Strategies in Corporate Level Strategy and Industry Attractiveness Matrix

8/9/2019 Strategies in Corporate Level Strategy and Industry Attractiveness Matrix

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Name : Pandu Bintang Hutomo

1. Strategies In Corporate Level

STRATEIES

ro!t" Strategies

All growth strategies can be classified into one of two fundamental categories:

concentration within existing industries or diversification into other lines of business or

industries. When a company's current industries are attractive, have good growth potential, and

do not face serious threats, concentrating resources in the existing industries makes good sense.

Diversification tends to have greater risks, but is an appropriate option when a company's current

industries have little growth potential or are unattractive in other ways. When an industry

consolidates and becomes mature, unless there are other markets to seek for example other

international markets!, a company may have no choice for growth but diversification.

"here are two basic concentration strategies, vertical integration and hori#ontal growth.

Diversification strategies can be divided into related or concentric! and unrelated

conglomerate! diversification. $ach of the resulting four core categories of strategy alternatives

can be achieved internally through investment and development, or externally through mergers,

ac%uisitions, and&or strategic alliances, thus, producing eight maor growth strategy categories.

(omments about each of the four core categories are outlined below, followed by some

key points about mergers, ac%uisitions, and strategic alliances.


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1. #erti$al Integration: "his type of strategy can be a good one if the company has a strong

competitive position in a growing, attractive industry. A company can grow by taking over

functions earlier in the value chain that were previously provided by suppliers or other

organi#ations )backward integration)!. "his strategy can have advantages, e.g., in cost,

stability and %uality of components, and making operations more difficult for competitors.

*owever, it also reduces flexibility, raises exit barriers for the company to leave that industry,

and prevents the company from seeking the best and latest components from suppliers competing

for their business.

A company also can grow by taking over functions forward in the value chain previously

provided by final manufacturers, distributors, or retailers )forward integration)!. "his strategy

provides more control over such things as final products&services and distribution, but may

involve new critical success factors that the parent company may not be able to master and

deliver. +or example, being a worldclass manufacturer does not make a company an effective

retailer.

-ome writers claim that backward integration is usually more profitable than forward

integration, although this does not have general support. n any case, many companies have

moved toward less vertical integration especially backward, but also forward! during the last

decade or so, replacing significant amounts of previous vertical integration with outsourcing and

various forms of strategic alliances.

%. Hori&ontal ro!t": "his strategy alternative category involves expanding the company's

existing products into other locations and&or market segments, or increasing the range of

products&services offered to current markets, or a combination of both. t amounts to expanding


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sideways at the points! in the value chain that the company is currently engaged in. /ne of the

primary advantages of this alternative is being able to choose from a fairly continuous range of

choices, from modest extensions of present products&markets to maor expansions each with

corresponding amounts of cost and risk.

'. Related (iversi)i$ation *a+a Con$entri$ (iversi)i$ation,: n this alternative, a company

expands into a related industry, one having synergy with the company's existing lines of

business, creating a situation in which the existing and new lines of business share and gain

special advantages from commonalities such as technology, customers, distribution, location,

product or manufacturing similarities, and government access. "his is often an appropriate

corporate strategy when a company has a strong competitive position and distinctive

competencies, but its existing industry is not very attractive.

-. nrelated (iversi)i$ation *a+a Conglomerate (iversi)i$ation,: "his fourth maor category

of corporate strategy alternatives for growth involves diversifying into a line of business

unrelated to the current ones. "he reasons to consider this alternative are primarily seeking more

attractive opportunities for growth in which to invest available funds in contrast to rather

unattractive opportunities in existing industries!, risk reduction, and&or preparing to exit an

existing line of business for example, one in the decline stage of the product life cycle!. +urther,

this may be an appropriate strategy when, not only the present industry is unattractive, but the

company lacks outstanding competencies that it could transfer to related products or industries.

*owever, because it is difficult to manage and excel in unrelated business units, it can be

difficult to reali#e the hopedfor value added.


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/ergers0 A$uisitions0 and Strategi$ Allian$es: $ach of the four growth strategy categories

ust discussed can be carried out internally or externally, through mergers, ac%uisitions, and&or

strategic alliances. /f course, there also can be a mixture of internal and external actions.

0arious forms of strategic alliances, mergers, and ac%uisitions have emerged and are used

extensively in many industries today. "hey are used particularly to bridge resource and

technology gaps, and to obtain expertise and market positions more %uickly than could be done

through internal development. "hey are particularly necessary and potentially useful when a

company wishes to enter a new industry, new markets, and&or new parts of the world.

