CHAPTER 7

STRATEGY
FORMULATION:
CORPORATE
STRATEGY
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 7.1
CORPORATE
STRATEGY

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 Corporate Strategy
• Aim to achieve company objectives while achieving competitive
advantage.
• about the choice of direction for a firm as a whole and the
management of its business
• corporate headquarters must play the role as “parent” in that it must
deal with various product and business unit “children” even though
the product line has its own cooperative strategy that uses to obtain
competitive advantage, the corporation must coordinate these differ
ent strategies so that the corporation as a whole succeed as “family”.
• corporate strategy includes decisions regarding the flow of financial
and other resources to a company’s product lines.
To deal with each key issues there are 3
parts that examine corporate strategy in
terms of:
• directional strategy(orientation toward growth)
• portfolio analysis(coordination of cash flow among
units)
• corporate parenting (the building of corporate
synergies through resources sharing the
development)
 7.2
DIRECTIONAL
STRATEGY

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Directional Strategy
• it is strategy/plan of a company to decides on and
implements to grow business, increase profits and
accomplish goals and objectives.
• In corporate directional strategies, there are 3
grand strategies: Growth, Stability, and
Retrenchment
Growth Strategy
• expand the company’s activities
Concentration -Vertical Growth- Horizontal
Growth
Diversification –Concentric- Conglomerate
• Stability Strategies
make no changes to the companies current
activities
• Retrenchment
reduce the company’s level of activities

TYPES OF RETRENCHMENT
•Turnaround •Divestment Strategy
•Liquidation Strategy •Captive company
Stability Strategies
• A corporation may choose stability over growth
by continuing its current activities without any
significant change in direction. Stability strategies
can be very useful in short run, but they can be
dangerous if followed for too long.
1. Pause/ Proceed with
Caution Strategy
• In effect, is a timeout- an opportunity to rest before
continuing a growth or retrenchment 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.
2. No-Change Strategy
• A decision to do nothing new
• A choice to continue current operations
and policies for the foreseeable future
3. Profit Strategy
• A decision to do nothing new in worsening
situation but instead to act as though the
company’s problem are only temporary
• An attempt to artificially support profits when
company’s sales are declining by reducing
investment and short term discretionary
expenditures
Retrenchment Strategies
• A company may pursue retrenchment strategies
when it has a weak competitive position in some or
all of its product line resulting poor performance.
These strategies impose a great deal of pressure to
improve their performance in attempt to eliminate
the weakness that are dragging the company
down.
1. Turnaround Strategy
• Emphasizes the improvement of operational efficiency
and is probably most appropriate when a corporation’s
problems are pervasive but not yet critical

2. Captive Company Strategy

• Involves giving up independence in exchange for
security. A company with weak competitive position
may not be able to engage in a full blown
turnaround strategy.
3. Sell- out/ Divestment
Strategy
• The sell-out strategy makes sense if management can still
obtain a good price for its shareholders and the
employees can keep their job by selling the entire
company to another firm. If the corporation has
multiple business lines and it chooses to selloff a division
with low growth potential, this is called divestment .
4. Bankruptcy/ Liquidation
Strategy
• Bankruptcy- involves giving up management of the firm
to the courts in return for some settlement of the
corporations obligations
• Liquidation- termination of the firm. When the industry
is unattractive and the company is too weak to be sold as
going concern, management may choose to convert as
many saleable assets as possible to cash
 7.3
PORTFOLIO
ANALYSIS

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Portfolio Analysis
• One of the most popular aids to developing
corporate strategy in a multiple- business
corporation
• Top management views its product lines and
business units as a series of investments
from which it expects a profitable return
Two of the Most Popular
Portfolio Techniques

