the CEE mark), competitive scenario
(very important).
• PEST(EL)
P?
E ? am I going to invest in a country which is 3 million people or 300k people?
S: what religion in those countries? Eg. sell wines in Muslim countries. What is scholarization in that country/ how
many educated people or analphabets? Is there good social life?
T: in USA, technology is measured in gallons, inches ecc so I need to check the available technology. Is my technology
obsolete/old? Am I bringing an innovation in that country? Is there local technology available or do I have to import
it (like Ducati imported machinery to assemble)?
E: ?
L: ?
• Macroeconomics:
Is country exporting only agricultural products and not technology products? Are they importing oil,
gas an energy because they do not have own production or resources?
Workforce has to be considered not only in terms of costs but also what kind (eg. if I invest in
manufacturing garments: Bangladesh and Vietnam have been looked after because workforce is good
at low cost and works well on sewing machines, but not for instance in assembling).
Unemployment is important in investing: a typical case is making investments in China (where
unemployment is low for instance in Shanghai and workers are more expensive than for instance in
Romania).
Inflation is important because it shows the costs of different currencies to adjust the prices, importations ecc
Financial info are important to understand if funds are available in new countries, as well as taxation information.
• Political constraints:
Industrial policies are important to find incentives

• Technical constraints:

• Competitive scenario:
Eg. motorbike: in. USA there are Harley Davidson as well as Honda, Yamaha, Suzuki, BMW à domestic
and international competition: how do I enter?
Am I competing with a motorbike at the same level or lower quality or larger brand appreciation? If I
compete on quality, pricing becomes a secondary aspect.
If it is domestic, is it protected by entry barriers? Eg. Ducati overcomes barriers by producing in Thailand
and most importantly if at least 42% of the components are produced locally or within Asian countries or
within the free trade agreement countries that signed with Thailand (very captive supply chain).

• Decision phase:

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 • international location of production: WHERE?
Local and captive market has to be able to cover the 60% of the installed capacity:
overcapacity kills the finances, size has to be appropriate to the market I aim to work in.

28/01
Organizational and parent company roles
• British Petroleum is an example of a decentralized management system: autonomous business units with own
responsibility have to work in peer groups with dependent groups. The control system is based on performance targets:
BU have to work together on the basis of peer groups and are controlled on the basis of the achievement of a target. The
aim of decentralization combined with control on results is to have motivated people, to share knowledge, to master
management time, to enhance specialization and focus on the drive of performance.
Is this kind of structure related to the environmental catastrophe/crisis? To what extent was the management system a
factor causing the texas city disaster? Troppo focalizzato su risultato, a detriment della sicurezza + troppa elegazione va
a detrimento di visione di insieme
Is for this structure having 150 BUs appropriate or not? Is the management system suitable to oil and gas industry? Tanta
precisione e dettaglio, ma controllo fa perdere tanto tempo e in troppo dettaglio perdi informazioni più rilevanti e dato
che influenza il risultato. Means of pursuing the result are at discretion of the bu, because the contract is based on
performance and not on how to achieve performance. Risk management was underrated. Instead of results, they should
have created a culture and should have set targets contemplating specific problems for each bu.
From an environmental perspective, it is better to have divisions that share specific policies for each activity: having a
general policy implies a too high level of detail, meaning that risks are not under control. Moreover, working together
also helps to work better and achieve better results (otherwise units work for the achieving of profits)
• We need to have the right organization helping to fit in resources with the business we have; if we want to change
strategy, we have to start with the organization in big companies (change in
strategy is also called “re-organization”).
Dealing with organization means to deal with the research of an equilibrium
between forces, specializing and splitting in industries and functions to benefits
of the pros of specialization. Of course, we need cooperation and
coordination to specialize activities.
Cooperation opens the problem of agencies: we need to have someone that
decides the level of specialization, but he/she will not do it on the basis of the
interest of the big corporation but of the function and his/her personal interest.
Moreover, if we split activities in group, we need to coordinate groups to work
together.
Coordination in a multi-business company arises a problem in understanding
how the parent company (at the top of the group) is trying to create value
and what is the interaction that parent wants to have with single companies to
create value. On the base of the methods in creating value we will have different organizational structures.
• Parents can create value according to 4 methods:
Eleonora Sizzi
 • stand-alone influence: the parent influences businesses in a direct way, considering each
business as autonomous. The parent is working with a financial logic and a portfolio strategy,
influencing each business in an independent way
• linkage influence: the parent influences single businesses, not alone but as working together
(bridges among businesses). Businesses share knowledge and resources (synergic logic based
on transfer of brand, resources and technologies within businesses)
• central function and services: parent runs directly specific functions and activities, on the
behalf of single business units (eg. purchasing, marketing, distribution: centralization of a
function). It exploits linkages between businesses, centralizing activities and exploiting synergies
• corporate development: parent does not influence on single business, it is directly involved in the business
and manages directly businesses. Parent is involved in the management of single businesses that are autonomous
• The influence of the parent drives to different kinds of control and relationship between parent and business:
• Strategic planning: parent develops single businesses (typical of corporate development),
taking part to decisions. Strong involvement of parent in business and strategy development.
In some cases also implemented in linkage influence or central function and services
• Strategic control: parent centralizes planning (made by the bu), but the bu share plans with
the parent which gives them feedbacks. Parent influences the planning, is not involved in the
planning in itinere but has control on strategy because of the need of approval. In some cases
implemented in linkage influence or central function and services
• Financial control: parent doesn’t care about planning (each bu is responsible for it and
doesn’t need parental approval), only cares about financial results (which is responsibility of
each bu, parent only want them to achieve the result). Typical of stand-alone influence