Despite their extensive use, a large share of alliances, mergers, and ac%uisitions fall far

short of expected benefits or are outright failures. +or example, one study published in 1usiness

Week in 2333 found that 42 percent of alliances were either outright failures or )limping along.)

5esearch on mergers and ac%uisitions includes a 6ercer 6anagement (onsulting study of all

mergers from 2337 to 2334 which found that nearly half )destroyed) shareholder value8 an A. ".

9earney study of 22 multibilliondollar, global mergers between 233; and 2334 where ac%uisitions over ?77 million

from 233@ to 233> in which twothirds of the buyer's stocks dropped on announcement of the

transaction and a third of these were still lagging a year later.

6any reasons for the problematic record have been cited, including paying too much,

unrealistic expectations, inade%uate due diligence, and conflicting corporate cultures8 however,

the most powerful contributor to success or failure is inade%uate attention to the merger

integration process. Although the lawyers and investment bankers may consider a deal done


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"his second component of corporate level strategy is concerned with making decisions about the

portfolio of lines of business B/1's! or strategic business units -1's!, not the company's

portfolio of individual products.

=ortfolio matrix models can be useful in reexamining a company's present portfolio. "he

purpose of all portfolio matrix models is to help a company understand and consider changes in

its portfolio of businesses, and also to think about allocation of resources among the different

business elements. "he two primary models are the 1(C Crowth-hare 6atrix and the C$

1usiness -creen =orter, 23


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decrease the amount and breadth of diversification. t may involve closing out

some B/1's lines of business!, adding others, and&or changing emphasis among

B/1's.

nitiating actions to boost the combined performance of the businesses the company

has diversified into: "his may involve vigorously pursuing rapidgrowth strategies

in the most promising B/1's, keeping the other core businesses healthy, initiating

turnaround efforts in weakperforming B/1's with promise, and dropping B/1's

that are no longer attractive or don't fit into the corporation's overall plans. t also

may involve supplying financial, managerial, and other resources, or ac%uiring

and&or merging other companies with an existing B/1.

=ursuing ways to capture valuable crossbusiness strategic fits and turn them into

competitive advantages especially transferring and sharing related technology,

procurement leverage, operating facilities, distribution channels, and&or customers.

$stablishing investment priorities and moving more corporate resources into the

most attractive B/1's.

(I#ERSI7ICATI6N

"here are two diversification in corporate corporate level strategy :

Related (iversi)i$ation: n this alternative, a company expands into a related

industry, one having synergy with the company's existing lines of business, creating

a situation in which the existing and new lines of business share and gain special

advantages from commonalities such as technology, customers, distribution,

location, product or manufacturing similarities, and government access. "his is

often an appropriate corporate strategy when a company has a strong competitive


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position and distinctive competencies, but its existing industry is not very

attractive.

nrelated (iversi)i$ation : "his fourth maor category of corporate strategy

alternatives for growth involves diversifying into a line of business unrelated to the

current ones. "he reasons to consider this alternative are primarily seeking more

attractive opportunities for growth in which to invest available funds in contrast to

rather unattractive opportunities in existing industries!, risk reduction, and&or

preparing to exit an existing line of business for example, one in the decline stage

of the product life cycle!. +urther, this may be an appropriate strategy when, not

only the present industry is unattractive, but the company lacks outstanding

competencies that it could transfer to related products or industries. *owever,

because it is difficult to manage and excel in unrelated business units, it can be

difficult to reali#e the hopedfor value added.

%. Industr3 Attra$tiveness /atri8

ndustry attractiveness indicates how hard or easy it will be for a company to compete in the

market and earn profits. "he more pro)ita2le the industry is t"e more attra$tiveit becomes.

When evaluating the industry attractiveness, analysts should look how an industry will change in

the long run rather than in the near future, because the investments needed for the product

usually re%uire long lasting commitment.

ndustry attractiveness consists of many factors that collectively determine the competition level

in it. "heres no definite list of which factors should be included to determine industry

attractiveness, but the following are the most common: E2F


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Bong run growth rate

ndustry si#e

ndustry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of

substitutes and available complements use =orters +ive +orcesanalysis to determine

this!

ndustry structure use -tructure(onduct=erformance framework to determine this!

=roduct life cycle changes

(hanges in demand

"rend of prices

6acro environment factors use=$-" or =$-"$Bfor this!

-easonality

Availability of labor

6arket segmentation
http://www.strategicmanagementinsight.com/tools/porters-five-forces.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/porters-five-forces.html


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"he vertical axis of the C$ & 6c9insey matrix is industry attractiveness, which is determined by

factors such as the following:

6arket growth rate

6arket si#e

Demand variability

ndustry profitability

ndustry rivalry


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1rand strength use brand value for this!

