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Chapters 9 - 10. Corporate Level Strategy. How are we going to compete and gain a competitive advantage in each of our businesses?. Foods. Business Level Strategies. Quaker North America. Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs

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Chapters 9 - 10

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Chapters 9 10

Chapters 9 - 10

Corporate Level Strategy


Chapters 9 10

How are we going to compete and

gain a competitive advantage in

each of our businesses?

Foods

Business Level

Strategies

Quaker North America

Quaker rice cakes and granola bars

Rice-A-Roni side dishes

Near East couscous/pilafs

Aunt Jemima mixes & syrups

Quaker grits

Quaker Oats

Cap’n Crunch cereal

Life cereal

Quisp cereal

King Vitaman cereal

Mother’s cereal


Chapters 9 10

Snack Foods

Beverages

Foods

Corporate Level Strategy

1) What businesses do we want to compete in?

2) How do manage effectively across businesses


Goals of corporate strategy

Goals of Corporate Strategy

Moves to enter new businesses

Boosting combined performance of the businesses

Capturing synergies and turning them into competitive advantages

Establishing investment priorities and steering resources into business units


4 corporate level strategies

4 Corporate Level Strategies

  • 1) Vertical Integration

  • 2) Strategic Outsourcing

  • 3) Horizontal Integration

  • 4) Diversification – two or more different businesses with distinct operations


1 vertical integration

1) Vertical Integration

  • Forward or backwards

    • Full integration

    • Taper integration

  • Benefits

    • Build barriers to entry

    • Facilitates investment in specialized assets

    • Protecting product quality

    • Improved scheduling

  • Risks

    • Costs

    • Rapid technological changes

    • Demand predictability


Alternatives to vertical integration

Alternatives to Vertical Integration

  • Competitive bidding

  • Long term contracts or strategic alliances

Form of Relationship

Markets &

Competitive Bidding

Hybrid &

Contracts/Alliances

Vertical

Integration


2 outsourcing

2) Outsourcing

  • Cost reduction and differentiation

  • Hold-ups, scheduling and hallowing out


3 horizontal integration

3) Horizontal Integration

  • Acquiring or merging with industry competitors

    • Reduce cost and economies of scale

    • Increasing value through wider product line or product bundling

    • Manage industry rivalry

    • Decrease buyer and supplier power


4 how to diversify

4) How to Diversify?

1) Internal Development - corporate entrepreneurship or internal venturing

  • able to appropriate a larger portion of wealth

  • avoids complexities of multiple partners

  • time consuming and requires diversity of organizational capabilities


4 how to diversify1

4) How to Diversify?

2) Strategic Alliances and Joint Ventures

  • entering a new market via the combination of complementary resources - do more together

  • cost reduction & sharing

  • development/diffusion of technology

    Problems

  • appropriate partners - skills and compatibility

  • trust and commitment

  • communication


4 how to diversify2

4) How to Diversify?

3) Mergers & Acquisition


Chapters 9 10

Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

Results

Poor

Performance

Who Wins?

Acquired Firm

Shareholders


Failures of acquisitions

Failures of Acquisitions

30 - 40% average acquisition premium

Acquiring firm’s value drops 4% in the 3 months following acquisitions

30 - 50% of acquisitions are later divested

Acquirers underperform S&P by 14%, peers by 4%

3 month performance before and after

  • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns


Why then do executives acquire

Why, then, do executives acquire?

Often, for personal reasons

Firm size and executive compensation are related

When do executives loss their jobs?

  • 1) Acquired - larger firms harder to acquire

  • 2) Performing poorly - employment risk is reduced as returns are less volatile


Chapters 9 10

Levels of Diversification

Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizontal relationships across businesses - synergies

Advantages of related diversification include:

  • Leveraging Core Competencies

  • Sharing Activities

  • Market Power


Chapters 9 10

Levels of Diversification (cont.)

Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses

Conglomerate Diversification - no relatedness between businesses


When why to diversify

When/Why to Diversify?

To create shareholder value

Porter’s Three Point Test

1) Attractiveness Test

2) Cost of Entry Test

3) Better off Test

Should pass all 3


Portfolio analysis

Portfolio analysis

  • BCG Growth-Share Matrix

    • question marks, dogs, cash cows, stars

  • GE- Nine Cell Matrix


Chapters 9 10

Boston Consulting Group Matrix

Relative Market Share

Question

Marks

Stars

Growth

Rate

Cash

Cows

Dogs


Chapters 9 10

BCG Matrix for PepsiCo - Early 1990s

Relative Market Share

High

Taco

Bell

Growth

Rate

Pizza

Hut

10%

Frito

Lay

Low

Soft

Drinks

KFC

Low

High

1.0


Chapters 9 10

BCG Matrix for PepsiCo - Early 1990s

Relative Market Share

Pizza

Hut

Taco

Bell

High

Growth

Rate

Frito

Lay

5%

KFC

Soft

Drinks

Low

Low

High

.75


Chapters 9 10

GE 9 Cell Matrix

Competitive Strengths

High

Low

High

Invest

Grow

Hold

Attractiveness

Harvest

Divest

Low


Chapters 9 10

GE 9 Cell Matrix for Pepsico

Competitive Strengths

High

Low

High

Snack Foods

Attractiveness

Soft Drinks

Low


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