Coulter Smia6e Im 06

8/11/2019 Coulter Smia6e Im 06

1/24


2/24

Chapter 6 Corporate Strategies

prepared foods business ua$er 4oods (orth America and its international business

3epsiCo +nternational. Although these industries are similar in many ways& they are

different industries. 3epsiCo has chosen to follow a corporate strategy in which it operates

in more than one industry,a multiple-business organi/ation.

:. Relating Corporate Strategy to Other Organiational Strategies

1. Corporate strategy establishes the o#erall direction that the organi/ation hopes to go in& the

other organi/ational strategies,functional and competiti#e,pro#ide the means for ma$ing

sure the organi/ation gets there 4igure 6.1.2. he means for mo#ing the organi/ation are the resources& distincti#e capabilities& core

competencies& and competiti#e ad#antages found in the organi/ations functional and

competiti#e strategies.

7. %ach type of strategy corporate& competiti#e and functional is important to whether the

organi/ation does what its in business to do and whether it achie#es its strategic goals.

a Corporate strategy cant be implemented effecti#ely or efficiently without the resources&

capabilities and competencies being de#eloped and used in the competiti#e and

functional strategies.

b Competiti#e and functional strategies that are implemented must support the o#erall

strategic direction and corporate strategy.

C. What Are the Corporate Strategic !irections?

1. ;o#ing an organi/ation forward growth strategyies

2. Corporate strate!is those strategies concerned with the broad and long-term ?uestions of whatbusinesses the organi/ation is in or wants to be in& and what it wants to do with those businesses.

Contrast single-business multiple-business organizations

> A sin%e)#siness orani$ationis one that operates primarily in one industry. A 3#%tip%e

)#siness orani$ationis one that operates in more than one industry.

!o" is corporate strategy related to the other organizational strategies?

> Corporate strategy establishes the o#erall direction that the organi/ation hopes to go. he other

organi/ational strategies,functional and competiti#e,pro#ide the means for ma$ing sure the

organi/ation gets there.

Copyright 2017 3earson %ducation& +nc. publishing as 3rentice 8all2


3/24


#escribe each o$ the three corporate strategic directions

> ;o#ing the organi/ation forward

> =e#ersing the organi/ations decline

++. LEARNING OUTCOME 6."

DISCUSS ORGANI4ATIONAL GRO5TH STRATEGIES

Gro&t' strate!is one that e'pands the products offered or mar$ets ser#ed by an organi/ation ore'pands its acti#ities or operations either through current or new businesses.

A. he typical growth ob@ecti#es for business organi/ations include)

1. +ncreasing re#enues

2. +ncreasing profits

7. +ncreasing other financialperformance measures

:. Browth ob@ecti#es for not-for-profit organi/ations include)

1. +ncreasing the number of clients ser#ed or patrons attracted

2. :roadening the geographic area of co#erage

7. +ncreasing the number of programs offered

C. "ypes o Growth Strategies4igure 6.2

1. ConcentrationConcentration strate!is a growth strategy in which an organi/ation concentrates on its

primary line of business and loo$s for ways to meet its growth goals by e'panding its core

business. hen a single-business organi/ation pursues growth& its using the concentration

strategy.

a hen attempting to increase sales and profits& an organi/ation might use these three

concentration options 4igure 6.7)

1 %roduct-mar&et e'ploitation describes attempts by the organi/ation to increase

sales of its current products in its current mar$ets by depending on its

functional particularly& mar$eting and ad#ertising and its competiti#e

strategies.

2 %roduct de(elopment optionis where organi/ations create new products to sell

to its current mar$et customers. (ew products may include impro#ed or

modified #ersions of e'isting products.

7 Mar&et de(elopment optiondescribes when an organi/ation sells its current

products in new mar$ets that may be additional geographic areas or other

mar$et segments not currently ser#ed by the organi/ation.

" %roduct-mar&et di(ersi$ication option: the fourth option in 4igure 6.7 is

where the organi/ation see$s to e'pand both into new products and new

mar$ets. At this point& the single-business organi/ation becomes a multiple-

business organi/ation since its now operating in a different industryD it is (E a

concentration strategy by definition.

Strateic Manae3ent T'e G%o)a% Perspecti,e2$%&a Ro'oticshese are natural line e'tensions for firms pursuing concentration strategies where they e'pand the

industries they sell their current products to. he ris$ of ha#ing one product and concentrating on one

industry lea#es a company #ulnerable to a slump in an industry.

b Ad#antage of the concentration strategy is that the organi/ation becomes #ery good

at what it does.



4/24


c ;ain drawbac$ of the concentration strategy is that the organi/ation is #ulnerable to

industry and other e'ternal changes. =is$ can be minimi/ed by noticing significant

trends and ad@usting the organi/ations direction& should that become necessary.

Strateic Manaers in Action2 (%)son C* Green+ ,a-te. Corporation

%'panding into other industries i.e.& na#igation on handheld de#ices will help (a#te? Corporation

sur#i#e the anticipated decrease of na#igation-e?uipped #ehicles to F0 percent of its sales. o your

students thin$ C%E Breen made a good decision to #ertically integrateG Can your students suggest other

ways (a#te? Corporation could either bac$wardly or #ertically integrateG

d Use of concentration strategy isnt limited to small-si/ed organi/ations. +n fact&

large organi/ations often start off using the concentration strategy and continue to

use it to pursue growth.

