HANDOUT 1: • Special Interest Groups.

They bring attention to the

firm and could affect the operation in either a positive
ENVIRONMENTAL SCANNING AND INDUSTRY ANALYSIS or negative way.

Aspects of Environmental Scanning Industry Analysis: Analyzing the Task Environment

Environmental scanning refers to an in-depth examination of key
factors that influence the business operations of a firm. It
involves carefully studying a firm's external environment to
predict environmental changes and detect changes already
underway. Therefore, critical trends and events will signal an
alert before it develops a discernible pattern and before
competitors recognize them.
In undertaking environmental scanning, strategic managers must
first be aware of the variables that may affect a firm's short-
term and long-term decisions as follows:
An industry is a group of firms that produces a similar product or
service. Part of the industry analysis examines the important
stakeholder groups, like suppliers and customers, in a particular
corporation's task environment. The following are the common
methods used by firms in conducting industry analysis:
A. SWOT Matrix. It is a framework used to evaluate a firm's
competitive position by listing the conditions inside and
surrounding it. SWOT assesses internal, external, current,
and future potential factors that may affect the market
position of a particular organization.

A. Natural environment. It includes physical resources, wildlife,

and climate that are an inherent part of existence on Earth.
These factors form an ecological system of interrelated life in
which the business is embedded. In a world concerned with
climate change, a business must scan the natural environment for
factors that might previously have been taken for granted, such
as the availability of fresh water and clean air. Moreover,
management must scan not only the natural environment for
possible strategic factors but also include in its strategic
decision-making processes the impact of its activities on the
natural environment.

Example: Chevron, a multinational energy corporation, could

measure and reduce its carbon footprint or the amount of
greenhouse gases it emits into the air, considering the rising
concerns about climate change.