4/02
Entry modes
• As a company grows in size, it has to adapt the organizational structure and it has to face problems of coordination. The
typical phenomenon of development in corporate structure is to start with the simplest
functional structure, until it reaches the network structure.
Functional: one single business and homogeneous operations split into functions.
The more the products and activities, the more functions hierarchically dependent on
the CEO-> CEO starts to focus only on a subset of the functions
Divisional: bulk activities into divisions based on geographical area, business,
technology, distribution or market segment based on the kind of coordination we
want

Type of strategy selected will have an impact on the selection and implementation of the business-level strategies. Some
corporate strategies provide individual country units with flexibility to choose their own strategies. Others dictate
business-level strategies from the home office and coordinate resource sharing across units. Three corporate strategies:
• Multi-domestic strategy: we work in every single country, adapting our products to the single country (tailored
products). Typically, local units are independent one from the other to address specific needs (eg. Ducati).
• Global strategy: company has a unique product that needs minimum adaptation to the local context (one
product standardized for the whole world). The single units in the different countries highly depend on HQ,
emphasizing economies of scale (eg. Apple and ICT companies).
• Transnational strategy: derives from network organization. We try to have multidomestic strategy together
with global strategy, adapting to single countries and centralizing as well as activities to exploit economies of
scale. It is structured in global hubs, in different countries, so that one hub discusses (network structure) with
the other to understand the needed features for a product to be successful in another geographical areas (the hubs
provide info one to each other, eg. Unilever and consumer-products companies).
To keep together this link we need control systems and to delegate basing on three different approaches:
• control on results: single managers have financial results to reach in large companies. Useful when you can
first understand the market and forecast the market behavior and more suitable for stable industries that can set
targets (target->small groups of activities->set parameters for each target->assign targets to each single unit) and
where people have direct influence on results. Parent company has to be skilled in forecasting, budgeting and
managing financial results; useful in financial logics
• control on behavior: suitable for companies unable to forecast the market and set targets (eg. unstable market,
growing company), need to assess the quality of decisions of managers instead of results. The judgement is based
Eleonora Sizzi
 on deep competences on specific markets and businesses (not financial skills). Typical when business units are
dependent one on the other (impossible to set targets) and in case of synergic logics
• control on clans: most tricky, based on culture and peer-to-peer control. Typical of small companies, where
people are close to their colleagues and can discuss directly with owner and manager of the firm.

We have to find a way that resources available in one business can be available in other businesses (transfer of resouces
and activity coordination): transferring resources and coordinating activities we can guarantee cohesion.
We can transfer resources according to different methods ?