2. )ertical *ntegration +,or"ard and Bac&"ard

7ertica% interation strate!is a strategy in which an organi/ation grows by gaining

control of its inputs bac$ward& its outputs forward& or both.

a +n bac&"ard (erticalintegration& the organi/ation gains control of its inputs or

resources by becoming its own supplier.

b +n$or"ard (ertical integration& the organi/ation gains control of its outputs products or

ser#ices by becoming its own distributor.c he #ertical integration strategy is considered a growth strategy because an

organi/ations acti#ities and operations are e'panded.

d Studies of organi/ations #ertical integration strategies ha#e shown mi'ed results in

terms of whether the strategy helped or hurt performance. Some of the problems

associated with #ertical integration include reduced organi/ational fle'ibility as loc$ed

into products and technology& difficulties in integrating #arious operations& and

financial costs of ac?uiring or starting up.

e Studies ha#e also confirmed some of the ad#antages associated with #ertical integration

include reduced purchasing and selling costs& impro#ed coordination among functions

and capabilities& and protection of proprietary technology to name a few.

f he benefits of #ertical integration ha#e been shown to slightly outweigh the costs

associated with it.7. !orizontal *ntegration

Hori$onta% interation strate!is e'panding the organi/ations operations through

combining with other organi/ations in the same industry doing the same things it is doing.

8ori/ontal integration is an appropriate corporate growth strategy as long as)

a +t enables the company to meet its growth goals.

b +t can be strategically managed to attain a sustainable competiti#e ad#antage.

c +t satisfies legal and regulatory guidelines.

Strateic Manae3ent,T'e G%o)a% Perspecti,e2SA/Miller an) 0osters

+f a company ta$es a HglobalI approach to hori/ontal integration& the company can enhance its

li$elihood of success. he combined businesses ha#e the potential to complement one another well as

the company mo#es forward with the integration.

". #i(ersi$ication

Di,ersification strate!is a corporate growth strategy in which an organi/ation grows by

mo#ing into a different industry. Any mo#e into a different industry automatically ma$es an

organi/ation a multiple-business organi/ation because its no longer operating in @ust one

industry.

here are two ma@or types of di#ersification)

Copyright 2017 3earson %ducation& +nc. publishing as 3rentice 8all"


5/24


a Re%ate- 8concentric9 -i,ersificationis di#ersifying into a different industry but one

thats related to the organi/ations current operations. Eften called the search for

strategic Hsynergy&I which is the idea that the performance of the combined operations

will be much greater than the performance of each unit separately the old idea that

suggests 2 J 2 can e?ual K. Synergy happens because of the interactions and

interrelatedness of the combined operations and the sharing of resources& capabilities

and distincti#e competencies.

1 .'amples: Apple Computer had successful di#ersification into music& cell phones&

mo#ies& retail stores and personal computers.2 .'ample: Anheuser-:uschs unsuccessful di#ersification into %agle Snac$s snac$

food industry.

b Unre%ate- 8con%o3erate9 -i,ersificationis di#ersifying into a completely different

industry from the organi/ations current operations. his growth strategy in#ol#es the

organi/ation mo#ing into industries in which there is absolutely no strategic fit to be

e'ploited.

1 Used "hen the organization/s core industry and related industries don/t o$$er

enough gro"th potential

2 Used "hen specialized resources0 capabilitie0 and core competencies can/t be easily

applied to other industries outside its core business

7 .'ample: 4ortune :rands) Lim :eam bourbon& ;oen faucets& Aristo$raft and

Schroc$ cabinets& e


6/24


***********************************************************************************

**

***********************************************************************************

**

***********************************************************************************

**

. Implementing Growth Strategies

he mechanisms for implementing the three broad options of corporate growth strategies are)

1. Mergers-1c2uisitions

A merger or ac?uisition could be used by an organi/ation when implementing anyof the

growth strategies. An organi/ation can implement growth strategies by HpurchasingI what it

needs to e'pand its operations.

a Mereris a legal transaction in which two or more organi/ations combine operations

through an e'change of stoc$& and create a third entity. ;ergers usually ta$e place

between organi/ations that are similar in si/e and are usually Hfriendly.I

b Ac;#isitionis an outright purchase of an organi/ation by another. he purchasedorgani/ation is absorbed by the purchasing organi/ation. Ac?uisitions usually are

between organi/ations of une?ual si/es and can be friendly or hostile.

c Hosti%e Ta:eo,eris a hostile ac?uisition where the organi/ation being ac?uired doesnt

want to be ac?uired. +n fact& the target of a ta$eo#er often will ta$e steps to pre#ent the

ac?uisition.

=esearch has shown that the popularity of mergers and ac?uisitions as a strategic growth

mechanism seems to go in cycles.

Strateic Manae3ent in Action,General 2lectric

Beneral %lectric chose ac?uisition as its path to growth in part because the airport security mar$et was

changing rapidly and the go#ernment was going to be the ma@or purchaser of hardware de#eloped to

screen passengers. his meant that for B% to enter the mar$et it did not ha#e years to do the researchneeded to de#elop products in-house. here B% could add #alue was in the ability to ?uic$ly supply the

mar$et by e'panding production and a certain comfort-le#el that they would be around as a supplier in

years to come.

2. *nternal #e(elopment

Interna% -e,e%op3entis where the organi/ation grows by creating and de#eloping new

business acti#ities itself.