B. Societal environment. It is mankind's social system that

includes general forces that do not directly affect the short-run
activities of the firm but can influence its long-term decisions.
These forces are as follows:
 Economic forces. These regulate the exchange of
materials, money, energy, and information.
 Technological forces. These generate problem-solving
inventions.
 Political-Iegal forces. These allocate power and
constrain and protect laws and regulations.
 Sociocultural forces. These regulate the values,
morals, and customs of society.
C. Task environment. It includes elements or groups that
directly affect a firm and, in turn, are affected by it. These
elements are as follows:
• Customers. They have the power to create or reduce
the demand for a product or service.
• Suppliers. They provide a product or service to
another business.
• Competitors. They provide a better or similar product
to the same target segment.
• Employees. They directly participate in activities that
help fulfill the firm's goals. Any change in tax law will
impact the business operation.
• Strengths. These are the internal areas where an
organization excels and factors that separate an
organization from its competitors. These include a strong
brand image, loyal customer base, a strong balance sheet,
and unique technology.
Example: McDonald's has the following strengths: strong
brand name and image, stable income, tasty foods,
technological innovations, real estate ventures, global
expansion strategies, effective and efficient marketing
strategies, and health and quality control protocol.
• Weaknesses. These are the internal areas that hinder an
organization from performing at its optimum level. The
business needs to make improvements to remain competitive
in these areas. These include a weak brand, higher-than-
average turnover, high levels of debt, an inadequate supply
chain, or lack of capital.
Example: McDonald's has the following weaknesses: limited
food options, unhealthy food image, aggressive competition,
easily imitated menu, and low process flexibility due to
standardization.
• Opportunities. These are favorable external factors that
could give an organization a competitive advantage. For
instance, if a country cuts tariffs, a car manufacturer can
export its cars into a new market, increasing sales and a
larger market share.
Example: McDonald's has the following opportunities:
developing an innovative and healthier menu, partnering with
other brands, and expanding in emerging markets.
• Threats. These are the factors that may pose potential
harm to an organization. For instance, a drought threatens a
wheat-producing company as it may destroy or reduce the
crop yield. Other common threats include rising costs for
materials, increasing competition, tight labor supply, and
disruption through emerging technologies that may drive
products or services obsolete.
Example: McDonald's faces the following threats: changing
customer preferences regarding healthy food consumption,
economic downturn, and intense competition.
B. PESTEL Analysis. It is a tool to identify the external
forces that may affect an organization positively and
negatively.
• Political. These factors determine the impact of
government and government policy on particular organization
or a specific industry. It includes trade, fiscal, and taxation
policies, among others.
Example: McDonald's may capitalize on the opportunity for
increased international trade agreements because it enables
easier business expansion to foreign countries. The company
also needs to consider governmental guidelines for diet and
health and evolving public health policies as an opportunity
to innovate their products or as a threat if they fail to
innovate.
• Economic. These factors determine the impact of the
economy and its performance on an organization and its
profitability. These include interest rates, employment or
unemployment rates, raw material costs, and foreign
exchange rates.
Example: McDonald's may capitalize on the opportunity for
slow but stable growth in developed countries and rapid
growth in developing countries.
• Social. These factors determine the impact of the social
environment and emerging trends on the business
profitability of an organization. These also help marketers
to understand the changing preferences of the customers
further. These include changing family demographics,
education levels, cultural trends, attitude changes, and
changes in lifestyles, among others.
Example: McDonald's may capitalize on the opportunity for
rising disposable incomes and busy lifestyles in urban
communities since it will increase their sales growth. On the
other hand, the company needs to consider increasing
cultural diversity and healthy lifestyle trends as both an
opportunity and a threat.
• Technological. These factors determine the impact of
technological innovation and development on a particular
market or industry. These include digital or mobile
technology changes, automation, research, and development.
Moreover, these also include technological influence on
distribution, manufacturing, and logistics methods.
Example: McDonald's may capitalize on the opportunity to
increase business automation and customer preferences on
ordering food using their mobile devices.
• Environmental. These factors determine the influence of
the surrounding environment and ecological aspects' impact
on a market or industry. These include climate, recycling
procedures, carbon footprint, waste disposal, and
sustainability.
Example: McDonald's may capitalize on the opportunity for
increasing emphasis on sustainable business strategies while
considering the threat of changes in climate conditions in
some regions where their business operates.
• Legal. These factors determine the importance of
understanding legal laws and procedures in a given territory
where a business operates. These include employment
legislation, consumer law, health and safety, and
international and trade regulations and restrictions.
Example: McDonald's needs to review the threat brought
by increasing health regulations in workplaces and schools
and rising legal minimum wages imposed by some countries
where their business operates.
C. Porter's Five (5) Forces. It is developed by Michael E.
Porter as a framework for assessing and evaluating the
competitive strength an position of a business organization.
 • Threat of new entrants. This force determines how easy
or difficult it is to enter a particular industry. If an
industry is profitable and there are few barriers to enter,
rivalry soon intensifies.

When more organizations compete for the same market

share, profits start to fall. It is essential for existing
organizations to create high barriers to enter to deter new
entrants.

Example: The moderate threat of new entrants in the case

of McDonald's is based on the low switching costs (strong
force), highly variable capital cost (moderate force), and
high cost of brand development (weak force).
• Supplier power. This force analyzes how suppliers can easily
D. Ecosystem Assessment Tool. The business ecosystem is
influence price increases. This is driven by the following
demonstrated by a network composing four (4) types of
factors: number of suppliers of each essential input;
players in the industry: customers, suppliers,
uniqueness of their product or service; relative size and
competitors, and complementers. The term "ecosystem"
strength of the supplier; and cost of switching from one
is derived from the concept of the biological system in the
supplier to another.
environment.
Example: The bargaining power of suppliers in the case of
McDonald's is weak based on a large number of suppliers
and the high overall supply of raw materials.

• Buyer power. This force analyzes how buyers can easily

influence price decreases. This is driven by the number of
buyers in the market, the importance of each buyer to the
organization, and the cost to the buyer of switching from
one supplier to another. For instance, a few powerful
business buyers can often dictate terms.

Example: McDonald's must address the power of their

customers on business performance since they have a strong
bargaining power based on low switching costs, a large
number of providers, and the high availability of
substitutes.