Disney and Pixar

• Pros and cons analysis as member of Disney board:
Pros: acquire potential competitors, acquisition of patents and tech, wide customer segment, profitability of Pixar is high,
existing relationship with Pixar, characters that are ready, defensive action
Cons: expensive acquisition, employees with differences, Steve Jobs is risky, tensions with managers
• Pros and cons analysis as member of Pixar board:
Pros: great shareholders with strategic visions, protection of Pixar’s culture (creativity, collaboration), production of
sequels, boost to value creation, implement success and accomplishments, great perception of quality from consumers’
side, larger distribution, learning process, characters in parks, price is high, beat Dreamworks, save fees for distribution
Cons: more ideas to coordinate on the same project and risk of rejection, stricter parameters and targets, loss of advantage
given by entry barriers, cultural problems, cut cost strategy
• Example of how to strategically think of M&A and alternatives with pros and cons

17/02
Paola Scacciante, Enrico Lima and Francesopaolo Popoli– Amplifon acquisition and integration of GAES
• Scacciante HR, Enrico Lima and Francescopaolo Popoli Global Strategy & Business Development Manager and
Specialist
• Amplifon is an Italian multinational company with 28
countries and 11k points of sales. Amplifon is one of the 11
brands of the multinational (others: Better Honen).
Core business has huge impact on people’s life, improving
customers’ life (to which are connected the values, eg.
customer devotion is key to do the best).
The brand has growth tremendously in the past years, with a
growth similar to the one of Silicon Valley companies. Such
growth meant an investment on people and human capital,
which is key to the success of the multinational (5k people
hired, half of them with long seniority). As retailers, the
competitive advantage of Amplifon is the service provided to
customers, so people are a fundamental resource. The
company is constantly rebuilding itself.
Eleonora Sizzi
• INDUSTRY AND STRATEGY
1st step, identify industry: retailer of first hearing solutions.
The market is a niche with tremendous growth opportunities;
characterized by the 4 trends of the slide (secular trends =
demographics, age of population; developed countries;
competition in fragmented market; customer choices driven by
brand and service, not price). Market value of 15 billion €
worldwide, constantly growing (+3% due to pandemic) due to
hearing impaired people (more and more people are affected
by hearing loss), penetration (people suffering by hearing loss
are year by year increase the usage of hearing aids), binaural rate (the number of people using 2 hearing aids instead of 1
is increasing) and repurchase (after the end of lifecycle of hearing aid, people tend to purchase it again many times due
to satisfaction). Aging is important: elder are increasing faster with respect to the rest of population, which is relevant
because older people suffer more from hearing loss (1/3 of 75+ old people, which is a great potential for the market).
Penetration is increasing (30% of entire hearing loss). Market concentrated by geography: 10 biggest countries account
for 83% of total market (US, Germany, France, Japan, Italy, Canada, China, UK, Spain, Australia); market fragmented
from a competition point of view (small independents who get 50% of market share, market of specialty retailers which
are specialized in selling a unique and differentiated product, manufacturers owned retail which are the groups that
manually produce the good and sell it through vertical integration, non-specialty retailers which also sell other things with
lower price point and online players which is still marginal and negligible), one of the typical trends in fragmented markets
is concentration. Customer is the focus: for the choice of becoming a client of the company it is important the role of
influencers (people who lead potential customers to buy the hearing aid, represented by doctors and family members);
audiologist is also important in the chain due to its professionality and specialization, even though they are a scarce
resource in the market.
Strategic pillars are accelerating scale (aim to
grow, deciding where to invest), top of mind
brand (aim at becoming it in every country),
provide unique customer experience and count
on people excellence.
Accelerating scale objectives: 3 strategies -> on
top counties (10 countries, cash cows), focus
growth on core countries, long term
development in markets with potential (Japan,
Canada, UK; cash is invested here) where
Amplifon is either not present or very small.
Top of mind global brand in Spain, Italy,
Hungary, Portugal, China, Netherlands, New
Zealand, USA. Amplifon has different brands
because of different factors: growth has been
driven by organic and external growth, it has a
mixed brand strategy based on previous
acquisitions (GAES from Hyberia and Latin
America; preserve the old brand but customizing it with Amplifon’s name to get a very strong brand that takes into
account the legacy of the previous brand and the novelty of Amplifon’s brand). Leading innovation in customer
experience is another pillar: Amplifon has gone through a revolution of customer experience (from a product offer of
supplier branded products to Amplifon branded products, very important because Amplifon brand means trust and high
quality -> strengthen the product offer), also with Amplifon app. People excellence: grow by maintaining a start-up
approach
• M&A PROCESS AND PORTFOLIO STRATEGY DECISIONS THAT GUIDE TO FINAL M&A – Market is growing,
Amplifon is market leader with respect to many other small players in the market (-> best field where to think about
M&A and other growth strategies).