=esearch has shown that the choice between internal de#elopment and mergers-ac?uisitions

depends on)

a he new industrys barriers to entry

b he relatedness of the new business to the e'isting one

c he speed and de#elopment costs associated with each approach

d he ris$s associated with each approach

e he stage of the industry life cycle

hese factors are summari/ed in able 6.1

7. Strategic %artnering

Strateic partnerinis when two or more organi/ations establish a legitimate relationship

partnership by combining their resources& distincti#e capabilities& and core competencies

for some business purpose.

a hese cooperati#e arrangements can be used to implement any of the growth strategies)



7/24


1 Nertical integration,strategically partner with one of its suppliers or distributors

2 8ori/ontal integration,de#elop a strategic relationship with one of its competitors

7 =elated di#ersification,de#elop a strategic relationship in a related industry

b =ather than buying or internally de#eloping to e'pand its operations& decision ma$ers

might choose to de#elop one of the three main types of strategic partnerships)

1


8/24


(e) %ach partner in the strategic alliance can reap the benefits of e'panded

operations by contributing to the alliance its uni?ue resources& capabilities& or

competencies.

(f) .'amples: 3epsiCo and 5iptonD 8onda ;otor and Beneral %lectric

eaching (otes)

***********************************************************************

*************************************************************************************

***********************************************************************************

**

Learnin Re,ie&2 Learnin O#tco3e 6."

#e$ine gro"th strategy

> Gro&t' strate!is one that in#ol#es the attainment of specific growth ob@ecti#es by increasing

the le#el of an organi/ations operations.

#escribe the (arious corporate gro"th strategies and ho" the corporate gro"th strategies can be

implemented

> he #arious corporate growth strategies are concentration& #ertical integration bac$ward and

forward& hori/ontal integration& di#ersification and international.

> Concentration strate!is a growth strategy where the organi/ation concentrates on its primary

line of business and loo$s for ways to meet its growth ob@ecti#es through increasing its le#el of

operations in this primary business.

> hen attempting to increase sales and profits an organi/ation might use these three

concentration options)product-mar$et e'ploitation& product de#elopment& and mar$et

de#elopment.

> he ad#antage of the concentration strategy is that the organi/ation becomes #ery good at what

it does. he main drawbac$ of the concentration strategy is that the organi/ation is #ulnerable

to industry and other e'ternal en#ironmental shifts.> A single-business organi/ation pursuing growth uses the concentration strategy.

> 7ertica% interation strate!is an organi/ations attempt to gain control of its inputs bac$ward

its outputs forward& or both.

> he #ertical integration strategy is considered a growth strategy because the organi/ations

operations are e'panded.

> Hori$onta% interation strate!is e'panding the organi/ations operations through

combining with other organi/ations in the same industry doing the same things it is,that is& it

in#ol#es combining operations with competitors.

> 8ori/ontal integration is an appropriate corporate growth strategy as long as)

1 +t enables the company to meet its growth ob@ecti#es

2 +t can be strategically managed to attain a sustainable competiti#e ad#antage

7 +t satisfies legal and regulatory guidelines> Di,ersification strate!is a corporate growth strategy in which an organi/ation e'pands its

operations by mo#ing into a different industry.

> he two ma@or types of di#ersification are)

- Re%ate- 8concentric9 -i,ersificationis di#ersifying into a different industry& but one thats

related in some way to the organi/ations current operations.

- Unre%ate- 8con%o3erate9 -i,ersificationis di#ersifying into a completely different industry

from the organi/ations current operations.

Copyright 2017 3earson %ducation& +nc. publishing as 3rentice 8allO


9/24


10/24


2. Ergani/ational resources& capabilities& and core competencies can change during periods of

stability,they @ust dont e'pand.

7. Ergani/ations often use the period of stability to assess operations and acti#ities& and

strengthen and reinforce those that need bolstering or re#itali/ing.

". Stability gi#es the organi/ation an opportunity to Hta$e a breatherI and to prepare itself for

the pursuit of growth and the strategic challenges associated with that particular corporate

strategy.

K. Ence an organi/ation strengthens its resources& capabilities and core competencies& its

ready to grow once again.6. Stability probably should be a short-run strategy.

Learnin Re,ie&2 Learnin O#tco3e 6.(

What is a stability strategy?

> Sta)i%it! strate!is one in which the organi/ation maintains its current si/e and current le#el of

business operations.

Why might an organization choose a stability strategy?

> +ndustry is in a period of rapid uphea#al with se#eral $ey industry and general e'ternal forces

drastically changing& ma$ing the future highly uncertain.

> +ndustry is facing slow or no growth opportunities.> Ergani/ation has @ust completed a fren/ied period of growth and needs to ha#e some Hdown timeI

for its resources and capabilities to build up strength again.

> 5arge firms in a large industry thats in the maturity stage of the industry life cycle

> ;any small business owners may follow a stability strategy indefinitely.

#escribe ho" a stability strategy is implemented

> 3rimarily implementation in#ol#es note'panding the le#el of the organi/ations operations.



11/24


+N. LEARNING OUTCOME 6.* DESCRI?E ORGANI4ATIONAL RENE5AL STRATEGIES

Rene&a% strateiesare used to re#erse organi/ational decline and put the organi/ation bac$ on a

more appropriate path to successfully achie#ing its strategic goals.

A. What 3ea)s to erormance !eclines?

he main reason behind corporate decline is poor management. Ergani/ational performance is

li$ely to suffer when inept or incompetent strategic managers dont strategically manage allaspects of the organi/ation.

