Strategic

Planning
Module 4:
Strategies in Action
 Corporate-Level Strategy & Scope

• Corporate-level strategy is about how and where a company,

as a whole, competes.

• The scope of a business encompasses everything about it,

such as products and their requirements and features. The
scope also defines what is and what is not important to a
business so that all resources are devoted to making the
business grow and be successful.

©Allan Gardner, 2018

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 Aspects of Corporate-Level Strategy

What vertically linked

activities should the
Vertical company embrace?

Scope

Product Geographical
Scope Scope

How specialized should the

company be in terms of the Influencers What is the optimal
of Corporate geographical spread of
range of products or
company activities?
services? Level
Strategy
©Allan Gardner, 2018
Al Rights Reserved

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 Diversification Strategy

• A company’s decision to expand its operations by adding new

products and services, markets or stages of production to the
existing business.
• The purpose of diversification is to allow the company to
enter lines of business that are different from current
operations.
• Examples of diversification:
– McDonalds opens McCafe to introduce new products
– GE diversifies into aircraft engines, medical imaging equipment,
generators, nuclear reactors, finance
– Virgin Group UK diversifies into Virgin cola, Virgin airlines, Virgin
megastores, Virgin telecommunications

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 Types of Diversification

• Business expansion based on

common core of company’s
Related existing resources & capabilities
(Concentric) • Increases synergy due to increased
value & economies of scale

• Improve profitability & lowers risk

• Occurs when there is no strategic
Unrelated fit or relationship between the
(Conglomerate) new and old lines of business
• Similar to a business portfolio

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Allan Gardner, November 2018
 Diversification and Market Power
Using size & diversity to
discipline or drive out
specialized competitors in
particular product markets
(Walmart vs. small shoe store)
Establishing a policy
among competing
conglomerates to stabilize
the structure of the
competing relationship.
(Airline industry)
Extending monopoly in one
market into a related
market by bundling two
Predatory
Bundling products together
Pricing (Microsoft bundles IE to drive
out Netscape)
Leveraging market share
across businesses by
Mutual Reciprocal
reciprocal buying
Forbearance Dealing agreements
(Intel refuses to supply
Intergraph with micro-
processors unless Intergraph
licenses technology to Intel)
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 Motives (Goals) for Diversification
• May be necessary for companies
experiencing stagnant or declining
industries
• Diversification may not always provide
increasing profitability
• Dependent upon existing capabilities and
ability to create value
Growth

• Is the industry attractive?

• Is the cost of entry within Spreading risk across more
reason? companies can result in ability to
• Is the organization better off with undertake larger investment risk
the diversification addition?
Goals

Profitability Risk
Reduction
Allan Gardner, November 2018
All Rights Reserved 7
 Diversification and Performance

• Economies of Scope
– Economies of Scope exist whenever there are cost savings from using a
resource in multiple activities carried out in combination rather than
independently
– Economies of scope are cost economies from increasing output across
multiple products
– Economies of scale are cost economies from increasing output of a
single product
• Example of Economy of Scope:
– Proctor & Gamble, which produces hundreds of products from razors
to toothpaste. They can afford to hire expensive graphic designers and
marketing experts who will use their skills across the product lines.
Because the costs are spread out, this lowers the average total cost of
production for each product.
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 Integration Strategy

Vertical
Vertical Horizontal
Integration
Integration Integration

Integration up or down a supply chain through Expansion or addition of business

which a company will control the production
& distribution of products
Example: a retailer starts manufacturing
products it sells, increasing its level of vertical
integration.
activities at the same level of the value
chain.
Example: a company may decide to
pursue new customers, new products &
new geographic locations

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 Types of Vertical Integration

• Backward
– The company takes over ownership and control of producing its own
components or other inputs. (KFC buys Dixie Cup Company)
• Forward
– The company takes over ownership and control of activities previously
undertaken by its customers. (GM acquires 25% of its independent
dealerships)
• Full vertical integration
– Everything the organization produces passes through the vertical
integrated business unit
• Partial vertical integration
– Only a portion of the overall production passes through the vertical
integrated business unit and the rest through external market
channels