• Competitive rivalry. This force examines the intensity of
competition in the marketplace. This is driven by the
number and capability of competitors in the market. Rivalry
competition is high when there are few businesses equally
selling a product or service, when the industry is growing,
and when consumers can easily switch to a competitor's
product for a cheaper cost. When rivalry among competitors
is intense, advertising and price wars can ensue, negatively
impacting the business in the long run.
Example: McDonald's faces tough competition because the
fast food restaurant market is saturated. The strong force
of competitive rivalry is influenced by the high number of
firms, high aggressiveness of firms, and low switching costs.
• Threat of substitution. This force is threatening when
buyers can easily find substitute products with attractive
prices or better quality and when buyers can switch from
one product or service to another with little cost. For
example, switching from coffee to tea does not cost
anything, unlike switching from car to bicycle.
Example: The high substitute availability and the low
switching costs make the threat of substitution a strong
force in the case of McDonald's.
According to Hayes (2018), the connection of these players
demonstrates a constantly evolving relationship in which each
entity must be flexible and adaptable to survive, similar to the
biological system. Moreover, each player in the business
ecosystem offers opportunities for cooperation with a particular
company, including the competitors. Bradenburger & Nalebuff
(1996) summarizes the components of this tool:
• Customers. These are the people or parties that buy the
products and services of an organization. Additional
customers mean more revenue, leading to a larger market
share. Customers can be end-consumers or other companies
that will eventually take the products to the consumer
market.
• Suppliers. These parties provide the resources to produce
or sell finished products or services. They are classified as
external factors which may affect an organization since
suppliers have the potential to raise prices and/or reduce
the quality of the purchased inputs or raw materials. It is
therefore vital to keep a good and meaningful relationship
with the suppliers or spread risk by having multiple options.
• Competitors. These parties fight over an organization's
market share by offering similar products or services and
targeting similar customers. However, companies often view
competition as too narrow, failing to foresee upcoming
 threats. Although competitors are often seen as parties to
fight over market share, it is also possible to collaborate
with them.
• Complementors. These organizations offer complementary
or harmonizing products or services that could work well
with a company's products to make the result more
attractive to consumers.
HANDOUT 2:
Value Chain Analysis (VCA)
ORGANIZATIONAL ANALYSIS AND COMPETITIVE
ADVANTAGE Value chain represents a firm's internal activities when
Business Models transforming inputs into outputs. Value Chain Analysis (VCA)
is a process that involves identifying the primary and
A business model is a company's method of making money support activities of a particular organization or industry
relevant to its business environment. It involves the key and capitalizing on these activities to reduce costs or
structural and operational characteristics of a firm increase differentiation. The following is a sample
considering its target market, product illustration of an industry's value chain and a company's
offerings, competitive advantage, and after-sales services. value chain in manufacturing:
A business model is usually composed of five (5)
elements:
• Who it serves
• What it provides
• How it makes money
• How it differentiates and sustains competitive
advantage

Thomas Martin (2021) summarized the best examples of

business models employed by some of the most successful
companies in the world:

Primary Activities
Inbound logistics. It involves raw materials handling and
warehousing.
Operations. It involves machining, assembling, and testing.
Outbound logistics. It involves warehousing and distribution
of finished products.
Marketing and sales. It involves advertising, promotion, and
pricing channel relations.
Service. It involves installation, repair, and parts.

Secondary Activities
Firm infrastructure. It involves general management,
accounting, finance, and strategic planning.
Human resource management. It involves recruiting,
training, and development.
Technology development. It involves research and
development and product or process improvement.
Procurement. It involves purchasing raw materials,
machines, and supplies.

The following are the approaches to performing a Value

Chain Analysis (VCA), depending on the type of
competitive advantage a company desires to undertake:

A. Cost advantage. This approach is used when

organizations compete to achieve lower product and service
costs. It involves understanding the sources of cost
advantage or disadvantage and identifying
the factors which drive those costs. A firm has to
undertake five (5) analysis steps to gain cost advantage:

1. Identify the firm's primary and support activities. It

requires adequate knowledge of the company's operations
because value chain activities are not organized similarly to
the company itself. The managers who identify value chain
activities must look into how work is done to deliver
customer value. All activities, from receiving and storing
 materials to marketing, selling, and after-sales support,
must be identified and separated from each other.
2. Establish the relative importance of each activity in
the total cost of the product. It involves identifying the
total costs of producing a product or service. These costs
must be broken down and assigned to each activity.
3. Identify cost drivers for each activity. It involves
understanding the factors which drive costs and focusing on
B. Functional structure. It is appropriate for a medium-sized
improving them. Costs for labor-intensive activities are
firm with several product lines in one industry. Employees here
driven by work hours, work speed, and wage rate, among
tend to be specialists in the business functions important to that
others.
industry, such as manufacturing, marketing, finance, and human
4. Identify links between activities. It involves reducing
resources.
costs in a particular activity, which may lead to further
reductions in subsequent activities. For example, fewer
product design components may lead to fewer faulty parts
and lower service costs. Therefore, identifying the links
between activities will better understand how cost
improvements would affect the whole value chain.
Sometimes, cost reductions in one activity led to higher
costs for other activities.
5. Identify opportunities for reducing costs. It involves
improving inefficient activities and cost drivers. For C. Divisional structure. It is appropriate for a large corporation
instance, high wage rates can be reduced by increasing with many product lines in several related industries. Employees
production speed, outsourcings jobs to low wage countries or here tend to be functional specialists organized according to
installing more automated processes. product/market distinctions.

B. Differentiation advantage. This approach is driven by a

firm's desire to create superior products and services using
innovation. Global companies like Apple, Google, and Starbucks use
this approach. The following are the steps in attaining a
differentiation advantage:

1. Identify the customers' value-creating activities. It

involves identifying all value chain activities and improving
those that contribute the most to creating customer value.
For example, the success of Apple's products mainly comes
not from great product features but successful marketing
Strategies to Competitive Advantage
activities.
2. Evaluate the differentiation strategies for improving The following are the strategies for competitive advantage:
customer value. It involves using strategies that increase
product differentiation and customer value. These A. Cost leadership. This strategy aims to increase profits by
strategies include adding more product features, focusing reducing costs while charging industry-standard prices or
on customer service and responsiveness, increasing increase market share by lowering the sales price while retaining
customization, and offering complementary products. profits.
3. Identify the best sustainable differentiation. It combines
interrelated activities and strategies to create superior B. Product Differentiation. This strategy aims to create
differentiation and customer value. For instance, Apple may products that are significantly different from the competition.
pursue its marketing activities while continually improving In addition, the products and services must have a greater value
the features of its product offerings. to the public.

Basic Organizational Structures C. Cost Focus. This strategy aims to select a niche market to
sell a company's products and services. A niche is a small but
Bamford et al. (2018) cited three (3) basic organizational profitable market segment suitable for marketers' focused
structures as follows: attention.