1. Causes of corporate decline 4igure 6.K)

a Uncontrollable or too high costs to be competiti#e

b (ew competitors

c Unpredicted shifts in consumer demand

d Slow or no response to significant e'ternal or internal changes

e E#ere'pansion or too rapid growth

f +nade?uate financial controls

2. +ndicators of potential performance decline from able 6.2)

a %'cess number of personnel

b Unnecessary and cumbersome administrati#e procedures

c 4ear of conflict or ta$ing ris$d olerating wor$ incompetence at any le#el or in any area

e 5ac$ of clear #ision& mission& or goals

f +neffecti#e or poor communication within and between #arious units

:. Renewal Strategies

1. 3etrenchment

Retrenc'3ent strate!is a common short-run strategy designed to address organi/ational

wea$nesses that are leading to performance declines.

a Usual situation in retrenchment is that the organi/ation hasnt been able to meet it

strategic goals.

b he strategic managers must stabili/e operations& replenish or re#itali/e organi/ational

resources and capabilities and prepare to compete once again.

2. 4urnaround

T#rnaro#n- strate!is an organi/ational renewal strategy thats designed for situations

where the organi/ations performance problems are more serious.

a Ergani/ation has to be Hturned aroundI or its #ery sur#i#al may be in @eopardy.

b .'amples: Apple& Chrysler& Cray& elta Airlines& Beneral ;otors& +ntuit&


12/24


C. Implementing Renewal Strategies

1. Cost Cutting

a he organi/ations strategic managers cut costs to re#itali/e the organi/ations

performance retrenchment or sa#e the organi/ation turnaround.

b Cost cutting can be)

1 Across-the-board cuts implemented in all areas of the organi/ation

2 Selecti#e cuts implemented in selected areas

c Strategic decision ma$ers e#aluate to see if there are redundancies& inefficiencies& orwastes in wor$ tas$s and acti#ities that could be eliminated or used more efficiently.

d +f additional cuts are needed to $eep performance from declining further& strategic

managers may ha#e to loo$ at reducing and eliminating entire departments& units& or

di#isions.

2. 3estructuring

=estructuring operations in#ol#es refocusing on the organi/ations primary businesses

through)

a Di,est3entis the process of selling off one or more business units to someone else

where it will continue as an ongoing business.

b Spinofftypically in#ol#es setting up the business unit as a separate& independent

business by distributing its shares of stoc$.

c Li;#i-ationis shutting down a business completelyD strategic action of last resort.

Strateic Manae3ent T'e G%o)a% Perspecti,e2 Siemens AG an) eter 3oscher

Siemens new C%E& 3eter 5oscher& has cleaned house significantly at the worlds largest electronics and

industrial engineering company. 8e sold off business units of the firm& replaced almost the entire

e'ecuti#e team& and fired about half the middle managers.

d Do&nsi$inis an organi/ational restructuring in which indi#iduals are laid off from

their @obs.

e ?an:r#ptc!is the failure of a business and in#ol#es dissol#ing Chapter F or

reorgani/ing Chapter 11 the business under the protection of ban$ruptcy legislation.

f =esearch has shown organi/ational refocusing to be the most beneficial form ofrestructuring an organi/ation can do. QCan impro#e stoc$holder wealth if done for

strategic purposes.

Acti,e Learnin Hint

As$ student teams to research businesses that are in decline. 8a#e the student groups search for news

stories about companies in ban$ruptcy& reorgani/ation& downsi/ing& li?uidation& failure and other terms

used in the chapter. 8a#e each team describe how an organi/ation dealt with decline. hat actions did

the company ta$eG 8ow does the team thin$ that would help the organi/ations sur#i#alG

eaching (otes)

***********************************************************************

***********************************************************************************

**

***********************************************************************************

**



13/24


***********************************************************************************

**

Learnin Re,ie&2 Learnin O#tco3e 6.*

#escribe the causes o$ corporate decline

> 3ossible Causes of Corporate ecline from 4igure 6.K)

- E#ere'pansion or too rapid growth

- +nade?uate financial controls- Uncontrollable costs or too high costs

- (ew competitors

- Unpredicted shifts in consumer demand

- Slow or no response to significant e'ternal or internal changes

#escribe the t"o organizational rene"al strategies

> he retrenc'3ent strate!is a common short-run strategy designed to address organi/ational

wea$nesses that are leading to performance declines.

> he t#rnaro#n- strate!is an organi/ational renewal strategy thats designed for situations

where the organi/ations performance problems are more serious.

What t"o strategic actions are used in implementing the rene"al strategies?

> he two actions are cutting costs and restructuring.

#escribe organizational restructuring actions

> A strategic action that an organi/ation ta$es to implement a retrenchment or turnaround strategy is

restructuring its operations by refocusing on its primary businesses as it sells off& spins off&

li?uidates& reengineers& or downsi/es.

Why are most organizational rene"al strategies used in combination?

> +ts often necessary for the organi/ation to use some combination of these renewal strategies as it

struggles to regain or de#elop a sustainable competiti#e ad#antage. ;ost organi/ations faced with

the need to retrench or to do some serious restructuring needed for a turnaround will loo$ at a

coordinated long-run program of strategic actions.

N. LEARNING OUTCOME 6.+ DISCUSS HO5 CORPORATE STRATEG0 IS E7ALUATEDAND CHANGED.

%NA5UA+(B A( C8A(B+(B CE=3E=A% S=A%BM

A. 2-al%ating Corporate Strategies

ithout e#aluation& strategic managers wouldnt ha#e a clue about whether the implemented

strategies,at any le#el of the organi/ation,were wor$ing. =eflects the interactions and

interdependence among the #arious strategies.