Eleonora Sizzi
Portfolio strategy decisions – key questions before starting a M&A process.
M&A is a part of portfolio
strategy decisions and investing
resources. 80% of investment
decisions in Amplifon are
entering countries where not
present or investing in countries
where they are already working.

How is the most important question when

deciding to invest. How: organically or
inorganically? Make or buy?

Organic growth is advantageous due to time

for investing and learning, deciding the
location of the shop (super important to
cover areas in specific cities and streets),
developing customer experience with retail
chains and customizing shops without
investing in rebranding campaigns (which
are costly).
Disadvantages of organic growth: slower,
no specific ex ante resources that may be
needed, slow rump up for shops (when
opening the shop, it is not fully operational
from day 1: needs to be known, to be
enjoyable, does not have repurchased so
revenues will be lower than operational
shops), competency shortage

Eleonora Sizzi
 Other than M&A there may be other inorganic
growth strategies: Partial acquisitions, joint
ventures, licensing/outsourcing, projects with
shared resources. Main advantages are: boost for
growth in a market (partial acq is faster than full
acquisition) and price is decided immediately (->
minimizes risks and, in case of success, may
acquire full control of the venture); disadvantage
is high price of the acq.

M&A process – generally applicable to big acquisitions (for smaller acq, some steps may be jumped).
NDA = non-disclosure
agreement signed by
potential buyer and seller.
Info Memo = information
memorandum, doc
prepared by seller that
describes company,
business and rafts sellers’
financial numbers (balance
sheets and cash flows, with
projections to 5-10yrs)
Non binding offer = offer
that shows interest for
potential seller, may
happen for several potential
buyers at the same time
Due diligence = most
critical phase, seller
prepares Data Room (virtual space that contains all useful docs about the seller).
Small acquisition process: after first engagement the parties may be ready for preliminary negotiation and to agree on a
multiple on revenues or EBITDA
Target identification may happen in the form of informal relationships, formal search or market opportunity

Valuation: data are gathered by the seller to be analyzed, rebuild profit and loss of the seller with business drivers (input,
eg. n° of stores of the company, Q and average P for hearing aid per store ecc to know revenues; n° of employees, n° of
shops and average rent ecc to know costs) to help us understand how the business is going. To estimate future trends
we have 2 models:
• stand alone: estimate future financial results that the target would achieve as it is and not run by Amplifon
• synergized model: estimation of financial results that the target would achieve if run by Amplifon
We do it because taking these financial projections we are able to plot these values to identify the value of synergies that
is important because gives a tool to negotiation (it is our room for negotiation). The minimum price is the value of the
company, while the maximum price is the synergized value. The enterprise value is the sum of all discounted cash flows
and the terminal value of providers that the enterprise value.
The discount rate is the WACC (average cost of capital including debt and equity).
The terminal value of the company at the end of the forecasting period is calculated in 2 ways:
• Gordon method
• exit multiple method
• The integration phase is a project itself, because the company is big there are a lot of activities; the most complex step
is the integration of the IT system.
Eleonora Sizzi
Entry models
• To enter new industries, countries or new steps of the value chain we have alternatives besides of M&A and organic
growth. Each entry model has different features implying different tools, so we
have to choose the model on the basis of our target and goals, since they give the
idea of what is the best solution (eg. enter in Japan with a fast growth: best way
M&A since it’s fast). Continuing to develop a single strategy of entry implies
to develop competences on modes of growth.
The portfolio of alternatives implies internal (developing something new: new
company, new buildings…) and external solutions (impact on other
companies). External solutions can be based on ownership (huge level of
control based on equity, owning the external company eg. M&A) or on
partnership (sign an agreement according to which companies join forces to
reach a specific goal like Sky and Tim to offer internet with high velocity and
video on demand and to increase users of both companies, eg. alliance, joint
venture, minority investment).
Joint venture: new legal entity created by pre-existing companies (not
necessarily 50-50%) to reach a specific aim.