A. Simple structure. It has no functional or product categories
and is appropriate for a small, entrepreneur-dominated company
with one (1) or two (2) product lines that operate/s in a
reasonably small, easily identifiable market niche. Employees here
tend to be generalists and jacks-of-all-trades.
D. Blue Ocean Strategy. This strategy aims to create new
demand for a particular product. Companies that use this
approach develop uncontested market space rather than fight
over a shrinking profit pool.
E. Information Advantage. This strategy seeks the latest
technology, strategies, and data to outpace your rival.
HANDOUT 3:
STRATEGY FORMULATION: CORPORATE STRATEGY
Vision, Mission, and Objectives
Strategy formulation is the investigation, analysis, and
decision-making by outlining the company's competitive
advantages, finding areas of weakness that limit its ability to
expand, creating the corporate mission, outlining realistic
goals and establishing policy standards.
To build a good strategy, organizations need to have a
common purpose. Purpose is the primary and basic reason for
an organization's existence, not only to inspire the
organization but also to help employees in an organization to
develop their priorities and roles and to understand the
priorities and roles of their colleagues.
The following are the critical elements that an
organization must develop before strategy formulation:
 Vision. It refers to the desired future state or "big
picture" of what an organization desires to achieve.
A vision is a goal that is massively inspiring, in-depth, and
long-term. It represents a destination that is driven by and
evokes passion. It communicates a company's beliefs and
governing principles to the community and the members of its
organization.
A good vision should be brief, clear, and well beyond
narrow financial objectives. Although they cannot be
accurately measured by a specific indicator of how well they
are being achieved, they provide a fundamental statement of
an organization's values, aspirations, and goals.
John Kotter, an American educator, and business
consultant, lists in his book "Leading Change" all the
characteristics that should be included in an effective
vision:
1. imaginable: A good vision conveys a picture of what the
future will be.
2. Desirable: It appeals to the long-term interests of
employees, customers, stockholders, and others who have a
stake in the enterprise.
3. Feasible: It comprises realistic and attainable goals.
4. Focused: It Is clear enough to guide decision-making.
5. Flexible: It is general enough to allow individual initiative
and alternative responses in light of changing conditions.
6. Communicable: Is easy to communicate; can be
successfully explained within five (5) minutes
Example: Samsung: "To inspire the world with our innovative
technologies, products, and design that enrich people's lives
and contribute to social prosperity by creating a new future."
• Mission. A mission statement is more specific and action-
oriented than a vision. It outlines the organization's primary
purpose and the basis of competition and competitive
advantage. Effective mission statements have the greatest
impact when it reflects an organization's enduring,
comprehensive strategic priorities and response to multiple
primary stakeholders (customers, employees, suppliers, and
shareholders).
The following are the general characteristics of a good
mission statement:
1. Concise. It must be short so that everyone can remember
and understand.
2. Outcome-oriented. It should be measurable so that the
company can visibly see progress.
3. Inclusive. It must include all the stakeholders involved in
implementing a company's strategy.
Example: Philippine Airlines: "To deliver safe, reliable,
efficient, and pleasant travel experience exceeding
passenger expectations. To provide a satisfying career to our
employees and adequate returns to stockholders. To
represent the best of the Philippines, the Best of Filipinos to
the world. "
• Strategic Objectives. These are the specific and
measurable results focused on achieving an organization's
mission. The strategic objectives generally guide how the
organization can fulfill or move toward the higher goals
(mission and vision) in a more specific and well-defined time
frame.
For objectives to be meaningful and effective, they must
possess the following criteria:
1. Measurable. At least one indicator must measure
progress against fulfilling the objective.
2. Specific. This means providing a clear message as to what
needs to be accomplished.
3. Appropriate. It must be consistent with the
organization's vision and mission.
4. Realistic. Given the organization's capabilities and
environmental opportunities, it must be an achievable target.
In essence, it must be challenging but doable.
5. Timely. There must be a time frame for achieving the
objective.
Example: One of Facebook's strategic objectives is
coordinating with governments to allow their citizens to
access the online social network. This intensive strategy
aligns with Facebook's corporate mission and vision
statements, emphasizing growth through global market reach.
Corporate Strategy
Corporate-level strategy is primarily about the choice of
direction for a firm and the management of its various
product lines and business units for maximum value. It
includes decisions regarding the flow of financial and other
resources, transfer of skills and capabilities developed in one
unit to other units that need such resources, and synergy
among multiple product lines and business units.
The three (3) key issues that corporate strategy
addresses are the following:
• Directional strategy. It refers to the firm's overall
orientation toward growth, stability, or retrenchment.
• Portfolio analysis. It includes the industries or markets in
which the firm competes through its products and business
units.
• Parenting strategy. It is how the management coordinates
activities, transfers resources, and cultivates capabilities
among product lines and business units.
Directional Strategy
Bamford et al. (2018) stated that a corporation's
directional strategy is composed of three (3) general
orientations:
• Growth strategies. These refer to the firm's actions to
expand its activities. It is the most widely pursued
corporate directional strategy due to its design to
achieve growth in sales, assets, and profits.
The two (2) basic growth strategies involve:
1. Concentration (Vertical Growth). It can be achieved
through considerable growth in your respective industry. It
means expanding supply chains to reach more outlets, adding
new features to existing products, and offering new products
in the same market. Companies may take this initiative to
reduce costs, gain control over scarce resources, guarantee
key input quality, or obtain access to potential customers.
Vertical growth is divided into two (2) types:
• Backward integration. It refers to the process in which
a company purchases or internally produces certain
inputs of its supply chain that could be utilized in
production. This backward movement strategy is
initiated to ensure supply, bargaining leverage with
suppliers, and bring down production costs.
Example: Jollibee Foods Corporation (JFC) may buy farms
and plant their own ingredients to obtain a cheaper deal
instead of buying from a supplier.
• Forward integration. Forward integration is a strategy
where the company gains control of the business
activities ahead in the value chain. The ultimate goal is
to increase power and ownership over their value chain,
synergize the operations, reduce total expenses, and
become closer to the end consumer in the value chain.
Example: Jollibee Foods Corporation (JFC) expanded its
market share by purchasing Chowking Food Corp., Greenwich
Pizza Corp., and Baker Fresh Foods Philippines, among others.
2. Diversification (Horizontal growth.) It can be achieved
by expanding a company's operation into other geographic
locations or increasing the range of products and services
offered to current markets.
The diversification strategies involve the following:
• Concentric diversification. It can be achieved by
expanding the production portfolio by adding new
products to fully utilize the potential of existing
technologies and marketing systems. It occurs when the
organization adds related products or markets to its
existing product line.
Example: PepsiCo adopted a concentric diversification
strategy when it broadened its product line from soft drinks
to fast food franchises and snack foods.
• Conglomerate diversification. It can be achieved by
moving new products or services that have no
technological or commercial relations with current
products, equipment, or distribution channels but may
appeal to new customers.
Example: Alphabet is Google's parent company which
operates in many other areas such as life sciences projects,
driverless cars, start-up investing, fiber optics, and home
devices (Sarokin, 2018).
• Stability strategies. These refer to the firm's actions
to make no changes in its current activities. The
following are the types of stability strategies:
1. Pause/Proceed-with-Caution Strategy. It is typically
conceived as a temporary strategy to be used until the
environment becomes more hospitable or to enable a company
to consolidate its resources after prolonged rapid growth.
Example: Dell followed its growth strategy by selling
personal computers by mail, which brought massive profits
for the organization. However, it resulted in more growth
than the company could handle. Subsequently, the
management was forced to temporarily stop the marketing
effort until they could hire additional managers, improve
their company structure, and build new facilities.
2. No-change Strategy. It is a decision to do nothing new.
It is demonstrated by a management's choice to continue
current operations and policies for a company's foreseeable • A divestment on the other hand, involves selling a
future. division of a company with low growth potential.