1. Corporate 5oalsfrom 4igure 6.6) hese ob@ecti#es become the standards against which

actual performance is measured.

a ;a'imi/ing stoc$holder wealth

b +ncreasing mar$et sharec Strong global presence

d +ncreasing producti#ity

e 3ositi#e reputation-image

f Strong customer satisfaction

g 8igh product ?uality

h +ncreasing re#enues

i +ncreasing earnings



14/24


T'e Gre! 4one,5a%Mart

3ublic display is good for e#aluating whether the organi/ation is doing an acceptable thing& not

necessarily an effecti#e thing. Ergani/ations can decide what they choose to sell and consumers can

decide where to buy. +f customers are offended& the companys will lose their customers. =efusing to sell

contro#ersial products is a good strategy if the products will offend or hurt people. A company can also

ma$e them a#ailable but restricted from easy #iew so that customers who are offended $now the

company is trying to minimi/e the damage done by these products and the company pro#ides the

products for those customers who truly want the products.

2. .$$iciency0 .$$ecti(eness and %roducti(ity Measures

a Efficienc!is an organi/ations ability to minimi/e resource use in achie#ing

organi/ational ob@ecti#es.

b Effecti,enessis an organi/ations ability to reach its goals.

c Pro-#cti,it!is a specific measure of how many inputs it too$ to produce outputD

typically used in the production-operations area. ;easured by ta$ing the o#erall output

of goods and ser#ices produced& di#ided by the inputs needed to generate that output.

7. Benchmar&ing

?enc'3ar:inis the search for the best practices inside or outside an organi/ation.

:enchmar$ing is from other leading organi/ations competitors or noncompetitors that are

belie#ed to ha#e contributed to their superior performance.". %ort$olio 1nalysis

Analysis is done with two-dimensional matrices that summari/e internal and e'ternal

factors. he three main ones are)

a /CG Matri4also $nown as the growth-share matri' is a simple& four-cell matri'

created by the :oston Consulting Broup as a way to determine whether a business unit

was a cash producer or user.

1 6-a'is is a measure of the business units relati#e mar$et share& that is& relati#e to

the mar$et leader. ;ar$et share is a pro'y for the business units internal strengths

and wea$nesses.

2 =elati#e mar$et share is defined as the ratio of a business units mar$et share

compared to the mar$et share held by the largest ri#al in the industry.

7 7-a'is is a measure of the industry growth rate industry growth rate is a pro'y forthe e'ternal opportunities and threats facing the business unit.

" Circles represent an organi/ations #arious business units. he si/e of the circle

corresponds to the si/e of the business unit& using some measure such as business

unit proportion of total corporate re#enues.

K Classification of business units)

(a) #og

(1) Lo& relati#e mar$et share and %o& industry growth rate.

(2) Effers few growth prospects and may re?uire significant in#estments @ust to

maintain its position.

(3) Strategy recommendation is to e'it industry by di#esting or li?uidating.

(4) !ar(esting:+f the business unit is profitable gradually letting the business

unit decline in a controlled and calculated fashion& using e'cess cash flowsto support other& more desirable business units.

(b) 8uestion Mar&

(1) Lo& relati#e mar$et share and 'i' industry growth rate.

(2) 5ow in competiti#e strengths& but in an industry where theres a lot of

potential.

(3) =ecommendation for a business unit e#aluated as a ?uestion mar$ is that

those with the wea$est or most uncertain long-term potential should be

di#ested.

Copyright 2017 3earson %ducation& +nc. publishing as 3rentice 8all1"


15/24


(c) Star

(1) Hi'relati#e mar$et share and 'i' industry growth rate.

(2) he leading business units in an organi/ations portfolio.

(3) ;ay ta$e significant cash resources to maintain mar$et leadership position

or little cash if in an industry where competiti#e ri#alry isnt high.

(4) Strategic recommendation is to maintain its strong positions while ta$ing

ad#antage of the significant growth opportunities in the industry.

(d) Cash Co"

(1) Hi' relati#e mar$et share but %o& industry growth rate.(2) Cash flows generated from cash cows should be used to support ?uestion

mar$s with potential and to support stars.

6 he simplicity of the :CB matri' is both its biggest ad#antage and its biggest

drawbac$.

b Mc$insey5G2 Stoplight Matri4is a nine-cell matri' that pro#ides a more

comprehensi#e analysis of a business units internal and e'ternal factors and was

de#eloped by ;c


16/24


7 Circles represent an organi/ations #arious business units.

(a) he circle si/e corresponds to the relati#e si/e of the industry.

(b) he shaded wedge corresponds to the mar$et share of that business unit.

(c) :usiness units are placed on the matri' according to their indi#idual e#aluation

on competiti#e position and stage in the product life cycle.

" Ence all business units are plotted on the matri'& strategic managers ha#e an

indicator of the range of business units in #arious stages of the product life cycle.

K rawbac$s

(a) 8ofers product-mar$et e#olution matri' suffers from the same sub@ecti#itybiases that the ;c %#aluation is an important part of the entire strategic management process. ithout e#aluation&

strategic managers wouldnt ha#e a clue as to whether or not the implemented strategies,at anyle#el of the organi/ation,were wor$ing.

What are the $our "ays to e(aluate corporate strategies?

> he four main e#aluation techni?ues are) 1 corporate ob@ecti#esD 2 efficiency& effecti#eness&

and producti#ity measuresD 7 benchmar$ingD and " portfolio analysis.