M&A

Merger -> new legal entity; two parts agree that the best solution for both is to
work together, problem to set a new corporate governance system (who will be the
CEO? Who will be the President?)
Acquisition -> buy small fish to create big company; main issue is what will happen
to the company that is acquired (what happens to employees? What happens to small
fish?)

Low-touch
of ownership: like an investment
Merger under equals: advantageous combination (synergy, how much
we can increase the value of the company since we are together)
Take-over: full acquisition, buyer is the unique to decide about the
company acquired
Sometimes the acquisition is on a bid, other times you reach the control
of the company against the group of control of the acquired company
(old-fashioned way, make public offer and buy company from other
shareholders).

Eleonora Sizzi
 Consolidation M&A: one company buys another company in the
same industry: before the M&A we have n players in the industry,
after M&A we have n-1 players. By reducing the number of
players we consolidate -> we have a higher market share at the
end (also higher turnover after M&A).

Vertical M&A: way to run vertical integration. Buy distributor or

supplier (like LVMH that bought Sephora)

Diversification M&A: buy company in other industry (eg. running

services while we produce light systems; reason is always to create
value)

• Different modes of growth as equal success rates – NOT TRUE: «M&A are modes to destroy value», they create value
but they are bad if the price if too high
There is a large variance performance of M&A (M&As losing money, other doing well…). Why? Which are the reasons?
It depends on how you build M&A and how you integrate it, how you manage M&A when you buy the company (main
problem of M&A: management of post-acquisition process)
• M&As are very useful under specific conditions. Reasons of M&A:
• Reduce excesses of capacity: players of the market have > capacity than the capacity of customers’ demand.
If we merge, we reduce capacity of the industry, but we will be one of the biggest players (so we have economies
of scale and we can survive in the industry)
• Reduce fragmented industries: growing, we can exploit economies of scales and have advantages
• Extend products and served markets
• Alternative option to R&D (“educational M&A”): we can buy companies with patents, which is a big driver
of M&A in technology (eg. Google bought Motorola: kept Motorola for less than 1 year, then sold it to Lenovo
not to make profit but because Motorola had many patents, so they sold the brand to Lenovo but kept the patents)
• Develop a new business: you buy a company and combine different resources to create a new business
Speed: when Google bought Motorola they acquired overnight
their patents, while if they had to develop such patents internally
they would have spent lots of time.
Price: usually high, but certain

• Sustainable competitive advantage

You need to have a clear idea of the reason why you are developing M&A and the type of
value creation; depending on how you want to create value, you have to choose different
management approaches.
Holding approach: keep company autonomous, don’t need to work together to run specific
development processes (eg. Disney with Pixar: let Pixar develop alone, then put together
when Pixas grows).
Symbiosis – worst situation: autonomous company has to work with others and exploit
synergies. Company is not actually autonomous but has to develop with other companies,
manage many inter-companies meetings to set up development of companies together ->
meeting to share, autonomous in decisions

Eleonora Sizzi
Internal development

Hubs: look for new entrepreneurial activitie, enter them in the

company or make them a company.
Accelerators: identify good but small company that needs capital,
bring the company inside the accelerator and give the company
the resources to spped up the growth against ownership of the
company
Corporate venture capital: buy company but running it at
corporate equity level (not private equity where families put
money together to buy companies), since money comes from
existing company. Eg. EnelX and UniCredit evo are brands in their groups trying to scout companies and running equity
venture capital

Strategic alliance
Combination of partners with different resources: we can have an
agreement and access our partner’s resources without having to
pay for them. Problem: partner has lots of control, you don’t have
full control
Flexible but usually not suitable for long time because every
single partner must have an advantage, and maybe over time this
advantage will not last for both
Due to lack of control, we cannot assume that partner will share with us all the knowledge and we’re not sure we can
learn. Eg. Sky and Tim, different industries but partner to deliver fiber and broadcasting