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 Horizontal Integration

• Attractive to organizations wishing to rapidly expand their

markets through acquisitions
• Drawbacks to horizontal integration include:
– Organization will have a larger investment in the same market and so
will be more exposed to risks of that market
– In some industries, horizontal integration opportunities may be limited
by regulation
– In some industries, the traditional practices, policies, procedures and
cultures of businesses acquired may be difficult to integrate

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 Boston Consultant Group MATRIX
High Low
RELATIVE GROWTH RATE

High
Stars Question marks

Low

Cash cows Dogs 12

RELATIVE MARKET SHARE
 Mergers and Acquisitions

A merger is a combination of two An acquisition, also known as a

companies into a bigger company.
Both companies’ stocks are
surrendered and new company stock
is issued in its place
Allan Gardner, November 2018
All Rights Reserved
takeover or a buyout, is the
purchase of one company by
another. An acquisition may be
friendly or hostile.
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 Types of Mergers The merger of a company with its
The merger of two companies that customer, supplier or distributor.
are in direct competition in the (Example: Time Warner (cable company)
same industry and have similar and Turner Corp. (which produces CNN,
products and markets TBS and other programming)
(Example: The amalgamation of
Daimler-Benz and Chrysler)

Horizontal Vertical

Concentric
A merger in which the two companies are in
the same general industry, but have no
mutual buyer/customer or supplier
relationship. (Example: Bank & Leasing
Company) 14
 Types of Acquisitions

Share Asset
Acquisition Acquisition

Buyer purchases the assets

Buyer acquires a
of the target company. The
controlling number of
cash the target receives
shares, and takes control
from the sell-off is paid
of the target company.
back to its shareholders

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 Turnaround and Retrenchment Strategies

• Turnaround Strategy
– The plan and effort to return an underperforming company to
acceptable levels of profitability and long-term growth
– A well-designed turnaround strategy involves refining strategic
objectives, reducing costs and restructuring organizational process

• Retrenchment Strategy
– A corporate-level strategy that seeks to reduce the size or diversity of
an organization’s operations
– Typically, this involves removing costs, restructuring finances and
redefining strategic objectives.

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 Turnaround & Retrenchment Activities
Company may contract (labor,
marketing, promotion) or,
consolidate by closing Eliminating a portion
unprofitable businesses of the business via sell
off, closure or spin-off

Restructuring Divestment

Close business & sell off

Become an exclusive
supplier to a giant Tie to a Large all assets
Liquidation
company. Company

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Allan Gardner, November 2018
Business Level Strategy
 Porter’s Generic Strategies

Advantage
Target Scope
Low Cost Product Uniqueness

Broad Cost Leadership Differentiation

(Industry Wide) Strategy Strategy

Narrow Focus Strategy Focus Strategy

(Market Segment) (Low Cost) (Differentiation)

A firm positions itself by leveraging its strengths that fall into one of two categories:
cost advantage and differentiation. By applying these strengths in either a broad or
narrow scope, three generic strategies result: cost leadership, differentiation and
focus.

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 Examples of Porter’s Generic Strategies

Cost • A low cost strategy is when a company attempts to

offer goods or services that are comparable to their

Leadership (Low competitors, but at a lower cost.

• Wal Mart, Acer Computer, Ikea, Southwest Airlines
Cost)

• The development of a product or service that offers

Differentiation unique attributes valued by customers and perceived
to be better or different from the competition.
(Uniqueness) • Apple, Rolls Royce, Airstream RV

• Concentrates on a narrow segment of the market and

attempts to achieve either low cost or differentiation,
Focus utilizing strategy such as customer loyalty,
specialization, or market niche.
(Narrow Segment) • Whole Foods, Build-a-Bear, Papa Murphy’s Pizza

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 Business Level Strategy and Cost Advantage
Economies
Cost savings attributed to
decreased fixed costs per
unit when production &
sales increase

of Scale

Cost savings attributed to improved

Cost Cost savings attributed to cost
reductions as a result of fewer
efficiency via innovation of the
production process
Drivers errors & improvement in problem
solving by repetition of operations

Process Economies of
Technology &
Process Design Learning
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 Differentiation & Differentiation Advantage

• Differentiation of product or service is partly determined by

its physical characteristics.
• Technically simple products (e.g. corkscrew, nail) or products
that must meet rigorous technical standards (e.g. spark plug,
thermometer), have fewer differentiation opportunities
because of technical or market constraints
• Products that are technically complex (e.g. aircraft) or that do
not need to conform to particular technical standards (e.g.
toys, toilet paper), offer much greater scope for
differentiation.