#escribe each o$ the port$olio analysis matrices including ho" it/s used0 the cells in the matri' and

its ad(antages and dra"bac&s



17/24


> ?CG 8ro&t's'are9 3atri@is a four-cell matri' created as a way to determine whether a

business unit was a cash producer or a cash user. he simplicity of the :CB matri' is both its

biggest ad#antage and its biggest drawbac$.

> Mcinse!GE stop%i't 3atri@is a nine-cell matri' that pro#ides a more comprehensi#e

analysis of a business units internal and e'ternal factors. he ;c Pro-#ctMar:et e,o%#tion 3atri@is a 1K-cell matri' that is based on the product life cycle. he

product-mar$et e#olution matri' suffers from the same sub@ecti#ity biases that the ;c


18/24


BUESTIONS

"62 /O""OM 3I,2

Learnin O#tco3e 6.12 E@p%ain corporate strate!.

Corporate strategyis a strategy thats concerned with the choices of what businesses

to be in and what to do with those businesses. Ene thing we need to $now is whether

the organi/ation is asingle-business organizationin primarily one industry or amultiple-business organizationin more than one industry.

he corporate strategy establishes the o#erall direction the organi/ation hopes to go

while the other organi/ational strategies functional and competiti#e pro#ide the meansfor getting there. %ach type of strategy is important to whether the organi/ation doeswhat its in business to do and whether it achie#es its goals.

he three corporate strategic directions include mo#ing an organi/ation forward

growth strategy& $eeping an organi/ation where it is stability strategy& and re#ersingan organi/ations decline renewal strategy.

Learnin O#tco3e 6."2 Disc#ss orani$ationa% ro&t' strateies.

Agro"th strategyis one that e'pands the products offered or mar$ets ser#ed by an

organi/ation or e'pands its acti#ities or operations either through current businesses orthrough new businesses. here are fi#e different ways for an organi/ation to grow.

Concentrationis a growth strategy in which an organi/ation concentrates on its primary

line of business and loo$s for ways to meet its growth goals by e'panding its corebusiness. hree concentration options include) 1 productmar$et e'ploitation& whichis selling more current products to current mar$etsD 2 product de#elopment& which isselling new products to current mar$etsD and 7 mar$et de#elopment& which is sellingcurrent products to new mar$ets. he ad#antage of concentration is that this is theorgani/ations primary business and it $nows it well. he main drawbac$ is the#ulnerability to industry and other e'ternal changes.

he (ertical integration strategyis one in which an organi/ation grows by gaining

control of its inputs bac$ward& its outputs forward& or both. he benefits of #erticalintegration seem to slightly outweigh the costs.

!orizontal integrationis a strategy in which an organi/ation grows by combining

operations with competitors. +t can be a good growth strategy as long as it enables thecompany to meet its growth goals& it can be strategically managed& and it satisfies legaland regulatory guidelines.

he di(ersi$ication strategyis a strategy in which an organi/ation grows by mo#ing into

a different industry.3elated +concentric di(ersi$icationis di#ersifying into a differentindustry thats related in some way to the organi/ations current business. Unrelated+conglomerate di(ersi$icationis di#ersifying into a completely different industry not

related to the organi/ations current business. he final type of growth strategy is international in which an organi/ation grows by

ta$ing ad#antage of potential opportunities in global mar$ets or protecting its coreoperations from global competitors.

he growth strategies can be implemented in three ways) 1 mergerlegal transaction

in which two or more organi/ations combine operations through an e'change of stoc$and create a third entity or ac2uisitionoutright purchase of an organi/ation by anotherDif the organi/ation being ac?uired doesnt want to be ac?uired& its referred to as ahostile ta&eo(erD 2 internal de(elopmentorgani/ation grows by creating and

Copyright 2017 3earson %ducation& +nc. publishing as 3rentice 8all1O


19/24


de#eloping new business acti#ities itselfD and 7strategic partneringwhere two ormore organi/ations establish a legitimate relationship partnership by combiningtheir resources& distincti#e capabilities& and core competencies for some businesspurpose. ypes of strategic partnerships include)9oint (enturetwo or moreorgani/ations form a separate independent organi/ation for business purposes& long-term contracta legal contract between organi/ations co#ering a specific businesspurpose& orstrategic alliancetwo or more organi/ations share resources& capabilities&

or competencies to pursue some business purpose but no separate entity is formed.Learnin O#tco3e 6.(2 Descri)e t'e orani$ationa% sta)i%it! strate!.

Astability strategyis one in which an organi/ation maintains its current si/e and

acti#ities. +n most instances& it should be a short-run strategy.

imes when the stability strategy is appropriate include) industry is in period of rapid

change& industry is facing slow or no growth opportunities& organi/ation has @uste'perienced rapid growth& organi/ation is large and in an industry thats in the maturitystage of industry life cycle& or organi/ation is a small business whose owners aresatisfied with staying as is.

Stability strategy is implemented by not growing& but also by not allowing organi/ation

to decline.

Learnin O#tco3e 6.*2 Descri)e orani$ationa% rene&a% strateies. 3ene"al strategiesare used when an organi/ations situation is declining and strategic

managers want to re#erse the decline and put the organi/ation bac$ on a moreappropriate path to achie#ing its goals.

he main cause of performance declines can be traced to poor management although

things li$e inade?uate financial controls& uncontrollable or too high costs& newcompetitors& unpredicted shifts in consumer demand& slow or no response to significante'ternal or internal changes& and o#ere'pansion or too rapid growth also contribute.

here are two main renewal strategies) 1 retrenchmenta short-run strategy designed

to address organi/ational wea$nesses that are leading to performance declines and 2turnarounda strategy thats designed for situations in which organi/ationsperformance problems are more serious.

hese renewal strategies are implemented by cutting costs and restructuring. he

amount and e'tent of these are determined by whether its a retrenchment or turnaround.

