Professional Documents
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Chapter 5:
CORPORATE-LEVEL STRATEGY
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Horizontal integration
Concept
Horizontal integration is the process of acquiring or merging with industry
competitors to achieve the competitive advantages that arise from a large
size and scope of operations
Examples
- Boeing merged with McDonald Douglas
- Compaq acquired DEC and then itself was acquired by HP
- Work with your partners: find 3 cases of horizontal integrations in Vietnam
Horizontal integration
Advantages
(1)lowers the .....................................,
(2)Increase ........................................,
(3) replicates the business model,
(4) reduces ................. within the industry, and
(5) increases bargaining power over ............. and
...................
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Horizontal integration
Disadvantages
-very different company ....................;
-high management .................. company (hostile
one);
-Overestimate the ......................
-underestimate the .....................
.
Component
Raw part Distribu-
manufactu- Assembly End-user
materials tion
ring
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Strategic alliances
Long-term, cooperative relationships; both
companies agree to make specialized
investments and work jointly to find ways
to lower costs or increase product quality
so that they both gain from their
relationship.
Relatively stable long-term partnership
Mutual benefit
Avoid bureaucratic costs
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Strategic alliances
Japanese car makers:
Jointly implementing JIT inventory systems
sharing future component-parts designs to
improve quality and lower assembly costs.
Building Long-Term
Cooperative Relationships
Hostage ................: a means of
guaranteeing that a partner will keep its
side of the bargain
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Strategic outsourcing
The decision to allow one or more of a
company’s value-chain activities or
functions to be performed by
.................................... that focus all their
skills and knowledge on just one kind of
activity.
Outsourcing entire function (manufacturing)
Outsourcing one activity (pension – HRM)
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Strategic outsourcing
Benefits
Lower its .........................,
Increase ...........................,
Focus on the distinctive competencies
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drawbacks
...............................
become too dependent on the specialist
provider of an outsourced activity and that the
specialist will use this fact to raise prices
beyond some previously agreed-on rate
Loss of .....................
A company that is not careful can lose
important competitive information when it
outsources an activity.
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SBU 1 SBU 2
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Chapter 5:
CORPORATE-LEVEL STRATEGY
(part 2)
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Portfolio Analysis
Portfolio analysis, which is one of a key element
in the self-analysis of the company, extends
strengths assessment in three direction.
First, it combines the assessment of business position
with a market attractiveness evaluation which emerges
from external analysis (in general) and market analysis
(in particular).
Second, it includes the analysis of multiple SBUs in one
analysis which addresses the SBU investment decision.
It focuses on the issues of which SBUs should receive
the available cash.
Third, it offers baseline recommendations concerning the
investment strategies for each SBU.
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BCG Matrix
Three steps to set up BCG matrix:
Identify SBUs and evaluate SBUs’ potential.
Positioning SBUs in the matrix.
Identify strategic objectives for each SBU.
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Product(s) 1 X X
Product(s) 2 X X
Product(s) 3 X X
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BCG MATRIX
HIGH
STAR QUESTION MARK
M
A
R
K
E
T
?
G CASH COW DOG
R
O
W
T
H
LOW
HIGH RELATIVE MARKET SHARE LOW
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BCG MATRIX
HIGH
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G
Success
R Sequence
O
W Disaster Sequence
T
H
CASH COW DOG
LOW
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PORTFOLIO BALANCE ?
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No growth
Modest cash flows
Where is the future to be
But DOGS can be profitable in the short run
Slow or fast decline in the business fortune
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Market growth
A B
High
(average
growth
Investment
rate of the X%
demand
economy)
Low
Relative
Low 1 High market share
Cash
generation
possibility
C D
High
(average
growth Investment
rate of the X% demand
economy)
Low
High Relative
Low 1
Cash market
generation share
possibility
Market growth
A B
High
(average
growth
Investment
rate of the X%
demand
economy)
Low
Relative
Low 1 High market share
Cash
generation
possibility
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C D
High
(average
growth Investment
rate of the X% demand
economy)
Low
High Relative
Low 1
Cash market
generation share
possibility
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McKinsey Matrix
Three steps to set up McKinsey matrix:
Identify SBUs and evaluate SBUs’ potential.
Positioning SBUs in the matrix.
Identify strategic objectives for each SBU.
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Industry attractiveness:
-> identify the opportunities and threats of the industry,
including 4 steps:
1st step: Select factors to compare long term
attractiveness of each industry.
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Industry attractiveness:
-> identify the opportunities and threats of the
industry, including 4 steps:
2nd step: Assign weights to each
attractiveness factor.
The weight will be based on their importance to
the business, and a rating based on favorable or
unfavorable conditions in the environment
(opportunity or threat?).
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Industry attractiveness:
-> identify the opportunities and threats of the industry,
including 4 steps:
4th step: Calculate weighted ratings (the rating
for each factor is then multiplied by its weight to
obtain the value); sum to get to get an overall
industry attractiveness rating for each market.
3: modest industry attractiveness
> 3: high industry attractiveness
< 3: low industry attractiveness
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McKinsey Matrix
Industry Attractiveness
High Medium Low
High
Medium Build/Grow
Selectivity
/earnings
Low Harvest
/Divest
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Advantages of attractiveness/strength
matrix
Allows for intermediate rankings between high &
low and strong & weak
Incorporates wider variety of strategically relevant
variables
Stresses channelling of corporate resources to
businesses with greatest potential for competitive
advantage and superior performance.
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