=rofitability of the company

(ustomer loyalty

05/ resources or capabilities use 05/ framework to determine this!

Oour business unit strength in meeting industrys critical success factors use (ompetitive

=rofile 6atrixto determine this!

-trength of a value chain use 0alue (hain Analysis and1enchmarking to determine this!

Bevel of product differentiation

=roduction flexibility

Advantages

*elps to prioriti#e the limited resources in order to achieve the best returns.

6anagers become more aware of how their products or business units perform.

ts more sophisticated business portfolio framework than the 1(C matrix.

dentifies the strategic steps the company needs to make to improve the performance of

its business portfolio.
http://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.htmlhttp://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.html


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(isadvantages

5e%uires a consultant or a highly experienced person to determine industrys

attractiveness and business unit strength as accurately as possible.

t is costly to conduct.

t doesnt take into account the synergies that could exist between two or more business

units.

(i))eren$e 2et!een E /$9inse3 and BC matri$es

C$ 6c9insey matrix is a very similar portfolio evaluation framework to 1(C matrix. 1oth

matrices are used to analy#e companys product or business unit portfolio and facilitate the

investment decisions.

Competitive strengt" o) a 2usiness unit or a produ$t

Along the K axis, the matrix measures how strong, in terms of competition, a particular business

unit is against its rivals. n other words, managers try to determine whether a business unit has a

sustaina2le $ompetitive advantageor at least temporary competitive advantage! or not. f the

company has a sustainable competitive advantage, the next %uestion is: L+or how long it will be

sustainedMN

"he following factors determine the competitive strength of a business unit:

"otal market share

6arket share growth compared to rivals
http://www.strategicmanagementinsight.com/topics/competitive-advantage.htmlhttp://www.strategicmanagementinsight.com/topics/competitive-advantage.html


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1rand strength use brand value for this!

=rofitability of the company

(ustomer loyalty

05/ resources or capabilities use 05/ framework to determine this!

Oour business unit strength in meeting industrys critical success factors use (ompetitive

=rofile 6atrixto determine this!

-trength of a value chain use 0alue (hain Analysis and1enchmarking to determine this!

Bevel of product differentiation

=roduction flexibility

Advantages

*elps to prioriti#e the limited resources in order to achieve the best returns.

6anagers become more aware of how their products or business units perform.

ts more sophisticated business portfolio framework than the 1(C matrix.

dentifies the strategic steps the company needs to make to improve the performance of

its business portfolio.
http://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.htmlhttp://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.html


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Rate t"e )a$tors."he next thing you need to do is to rate each factor for each of your

product or business unit. (hoose the values between P2 or P227, where P2 indicates

the low industry attractiveness and P or P27 high industry attractiveness.

Cal$ulate t"e total s$ores."otal score is the sum of all weighted scores for each business

unit. Weighted scores are calculated by multiplying weights and ratings. "otal scores

allow comparing industry attractiveness for each business unit.

ndustry attractiveness factor 1usiness nit 2 1usiness nit I

Weight 5ating Weighted -core 5ating Weighted -core

ndustry growth rate 7.I ; 7.> @ 2ndustry si#e 7.II ; 7.44 ; 7.44

ndustry profitability 7.2< 7.37 2 7.2 @ 7.4< @ 7.4

6arket segmentation 7.73 I 7.2< ; 7.I>

Total s$ore 1. %.= '.=%

"his is a tough task and one that usually re%uires involving a consultant who is an expert of the

industries in %uestion. "he consultant will help you to determine the weights and to rate them

properly so the analysis is as accurate as possible.


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Step %. (etermine t"e $ompetitive strengt" o) ea$" 2usiness unit

P-tep I is the same as P-tep 2 only this time, instead of industry attractiveness, the competitive

strength of a business unit is evaluated.

/a+e a list o) )a$tors.(hoose the competitive strength factors from our list or add your

own factors.

Assign !eig"ts. Weights indicate how important a factor is in achieving sustainable

competitive advantage. A number from 7.72 not important! to 2.7 very important!

should be assigned to each factor. "he sum of all weights should e%ual to 2.7.

Rate t"e )a$tors.5ate each factor for each of your product or business unit. (hoose the

values between P2 or P227, where P2 indicates the weak strength and P or P27

powerful strength.

Cal$ulate t"e total s$ores.-ee P-tep 2.

(ompetitive strength factor 1usiness nit 2 1usiness nit I

Weight 5ating Weighted -core 5ating Weighted -core

6arket share 7.II I 7.@@ I 7.@@

5elative growth rate 7.2< ; 7.@< I 7.;

Documents

Strategies in Corporate Level Strategy and Industry Attractiveness Matrix