Joint ventures
• Vertical Jenture → Sequential activities. 2 companies run specific activities (eg. A produces shoewear, B
produces leathergoods -> JV for distribution of our activities)
• Orizzontal Jenture → One activity
Reasons to joint venture:
✓ Impossibility to define right and oblications for each partner and the growth of the market (natural share of
risks)
✓ Partners working in different countries (overcame national legal barriers)
Modes of entry:
• Firms can implement their diversification strategies through internal development, acquisitions, mergers, joint
ventures, alliances, or contracting with external partners.
✓ None of these, however, guaranties easy expansion. Choosing among the various modes involves unavoidable
trade-offs.
✓ Some would argue, for example, that acquiring a company to gain access to the resources needed to compete
in an industry is likely to dissipate future profits. Others would cite the difficulties working across organizational
boundaries in joint ventures. On the other hand, internal development can be maddeningly slow and rife with
uncertainty.
✓ In short, each mode of expansion has its own benefits and costs. Thus, a firm must carefully weigh each
alternative against its needs and the exigencies of a particular competitive situation.

18/02
BCG
• Elisa Crotti – Managing Director & Partner (private equity)
Giovanni Zanalda – Senior Associate
Lucrezia Dal Pra – Talent Attraction & Branding Specialist

Eleonora Sizzi
 • BCG is leading global management consulting firm operating since 1963 (+14%
CAGR, also with Covid). Key: care for the client and people. BCG is organized as
a matrix (vertical axis: industries like insurance consumer ecc, horizontal axis:
functional practice areas or type of work like HR, IT, strategy ecc that serve cross-
industry)
PIPE (principal investors and private equity: their clients are clients that want to
invest private capital) leverages BCG’s experience across functional and industry
practice areas by working with the largest institutional investors across all
functional and industry PAs. It includes private equity, pension funds, family
offices ecc. They are a vertical practice (clients are very well defined), but in order
to do their job they need the help of all the others because funds (clients) invest
cross-industry
• What they do: transaction services (due diligence, buy and sell), portfolio
acceleration (create value) and fund strategy (market entry, create new fund, enter
new sector). They work with international funds (IGTI = Italy, Greece, Turkey and
Israel -> offices organized by geography in these countries but work as unique office together). There are deals that BCG
can make public (client needs to agree and the deal should have been closed)
• Typical M&A process:
• players involved: key stakeholders (seller/vendor, potential buyer, target/asset/company to sell) and advisors
(external stakeholders including financial advisor/investment banker or boutique that runs the process, strategy
consultant/BCG, accountants, law firms and other consultants). The seller and each potential buyer involve
different advisor for specific tasks
• advisory activities: valuation and structuring made by financial advisor, commercial due diligence (business
due diligence made by strategy consultant, answering the questions: Is it a good asset? How much is the asset
going to be paid? Is the market stable, resilient or growing? Can the asset compete on the market? -> analyze
market, position of target and potential for the growth), tax due diligence and financial due diligence made by
accountants, legal due diligence made by law firms and other due diligence made by other consultants
• transaction timeline: preparation (vendor due diligence VDD important to share info about the asset to sell
and check numbers about the asset that buyer is going to buy, so that seller is prepared), expression of interest,
first round bid (pre-due diligence), non-binding first round bid, second round bid (due diligence process with
financial, legal and other due diligence), binding second round bid, sale close
• Commercial due diligence, 3 steps:
• analyzing the market conditions (big? Growing? Threats? Opportunities?), the competitive landscape and the
customer perceptions
• assessing the company’s internal performance and capabilities (better or worse than competitors? In terms of
margin, PNL, business KPI)…
• …in order to advise the on the attractiveness and value of the business (future cash flow in 5 years)
You have to set a primary (involving third parties to go on the field and do surveys and interviews) and secondary research
(report). First object: market analysis and attractiveness (how do you define the target’s addressable market? How does
the market segment? How does this fit with the industry value chain? What size is the current market? What are the key
drivers of the market? What is the projected growth in the future? How resilient is the market to the economic cycle?),
understand drivers of market growth and key customer trends.
Also you have to address competitive positioning: who are the target’s key competitors? What are the key characteristics
of competitors? How has market share evolved over time? How does pricing compare? How do competitors perform
against customers’ key purchase criteria? What is the threat of market entry?
Then, business plan assessment: how appropriate is the target’s strategy? What is the forecast revenue and ebitda? What
are the key risks and opportunities? What are the scenarios and options for exit?
Other questions to support investment: how resilient is the target to macroeconomic downturn? How the law will impact
the business? what are target performance in a particularly relevant area/topic?

