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StrategicManagement

CorporateStrategy

CorporateStrategy

Corporatestrategy:Whereshouldwecompeteandwhatvaluedoweaddtothe

individualbusinesses?

Theoverallplanforadiversifiedcompany (Porter)

e.g.FordMotors,GeneralElectric,PepsiCo,Gillette,Unilever,ProctorandGamble.

Business (orcompetitive)strategy:Howshouldindividualbusinessescompete?

Relatestostrategicbusinessunits(SBUs)withinone industryormarket

Lectureoutline

Diversificationtypes

Corporateparentingstyles

Portfolioplanningmodels

Related DiversificationStrategic fit between value chains

Can be skills or technology

Combine activities

Reduce costs

Typesofdiversification

Unrelated DiversificationStrategic fit is absent or secondary

Undervalued companies

Criteria such as:Bottom line?

Stability, long term future?

Capital requirement?

Vulnerable to recession?

Motives: Growth

Spreading Risk

Profit

'Making the right moves' (ABF)

Examplesof

diversifiedcompanies RelatedThorntons

Retailshops

CafThorntons

Weddingservice

Gifts

JohnsonandJohnson

Babyproducts

Firstaid

Neutrogena

Prescriptiondrugs

Prosthetics

Contactlenses

UnrelatedGeneralElectric

Aircraftengines

Hotpoint

appliancesGEEquity

Lighting

Xrayequipment

NBCTVnetwork

VirginGroup?

Vertical Integration

(Backward / Forward)Control of Supplies or Markets

Access to Information

Cost saving

ISSUES:

Problems in the management of diverse

business activities

Increase of dependency on one

industry

MethodsofDiversification

Horizontal IntegrationUnder utilized resources

Escape present business

Spreading risk

Synergy in resources & capabilitiesBuilding on expertise or technology

ISSUES:

Close and distant relatedness

What exactly are the synergies?

Thorntons: manufacturerand retailer of chocolate

e.g. Cadbury buyGreen&Blacks

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Corporate Parenting Styles

SYNERGY

MANAGER

PORTFOLIO

MANAGER

RESTRUCTURERPARENTAL

DEVELOPER

Conditionsforaddingvalue(GooldandCampbell1994)

RoomforimprovementofSBU?

Canparent

add

anything

that

SBU

cant

do

betteronitsown?

DoesparentunderstandCriticalSuccess

Factors?

ParentingMatrixassessingfit

Fit between:

SBU Critical Success

Factors,

and

Parents skills, resources,

characteristics

Alien SBUsValue trap

SBUs

Heartland

SBUs

Ballast

SBUs

Fit between:SBU parenting opportunities, and

Parents skill s, resources, characteristics

Adapted from

Goold, Campbell

& Alexander,

Corporate Level

Strategy, Wiley

1994

Low

High

LowHigh

Howdocorporateparentsdestroyvalue?

Addanextralayerofbureaucracythatdelaysdecisionmaking

Encouragecareerisminmanagers

Increasemistrustmanagers

Adviseincorrectmethodsbecausedontunderstand theindustry

Forceallbusinessestofollowthesamestrategicplanningmethods

Forcesynergybetweenbusinessesthatdoesntaddanybenefit

Portfolioplanningmodels

Purpose - Evaluate business unit performance- Assess balance of the corporate portfolio

- Formulate business unit objectives

Models - GE/McKinsey matrix- BCG Growth-Share matrix (Boston Box)

Popular in 1970s but not now

Business unit position

GE/McKinseymatrix

(see Henry 2008, p243)

high

Medium

low

strong Medium weak

IndustryAttractivenes

s

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BCGMatrix(BostonBox)(SeeHenry2008p239)

HIGHLOW LOW

Annualrealrateofmarketgrowth(%)

Relative market share

HIGH

Earnings: high stable

Cash flow: high stable

Strategy: milk

Earnings: low, unstable

Cash flow: neutral or negative

Strategy: divest

Earnings: high stable, growing

Cash flow: neutral

Strategy: invest for growth

Earnings: low, unstable, growing

Cash flow: negative

Strategy: analyze to determine

whether business can be grown into

a star, or will degenerate into a dog ?

Portfolioplanningmodelscritique

Thesemodelswerepopularinthe

1970s/1980s

but

are

now

seen

as

over

simplifications

Assumesnolinkagesbetweenbusinesses

Sellingadogbusinesscouldhavenegativeconsequencesforremainingbusinesses

Conclusion

Corporateparentingdecisionsaremadeatthe

highestlevelofteninvolving1000sofemployeesand

$billions.

Perhapsthereisnoformulaformakingtheright

decisionbecausetherearesomanyvariablesanda

greatdealofuncertainty.

Businessesthatareupforsaletendtobeovervalued

thereforedifficulttorecoverthecostofpurchase

References

Collis,DandMontgomeryC(1998)CreatingCorporateAdvantage,HarvardBusinessReview,MayJune1998,pp7183.

Gooldetal(1995)Thequestforcorporateparentingadvantage,HarvardBusinessReview,MarchApril1995,pp120132.

Grant,R(2005)ContemporaryStrategyAnalysis,Blackwell(fourtheditiononwards)

Henry,A(2008)Understanding StrategicManagement,OUP.

Johnson,ScholesandWhittington(2008)ExploringCorporateStrategy(8thedition)(note6th and7th editionalsouseful)FTPH.

(notethemainauthorsinthisareaareMichaelGoold,AndrewCampbellandMarcusAlexander)