Example: The cigarette industry is a great example of a no-
change stability strategy. When you look at the cigarette
industry, the market players have not changed for more than
a century. So, cigarette players adopt a no-change stability
strategy.
Example: P&G used this strategy when it sold more than half
of its brands and consolidated others to focus on just 65
brands (Bamford et al., 2018).
4. Bankruptcy/Liquidation Strategy.

3. Profit Strategy. It is a decision to do nothing new in a • Bankruptcv involves giving up management of the firm to
worsening situation but act as though the company's the courts in return for some settlement of the
problems are only temporary. The profit strategy attempts corporation's obligations.
to artificially support profits when a company's sales decline
Example: Philippine Airlines Inc. filed for bankruptcy in New
by reducing investment and short-term discretionary
York with a lender-supported plan that helped the country's
expenditures.
main carrier recover after the pandemic devastated global
Example: Cebu Pacific Airlines has shown resilience in the travel.
face of COVID-19 by introducing cheaper flights while
• Liquidation involves the termination of the whole firm.
implementing safety measures in line with global standards
When the industry is unattractive, and the company is
and ramping its cargo shipment services to ensure that its
too weak to be sold, management may choose to convert
domestic and international operations continue.
as many saleable assets as possible to cash, to be
• Retrenchment strategies. These refer to the firm's distributed to the shareholders after all obligations are
actions to pursue cutback or ultimate divestment when paid.
it has a weak competitive position in some or all of its
Example: Hertz, an Auto rental company, filed for liquidation
product lines resulting in poor performance. The
in May with $24.35 billion in liabilities. The company's
following are the types of retrenchment strategies:
attempts to move into the consumer travel market failed
1. Turnaround Strategy. It emphasizes improving since its competitors Avis Budget Group (CAR) and
operational efficiency and is most appropriate to implement Enterprise Holdings maintained market share.forced to
when a corporation's problems are pervasive but not yet temporarily stop the marketing effort until they could hire
critical. Companies improve their performance by cutting additional managers, improve their company structure, and
costs or selling off assets. This strategy involves three (3) build new facilities.
phases: Contraction, Consolidation, and Rebirth.
Portfolio Analysis
o Contraction is the initial effort to quickly "stop the
In portfolio analysis, top management views its product lines
bleeding" with the general purpose of cutting back on
and business units as a series of investments from which it
company size and costs.
expects a profitable return. A strategic business unit is a
o Consolidation implements a plan to reduce unnecessary
single business or a collection of related businesses that can
expenses.
be planned separately from the rest of the company. It has
o Rebirth happens if the company is successful with its
its own competitors and a manager responsible for strategic
efforts and starts growing profitably again.
planning and profit performance.
2. Captive Company Strategy. It involves giving up
Strategic Business Unit (SBU) aims to develop different
independence in exchange for security. In this way, the
strategies and assign appropriate funding. Once it has
corporation may reduce the scope of some of its functional
defined SBUs, management must decide how to allocate
activities to reduce costs significantly.
corporate resources to each.
Example: After years of cost-cutting moves, acquisitions,
and selling off assets, Yahoo! finally gave in to the captive
strategy by hiring investment bankers to sell the company.