24/02
Kia Group – Corporate Social Responsibility
• Kia (Korean) belongs to Hyunday Group, vast business (not only automotive, generally mobility)-> pillars: automotive
(kia and hyunday in EU with new brand Genesys; totally 3 brands of cars), auto parts (internal production, make over
buy -> control of supply chain helps guarantee quality of cars and parts of the car for a long time, consumer fidelity),
constructions (eg. skyscrapers), steel production (steel used for cars and skyscrapers, and also used by competitors in
automotive), robot production (used also by competitors to produce cars). Goal of 360° business: bring best practice of
one business to the other + recycling that reduces costs and contamination.
Eleonora Sizzi
4th biggest group by sales volume, and still growing (also bigger than Ford) -> spread costs on high volumes.
Kia Italy belongs to Kia Europe, whose HQ is in Germany (higher quality) which is also one of the 4 the R&D centers
and design center (designers come from Audi Group). European plants are in Slovakia.
• Italian market – not always been very flat (Italian market is 3rd bigger in EU due to cultural behaviors), crisis in 2013
and 2020 (collapse to 1.4 volumes) -> current challenge is to recover with change management rules and innovative
ideas (sustainability: key to drive success in crisis).
Diesel and petrol are declining, even if they are the biggest part of the market -> clear message of change management,
market goes toward electrification (=less CO2 emissions, more expensive but more sustainable; very fast trend).
• Evolution of selling strategies – from the dream of having a car to orientation to big data and customization on customer
needs.
- 1980-1990: product based process, no services (sell the car itself, no discussion with customer)
- 2000-2010: leasing, financing, insurance services (more wealthy people paying cash
- 2010-2019: TCO (total cost of ownership-> interested in how much a good costs per month, more interest in
monthly offers) and renting
What now with Covid? 1st step: vision, dream, where you want to be (both group, company and individuals)-> “Create
sustainable mobility solutions for consumers, communities, and societies globally”, not only to sell cars! Boundless for
all.
• Sustainability and CO2 – diesel is the most efficient in terms of CO2 emissions, but gasoline cars volumes of sales are
increasing-> emissions first decreased, but then started to increase again due to increase in gasoline
Kia Strategy-> electrification, KN Transformation (also new logo-> clearer direction of change management, depicts
first commitment to sustainability to be successful in the business, combination with vision):
• mobility (not only cars nor motors but mobility service providers)
• full electrification (transition from internal combustion engine ICE to electrification EV)
• connected cars (to internet)
• autonomous driving
è Game changer

The purchase of a company

• Information asymmetry when buying (buyer has less info than the owner). The first step is based on asymmetry that is
strong when you take with countries in which the transparence of performance is not well developed (in some countries
the report are not published), such as the developing countries. This situation is typical also for BCG. There is not a
unique method to set the price, so in the preliminary step we set a range of value (not a precise price) that is suitable for
us.
If we assume the growth of a single company we can know the value, but it is one of the value (value of the company
itself). What is the value of the company alone? What is the max amount we could pay, we. Have to understand the value
of the company inside our group (what will be the value of the company, so how much we can increase the value of the
company exploiting synergies). the price we can pay must be between. The price of the company today and the value of
the company when we exploit synergy. The price we pay must be lower than the value of the company of the synergy.
The price is the amount of money you have to pay, so it is a result of negotiation. Sometimes, if you are interested and
the seller is not interested is important to increase the price to make the operation attractive (premium price, price higher
than the price of the company alone and very close to the synergy we can exploit). Usually the seller know the potential
of the company alone, but has not in mind the synergy that the buyer can exploit; and the opposite (different interests).
Value estimation methods

Public = listed ->

price of company
today x shares;
need to offer a
premium price
(higher than price
of company today
of 25-50%, price
for control).
Focus on drivers
of revenues
(volumes, price)
and value, make
assumptions.
Plant to growth of 5% (seller thinks). When you deal with companies you have to understand phenomena that drive
performance, what there is behind financial aspects (the driver of success).