=estructuring actions include) 1 di(estmentselling a business to another organi/ation

where it will continue as an ongoing business& 2spino$$setting up a business unit asa separate business by distributing its shares of stoc$& 7 li2uidationshutting down abusiness completely& " do"nsizingindi#iduals are laid off from their @obs& and Kban&ruptcyfailure of a business in which its dissol#ed or reorgani/ed under theprotection of ban$ruptcy legislation.

Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-.

here are four main techni?ues for e#aluating corporate strategy) 1 corporate goalswere organi/ations goals achie#edGD 2 measuring e$$iciencyorgani/ations ability tominimi/e resource use in achie#ing goals& e$$ecti(enessorgani/ations ability to reachits goals& andproducti(ityspecific measure of how many inputs it too$ to produceoutputsD 7 benchmar&ingsearch for best practices inside or outside an organi/ationDand " portfolio analysis& which is used to assess an organi/ations portfolio ofbusinesses.

hree main portfolio analysis techni?ues include the :CB matri'& the ;c


20/24


+f the e#aluation of corporate strategy shows its not wor$ing& strategic managers might

first change the functional and competiti#e strategies or they might ta$e more drasticaction and change the corporate direction.

S#estions for #sin 0OU as Strateic Decision Ma:er2 ?#i%-in 0o#r S:i%%s e@ercises

1. ypically in Lanuary or 4ebruary of each year& news articles will appear in,ortunemaga/ine that

identify and discuss the pre#ious years corporate mergers and ac?uisitions. Mou may wish to re#iew

the a#ailability of this or other resources on the sub@ect before assigning this ?uestion to yourstudents. Learnin O#tco3e 6."2 Disc#ss orani$ationa% ro&t' strateies Co#rse

Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2

Ref%ecti,e t'in:in s:i%%sF

". his is an e'cellent opportunity to introduce students to some of the a#ailable online research

sources a#ailable for in#estor& industry and corporate research. he U.S. go#ernment is also a source

www.sec.go#& www.ftc.go#& and www.dol.go#& etc..

- Mou may wish to gi#e your students an additional e'ercise by ha#ing them locate other sources of

business research information on the +nternet. Learnin O#tco3e 6."2 Disc#ss

orani$ationa% ro&t' strateies Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices

for strate! i3p%e3entation AACS?2 Use of infor3ation tec'no%o! Ref%ecti,e

t'in:in s:i%%sF

(. =apid compounding growth is often e'perienced in the early stages of growth for many companies.

his is an e'cellent opportunity to re#iew the Hcorporate life cycle.I Learnin O#tco3e 6."2

Disc#ss orani$ationa% ro&t' strateies Co#rse Le,e% O)>ecti,es2 Disc#ss )est

practices for strate! i3p%e3entation AACS?2 Ref%ecti,e t'in:in s:i%%sF

*. his e'ercise would best be assigned to a group. Additionally& you may ha#e your students present

both sides of this issue in an in-class debate. Learnin O#tco3e 6.12 Define corporate

strate! Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!

i3p%e3entation AACS?2 Ref%ecti,e t'in:in s:i%%sF

+. his is a good topic for class discussion before introducing Hta$eo#erI acti#ities. LearninO#tco3e 6.12 Define corporate strate! Co#rse Le,e% O)>ecti,es2 Disc#ss )est


6. his could be tac$led by groups of students as in-class e'ercise. Learnin O#tco3e 6."2

Disc#ss orani$ationa% ro&t' strateies Co#rse Le,e% O)>ecti,es2 Disc#ss )est


. 4in$elsteins boo$ itself may be an interesting pro@ect. +t may be interesting to compare this to

Hgroupthin$.I Mou may want to brainstorm with the class to create a list of Hbad decisionsI and

allow the students or groups to select from the list. %'amples) he introduction of (ew Co$e&

ua$ers ac?uisition of Snapple& %nrons decision to use ?uestionable accounting practices& ;artha

Stewarts decision to try to alter records& an =athersC:S decision to release the falsified

(ational Buard memos. Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! ise,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!




21/24


Strateic Manae3ent in Action Cases

Case 1 Gro&in Up

1. Under Armour is a single-business organi/ation that is utili/ing two growth strategies. 4irst&

there is a concentration strategy in that the company remains true to the shirts that originally

built the brand. Second& Under Armour is utili/ing a related di#ersification strategy through

the addition of new product lines li$e shoes& womens apparel& and so on. Learnin

O#tco3e 6.12 Define corporate strate! Co#rse Le,e% O)>ecti,es2 Disc#ss )est


2. he primary challenge for Under Armour is $eeping up with not only the technology of the

apparel that is sold& but fashion as well. ;onitoring trends is $ey for the companys success. +n

addition& the firm must be careful not to spread itself too thin across a #ariety of product

categories as this could affect o#erall corporate performance. Learnin O#tco3e 6.12

Define corporate strate! Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for

strate! i3p%e3entation AACS?2 Ref%ecti,e t'in:in s:i%%sF

7. Students may interpret the firms mission statement in a wide #ariety of ways.Learnin

O#tco3e 6.12 Define corporate strate! Co#rse Le,e% O)>ecti,es2 Disc#ss t'ef#nctions of ,ision state3ents 3ission state3ents an- %onter3 corporate

o)>ecti,es AACS?2 Ref%ecti,e t'in:in s:i%%sF

". he company may choose to use as an e#aluation measure the corporate goals. %#aluating

success in achie#ing targets and results would be an indicator of effecti#eness. +n addition&