• BCG Growth- Share Matrix

• GE Business Screen
BCG (Boston Consulting
Group) Growth- Share
Matrix
• Simplest way to portray a cor-
poration’s portfolio of invest-
ments
• Unit’s relative compe-
titive position- market
share in the industry
divided by that of the
largest other competitor
• Business growth rate-
percentage of market
growth, that is, the
percentage by which
sales of a particular
business unit classifica-
tion of products have
increased
• Question Marks- new products with the potential for
success, but they need a lot of cash for development.
• Stars- market leaders that are typically at the peak of
their product life cycle and are able to generate
enough cash to maintain their high share of the market
and usually contribute to the company’s profits.
• Cash cows- typically bring in far more money than is
needed to maintain their market share
• Dogs- have low market share and do not have the
potential to bring in much cash
BCG Growth- Share Matrix
Limitations
• The use of highs and lows to form four categories is too
simplistic
• The link between market share and profitable is
questionable
• Growth rate is only one aspect of industry attractiveness
• Product lines or business units are considered only in
relation to one competitor.
• Market share is only one aspect of overall competitive
position
GE (General Electric)
Business Screen
• Includes 9 cells based on the long
term industry attractiveness and
business strength competitive position
• Industry attractiveness-
includes market growth
rate, industry,
profitability, size and
pricing practices, among
other possible
opportunities and threats
• Business strength or
competitive position-
includes market share
as well as technological
posi- tion, profitability,
and size, among other
possible strength
Four steps to plot product
lines or business units
1. Select criteria to rate the industry for each product line or
business unit.
2. Select the key factors needed for success in each product line
or business unit.
3. Plot each product line’s or business unit’s current position on
a matrix.
4. Plot the firm’s future portfolio, assuming that present corpo-
rate and business strategies remain unchanged.
GE Business Screen Limitations
• It can get quite complicated and cumbersome
• The numerical estimates of industry attractiveness
and business strength/ competitive position are
subjective judgments that may vary from one person
to another.
• It cannot effectively depict the positions of new
products or business units in developing industries.
Advantages of Portfolio
Analysis
• Encourages top management to evaluate each of the
corporation’s businesses individually
• Stimulates the use of externally oriented data to
supplement management’s judgment
• Raises the issue of cash flow availability for use in
expansion and growth
• Graphic depiction facilitates communication
Limitations of Portfolio
Analysis
▸ Defining product/ market segments is difficult
▸ Suggest the use of standard strategies that can be impractical
▸ Provides an illusion of scientific rigor
▸ Value- laden terms can lead to self- fulfilling prophecies
▸ Not always clear where a product is in its life cycle
▸ Naively following the prescriptions of a portfolio model may
actually reduce corporate profits when use inappropriately
Managing a Strategic
Alliance Portfolio
1. Developing and implementing a portfolio strategy for each
business unit and a corporate policy for managing all the alliances
of the entire company
2. Monitoring the alliance portfolio in terms of implementing
business unit strategies and corporate strategy and policies
3. Coordinating the portfolio to obtain synergies and avoid
conflicts among alliances
4. Establishing an alliance management system to support other
task of multi- alliance management
 7.4
CORPORATE
PARENTING

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Corporate strategist must address two cru
ial questions:

• What businesses should this company own and wh

y?
• What organizational structure, management proce
sses and philosophy will foster superior performa
nce from the company’s business units?
PORTFOLIO ANALYSIS
• failed to deal with the question of what indu
stries a corporation should enter or with ho
w a corporation can attain synergy among it
s product lines and business units
 WHAT IS
CORPORATE
PARENTING?

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• views a corporation in terms of resources an
d capabilities that can be used to build busin
ess unit value as well as generate synergies
across business units
“Multi-business companies create value by
influencing-or parenting- the businesses the
y own. The best parent companies create more
value than any of their rivals would if they
owned the same businesses. Those companies h
ave what we call parenting advantage”
CORPORATE PARENTING
• Generates corporate strategy by focusing on the co
re competencies of the parent corporation and on t
he value created from the relationship between pa
rent and its businesses
Research indicates that companies that have a
good fit between their strategy and parenting
roles are better performers than those compa
nies that do not have good fit
The primary job of corporate h
eadquarters is to

• obtain synergy among the business units by provid

ing needed resources to units
• transferring skills and capabilities among the units
• coordinating the activities of shared unit functions
to attain economies of scope
Developing a corporate
parenting strategy
1.Examine each business unit (or
target firm in case of acquisitio
n) in terms of its strategic fact
ors
2.Examine each business unit (or
target firm) in terms of areas in
which performance can be improved
3.Analyze how well the parent co
rporation fits with the business
unit (or target firm)
HORIZONTAL
STRATEGY
Corporate strategy that cuts acro
ss business units boundaries to b
uild synergy across business unit
s and to improve the competitive
position of one or more business
units
 MULTIPOINT
COMPETITION
Large multi-business corporations
compete against other large busin
ess multi-business firms in a num
ber of markets
 END OF
PRESENTATION