Eleonora Sizzi
A whisky company, the whisky is a spirit that before being on the market must be 7 years in bottle so if you want to buy
a whisky. And double the production is important to invest to have new production and plants and the revenues will be
in 7 years. The return on investment must be higher than the initial investment. Increase revenues
• increase quantity
• Increase revenues
Focus on drivers (assumptions), we want to increase the price? We want to increase the quantity? This is the kind of
expectation manager have when manager do an expectation. For instance revenues mean quantity and average price.
Prices depends on:
• public (listed) firm—> the price we have on the stock is the price of the company today, so is the market
capitalisation of the company (price of every single share x n. of shares). It is not mandatory to acquire 100%.
There are strict rules to respect for shareholder. Forced to offer to all the existing shareholders the opportunity
to buy shares, if you reach 20% of one listed company you have to offer 8% the opportunity to sell shares. But
when you buy a listed company and you want to control it you can buy shares but you must offer a price that is
higher (premium price) in order ti control the company from 15% to 20%. Collect market capitalisation, set a
premium price and identify the % you want to buy. If the plan is to develop the company is important to own the
majority of the business.
• Private firm—> 2 method
• Analytical method> analysis of the company. Discounted cash flow, forecast future cash flow and
with actualisation understand the value of the company today. The problem are numbers because you
have idea of past perforce but not future performance. You must have ideas of the future of the company
and have a forecast of revenues and cost of the company and Capex (amount of expenditure for
investiture) and open (operative expenditure). Trends of cost, cost of labour (stable/decrease/energy in
the future). Focus on trends of the market, costs and tackle with specific future of the company (need to
visit plants). Once you have cash flows you have to discount with beta that is the measure of risk.
• Stand alone company
• Value of the company with synergies
• Empirical method> Discounted cash flow is time consuming, need a lot of time and to tack with this
problem there is another way. Mainly the multiples, simple way to assess the value of company. The
assumption is that the price we have to pay is aligned to the price paid for similar companies. We assume
that all the companies have the same resources and structure so we don’t care about the average age of
machinery, quality of product, sustainability of product over time, the broad portfolio. We have to work
with multiple method being conscious that we are simplifying reality. We have a target, this target has
a size so we have to run a proportion that allows us to apply to premium price to the company we want
to buy. For instance if we decided that the multiple is revenues, we have to understand the relation price
of company-revenues; we identify the ratio; we apply this ratio to the company we want to buy to know
the price. You cannot use data of the beverage industry (there is also water)
• Identify parameter you want to use—> more you focus on parameter at the top of profit and
loss statement, more close to revenues and more optimistic. You assume that the structure of
cost in the company is similar. EBITDA we don’t care about amortisation and we are forgetting
about machinery and it is close to the cash flow. EBIT include machinery but it is less closer
to cash flow. When the market is turbulent we move to the lower part of the profit and loss.
The meaning of EBITDA is that we are setting a payback period of 7 years, with EBITDA we
are not considering the financial structure (if this company is full of debts).
If you want to buy for shares you have to make an offer, how you pay the shares? With money, so you need to have all
the money on the bank account. To raise the fund you can or you have money or you ask for a loan, you have an increase
of equity. You must be sure that there are no covenant that are blocking the opportunity to have new depts, otherwise ask
for equity.
All the method have pros and cons. if you don’t have ebitda of the company and you have only revenues you apply the
multiple of revenues in order to base the cost. So it is necessary to have a deeper understand of the cost, suggest the price
with a limitation (let the owner know that you know what to investigate). If you don’t have revenues you need something
like number of bottles, production capacity. Apply more than one method
Bloomberg services, stock exchange site

Eleonora Sizzi