3. Sell-out/Divestment Strategy.

• A sell-out involves selling the entire company to

another firm at a good deal, given that the shareholders
and the employees can keep their jobs.

Example: American Airlines was sold to U.S. Airways for an

$11 billion or P550 billion deal in 2015 (Harlan, 2015).
BCG's Growth-Share Matrix used relative market share and
the annual market growth rate as criteria for investment
decisions, classifying SBUs as dogs, cash cows, question
marks, and stars.
• Stars. These are products within a company's product
line, which can be considered a market leader since they
generate enough cash to maintain their high share of
the market and usually contribute to the company's
profits.
Example: The Fit bit bracelet has been a star performer for
the company, with the product still commanding more than
30% of the market share in 2016 (Bamford et al., 2018).
• Question marks. These are new products with the
potential for success but need a lot of cash investments
for development. These suggest that if a product is
perceived to gain enough market share to become a
market leader, money must be taken from more mature
products and spent on the question mark.
Example: After years of fruitlessly experimenting with an
electric car, General Motors finally decided in 2006 to take a
chance developing the Chevrolet Volt (Bamford et al., 2018).
• Cash cows. These typically bring in far more money
than is needed to maintain their market share. In this
maturing or even declining stage of their life cycle,
these products are "milked" for cash that will be
invested in new question marks.
Example: Apple's iPhone represented more than 60% of
Apple's revenues, even as sales started falling in 2016. This
company's flagship product provides vast resources that have
been poured into the Apple Watch, among others (Bamford
et al., 2018). Dogs. These have a low market share and do not
have the potential to bring in much cash for the company.
excellence is an organizational unit that embodies a set
of capabilities that has been explicitly recognized by
the firm as an important source of value creation, with
the intention that these capabilities be leveraged or
disseminated to other parts of the firm.
Example: Strategic business units can save time and effort
spent on building an established brand and broad customer
base that already exists in the parent organization of the
SBUs. At the same time, they can prevent themselves from
the everyday challenges of the larger company.
2. Examine each business for performance improvement.
Corporate headquarters must consider parenting
opportunities for the organization.
Example: Two (2) business units might increase leverage by
combining their sales forces. In another instance, a parent
company may help improve the performance of a business unit
with poor manufacturing and logistics skills.
3. Analyze how well the parent corporation fits with the
business unit. Corporate headquarters must be aware
of its own strengths and weaknesses in terms of
resources, skills, and capabilities. The corporate parent
must assess whether it has the characteristics that fit
the parenting opportunities in each business unit. It
must also assess whether there is a misfit between the
parent's characteristics and the critical success
factors of each business unit.
Example: A corporate center acts as a parent to the
corporate businesses by nurturing and growing them
synergistically as dependent entities.

Example: IBM sold its PC business to China's Lenovo Group to

focus on its growing services business (Bamford et al., 2018).

Corporate Parenting

According to Bamford et al. (2018), corporate parenting

generates corporate strategy by focusing on the core
competencies of the parent corporation and the value
created from the relationship between the parent and its
businesses. In the form of corporate headquarters, the
parent has great power in this relationship.

If there is a good fit between the parent's skills and

resources and the needs and opportunities of the business
units, the corporation is likely to create value. The following
are the steps involved in developing a corporate parenting
strategy:

1. Examine each business unit in terms of its strategic

factors. Corporate headquarters must establish centers
of excellence across the corporation. A center of