Under Armour can certainly e'amine efficiency& effecti#eness& and producti#ity. hese

measures will help ascertain success as well. Learnin O#tco3e 6.+2 Disc#ss 'o&

corporate strate! is e,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss

)est practices for strate! i3p%e3entation AACS?2 Ref%ecti,e t'in:in s:i%%sF

K. See Under Armours website for the latest information. Learnin O#tco3e 6.+2 Disc#ss

'o& corporate strate! is e,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2Disc#ss )est practices for strate! i3p%e3entation AACS?2 Use of infor3ation

tec'no%o! Ref%ecti,e t'in:in s:i%%sF

Case " Ti3e for ?rea-

1. Corporate plays a role in determining ?ualifications for franchisees& de#eloping site criteria for

restaurant locations& setting uniform recipes and menus and national ad#ertising campaigns.

Competiti#e strategies would include $eeping food and image upscale and #aried to $eep customers

interested. 4unctional strategies might include hiring practices in local mar$ets& ad#ertising and

sponsorship publicity in local mar$ets. Learnin O#tco3e 6.12 Define corporate strate!

Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2


". Shaichs team should trac$ some specific indicators such as how fast new stores are coming on line&

how the sales per store is changing as more stores are created and how much brand recognition there

is among consumers and if that recognition translates into customers #isits. Learnin O#tco3e

6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane- Co#rse Le,e%

O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2 Ref%ecti,e

t'in:in s:i%%sF



22/24


(. :eing on #arious lists is positi#e for a company in that it fosters a strong sense of accomplishment

for those wor$ing for the firm. +t also signifies that from a strategic management standpoint&

inclusion on these lists is important. hen it comes to rapid growth& a company must be cogni/ant

of the ?uality of its offerings. 3anera wants to a#oid becoming complacent with their ser#ice&

offerings& and e#en the ambiance of the stores. +n addition& too rapid of growth might result in

?uality controls losing importance such as happened with ecti,es2 Disc#ss )est practices for strate!


*. 4ranchisees may become less interested& may be less ?ualified to own a restaurant. Site selection

may suffer as fewer good sites are a#ailable. 5ow #olume of sales in new restaurants. 8ealth

#iolations and customer complaints if operations are not running smoothly. ifficulty in hiring

managers and $ey employees if brand image is shifting or if restaurant is not seen as an attracti#e

opportunity.

A $ey ad#antage is to be able to mo#e fast using other peoples capital. Eften get owners who

understand how to reach local mar$ets and ha#e relationships with suppliers. En the other hand&

franchisees can be politically acti#e and may oppose management initiati#es& a bad owner can hurt

the entire brand by poor management of a single franchise discrimination in ser#ice or hiring for

e'ample. Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an-c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!


+. Starbuc$s and other coffee chains o#er local diners or cafes& 8aagen-a/s and Cold Stone premium

ice creams o#er airy ueen and other chains. Bodi#a chocolates o#er 8ersheys. 4lat screenwide

screen home theaters o#er tele#isions. Learnin O#tco3e 6.+2 Disc#ss 'o& corporate

strate! is e,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices

for strate! i3p%e3entation AACS?2 Ref%ecti,e t'in:in s:i%%sF

Case ( Spee- ?#3p

1. 4inding new mar$ets without alienating his loyal base of customers. :rian 4rance should try to re-pac$age the sport to appeal to new fans but $eep the basic product intact. Learnin O#tco3e

6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane- Co#rse Le,e%

O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2 Ref%ecti,e

t'in:in s:i%%sF

". At the corporate le#el& (ASCA= needs to decide on its message or image& the number of #enues

does it want multiple regional circuits& a single national circuit& independent e#ents and national

sponsorships. At the competiti#e le#el& strategies surrounding the schedule of when races will occur

ta$ing into account other sporting e#ents and traditions in #arious trac$s. At the functional le#el&

they need to consider local promotions to compete with local e#ents each year. Also& tic$et pricing

decisions and the need for local tele#isionnewspaper promotion will be at the functional le#el.

Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2


(.


23/24


e,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!


*. Ene e'ample& a product-mar$et e#olution matri' will help them see how the different products

relate to their counterparts and to determine which may be in need of renewal or change.

Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-

Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entation AACS?2


Case * C'anin t'e Men#

1. ecti,es2 Disc#ss )est


(. An organi/ations corporate strategy is used to guide the organi/ation in a certain direction long-

term. An organi/ations functional strategy pro#ides the means for ma$ing sure that direction is

followed and ensuring that significant progress is made toward achie#ing its corporate strategy.

herefore& if an organi/ation fre?uently changes its corporate strategies& its li$ely that its day-to-day operations will suffer. Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is

e,a%#ate- an- c'ane- Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!


*.


24/24


%ort$olio analysisincludes two-dimensional matrices that summari/e internal and e'ternal factorsconsisting of) 1 :CB matri'& 2 ;cecti,es2

Disc#ss )est practices for strate! i3p%e3entation AACS?2 Ref%ecti,e t'in:in

s:i%%sF

+. 8a#e student groups #isit ecti,es2 Disc#ss )est practices for

strate! i3p%e3entation AACS?2 Use of infor3ation tec'no%o! Ref%ecti,e t'in:in

s:i%%sF

2"

Documents

Coulter Smia6e Im 06