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 Tangible & Intangible Differentiation Factors
Observable characteristics
of a product or service
relevant to customers’
preferences
Tangible
Opportunities
Size, shape, color, weight,
design, material & technology
Reliability, taste, speed,
durability and safety
D
I Perceptual benefits that
F appeal to customers social,
F emotional, psychological and
aesthetic considerations
E
R
E
N Intangible
T
I Opportunities
A
T
Desires for status, exclusivity,
I individuality, image and
O security
N

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Network Strategy
 Partnerships & the New Competitive Landscape

• Today’s companies need to focus on their core competencies

and form cooperative relationships with other companies to
access and build resources
• To benefit from resources external to the organization, it is
crucial to establish, develop and maintain lasting business
relationships with customers, suppliers and other important
parties

©Allan Gardner, 2018

Al Rights Reserved
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 Why Partnerships?

• Companies need to be flexible and cooperative and can no

longer be isolated and independent
• Interconnection & interdependency helps companies form
partnerships to access required resources and develop new
capabilities necessary in a rapidly changing business
environment
• Current theories support the understanding that a company’s
performance may be strongly influenced by its intercompany
ties or its “strategic network”

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 Types of Network Relationships

Relationships with Relationships of a

suppliers that provide company with its
raw materials, parts,
Downstrea buyers that purchase
machinery and Upstream m products or services
services Vertical
Vertical

Relationships of a Relationships of a
company with Indirect Direct company with its
companies outside its competitors in the
industry Horizontal Horizontal same industry

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 Strategic Alliances as Vehicles of Strategy

• Strategic Alliances are inter-organizational cooperative

activities to achieve one or more goals linked to the
organizations’ strategic objectives
• The main advantages attributed to alliance creation are:
– Entry into new markets
– Increased market power and economies of scale and scope
– The acquisition and exchange of skills
– Strategic renewal
– Risk and investment sharing
– Reductions in liabilities of foreignness (direct foreign investment)
– The ability to overcome government or trade barriers

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 Types and Structure of Alliances
Two or more cooperating companies
(parents) create a legally
independent company in which they
invest and from which they share
profits created.
(e.g. Ericsson & Sony multimedia)
Joint
Venture
One or more partners assume a greater
ownership interest in either the alliance or
another partner
(e.g. Fiat acquires 35% of Chrysler. Chrysler
accesses Fiat technology and facilities in
Equity exchange for helping Fiat sell its brands in
the U.S.)
Alliance
Non-
Companies collaborate to
Equity supply, produce, market or
distribute products of the
partner over an extended
Alliance period of time but without
substantial ownership
investment in the alliance
(e.g. Dell Computer & Federal
Express partner for JIT delivery
to customers)
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 Advantages & Drawbacks of Alliances

Advantages Drawbacks

• Conflict between partners

• Ease of market entry
• Access to confidential information
• Shared risk
• Distribution of earnings
• Shared knowledge & expertise
• Potential loss of autonomy
• Synergy & competitive advantage
• Changing business climate circumstances

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 Why Alliances Fail

Common in global “Everyone is doing it”

alliances where philosophy lacks
objectives or cultural strategic planning &
Partnering
elements conflict Cultural rationale for alliance
for Wrong
Clashes
Reason

Employees may display

loyalty to their respective
Lack of
companies rather than to Free Expecting partners to
the alliance Staff take on bulk of work
Riding and responsibilities
Support

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Globalization and Global Strategies
 Global Strategic Management

• Globalization is the integration of domestic markets and

economies into single worldwide markets and the spread of
business operations across large numbers of countries
• Global businesses are usually large businesses located in
many countries or regions and operating with a global
outlook.
• Offshoring is transferring specific operations to another
country
• Outsourcing is contracting with a third-party vendor for the
supply of products, services or parts.

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 Glocalization

• Glocalization
– Occurs when an organization with a strong global image
maintains an equally strong local identity. Commonly seen in
Transnational Corporations.
• Global Integration
– Emphasizes consistency of approach, standardization of
processes and a common corporate culture across global
operations.
– Decisions are made from a global perspective so the
organization’s brand and image are consistent and uniform.
• Local Responsiveness
– Emphasizes adapting to the needs of local markets and allows
subsidiaries to develop unique products, structures and
systems.
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 Organizing Global Operations
Domestic strategy tends to be driven by mission, values and objectives; global
strategy can be driven by the orientation toward specific global behaviors selected
by an organization
Organization divides itself into divisions
that focus on regions to leverage

Regional opportunities. e.g. Coca Cola enters EU

Product
Customer
or Service
Divisions based around specific products Organizations form separate customer
or services are formed in countries Global service divisions to meet needs of
targeted for such products or services.
e.g. HP partners with LG to share Strategy specific targeted country. e.g. Lufthansa
airlines form customer service divisions
technology to open Asian market to HP Orientations in U.S.

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 Going Global

Selling products or services Contractual

directly to customers or arrangements that gives
indirectly through agents, Licensing rights to operate under
distributors, or trading another’s trademark
companies Exporting or
Franchising

Establishing a company’s Partnering a project with

own facility with direct Foreign an existing overseas
supervision. High cost and Joint business to gain entry into
risk of overseas subsidiary Direct a foreign market
Venture
Investment

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 Benefits of Global Strategy
Increased customer base results in more World market production can achieve
diversification of products and more growth large scale economies in product
development, operations and
marketing

Use global resources to gain

competitive advantage in
individual national markets

Biggest cost benefits

result from replication
Learning occurs more rapidly of knowledge
when operating in different
country environments

Primary driver of globalization Leveraging regional resource

and knowledge opportunities
(Comparative Advantage)
©Allan Gardner, November 2018 All Rights
37
Reserved
 Comparative Advantage
• The advantage gained by production of a product or service in one
region over another due to leveraging the availability of local
external elements . Comparative Advantage concerns nations, not
industries.
• Comparative advantage is an advantage utilized by a business
operating in a country where its products make intensive use of
valuable resources readily available in that country.
Examples:
• Leveraging local technology, human skills, management capability, capital
markets, communication facilities, transportation, natural resources, etc.
• Saudi Arabia and China produce diesel oil. Saudi Arabia has an advantage
of having easy access to oil, whereas China needs to import its oil from the
Middle East for diesel production. Of these two countries clearly Saudi
Arabia has a comparative advantage over China.

©Allan Gardner, 2018

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Organization clones
itself & sets up replicas
in different countries.
e.g. Philips locates
medical electronics in
U.S. and Japan
An MNC that operates
worldwide without being
identified with a national
home base. It is said to
operate on a border less
basis. Example: Nestle
Global Business Structures
A corporation with extensive ties
in international operations in
more than one foreign country.
Multi- Examples are General Electric,
Multinational Exxon, WalMart, Mitsubishi,
domestic Daimler Chrysler, etc...
Balancing global integration
and national differentiation ,
setting up a global network of
Transnational Global activities. e. g. P&G adopts
global standardization
(Pringles & Perfumes) and
national differentiation for
others products (hair coloring
& laundry detergents)
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 Global View of Porter’s Competitive Model
Barriers to entry
decrease substantially
Rivalry increase due to: Increasing due to large
• More producers entering market customers ability to leverage
• Increase in competitor diversity
buying power more effectively
• Increase in excess capacity

Power of suppliers usually Greater market power since global

reduced due to more supplier organizations can diversify and
competition develop substitutes more easily

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 Creating Global Strategy Success

• Maintaining flexibility & limiting risk

• Reduce levels of hierarchy
• Encourage innovation
• Adopt standardized procedures
• Size and exposure
• Communications and public relations
• Management of international supply chains
• Outsourcing
• Diversification
• Scope and resources

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