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Corporate-level Strategy

Corporate-level Strategy. Managing Multi-Unit Playing Cards. J. 8. 3. 8. K. Managing Multi-Unit Playing Cards. J. 8. 3. 8. K. 2. 10. 7. Q. 4. Managing Multi-Unit Playing Cards. J. 8. 3. 8. K. 2. 10. 7. Q. 4. 7. J. 4. 3. 3. Managing Multi-Unit Playing Cards.

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Corporate-level Strategy

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  1. Corporate-level Strategy

  2. Managing Multi-Unit Playing Cards J 8 3 8 K

  3. Managing Multi-Unit Playing Cards J 8 3 8 K 2 10 7 Q 4

  4. Managing Multi-Unit Playing Cards J 8 3 8 K 2 10 7 Q 4 7 J 4 3 3

  5. Managing Multi-Unit Playing Cards • Organizational Units • Suit • Number 3, 4, 7, J • Managing Organizational Units • Positive Outcomes • Two-, Three-, Four-of-a-kind • Flush • Straight • Full house 7 J 4 3 3

  6. Corporate Strategy • Decide scope/reach of the firm • In which businesses or industries does our organization operate or compete? • Develop and leverage synergies across differentiated organization units Acme Inc. Product 1 Product 2 Product 3 Product N

  7. Multi-Unit Management • Unrelated organization units General Electric Light Bulbs Aircraft Engines Power Generation Equipment Kitchen Appliances

  8. Multi-Unit Management • Related organization units Procter & Gamble Soap Food Paper Products OTC Pharm.

  9. Multi-Unit Management • Portfolio focus and rebalancing PEPSI Juices, Water, Sports drinks Snack Foods Carbonated Beverages Fast Food 20% of total sales

  10. Multi-Unit Management • Portfolio focus • Near-single business organization COCA-COLA Juices, Water, Sports drinks Carbonated Beverages 80% of total sales

  11. Diversification Strategy Examples • Pepsi • Acquired Tropicana juice co. • Acquired Quaker Oats • Gatorade • Spun-off fast food restaurants (YUM!) • Issued Pepsi Bottling IPO • Reinvest in Frito-Lay • FedEx • Acquired Mailboxes Plus! • Acquired Kinko’s • Kraft Foods’ acquisition of Cadbury • Pfizer acquires Wyeth • UK acquires Good Samaritan • PNC Bank acquires National City Bank

  12. Why Diversify?? Jet Ski Division Sales ($) Snowmobile Winter Spring Summer Fall Pharmaceuticals Industry Growth (%) Bulk Chemicals 1960 1970 1980 1990 2000 2010

  13. Benefits of Diversification • Reduce earnings volatility • Move organization into attractive markets and market segments • Growth • Minimize risk • Prolong “life” of the organization • Improve long-term performance • Capture synergies and strategic “fit” between businesses • Steer corporate resources

  14. Types of Organizational Diversification • Vertical • Horizontal • Related • Unrelated • Global

  15. Marathon Oil Retail Stores Gas Stations Installed Oil Shops Wholesaling Refining Transport Oilfield Extraction Oilfield Exploration

  16. Exxon-Mobil Retail Stores Gas Stations Installed Oil Shops Wholesaling Refining Transport Oilfield Extraction Oilfield Exploration

  17. Horizontal DiversificationRelated Procter & Gamble Soaps Paper Products Food Products Finance Finance R&D R&D Mfg. Marketing Logistics To diversify, or not?

  18. Horizontal DiversificationUnrelated General Electric Aircraft Engines Lighting Products Appliances Finance Finance

  19. Geographic DiversificationInternational Markets Cola-Cola US Greece China Finance Finance Brand & Some Marketing Brand & Some Marketing Local bottling and distribution

  20. Evaluation of Diversified Firms • Identify present corporate strategy • Extent and type of diversification • Geographic scope • New acquisitions • Recent divestitures • Mode of new business entry

  21. Diversified Inc.Evaluation of Internal, External, Portfolio, and Synergistic Factors HQ Bus. 1 Bus. 2 Bus. 3 Growth Size Remote Env. Growth Size Remote Env. Growth Size Remote Env.

  22. Evaluation of Diversified Firms • Reveal contextual position of corporate portfolio BCG Growth-share Matrix Hi Industry Growth Rate Lo < 1.0 1.0 > 1.0 Relative Market Share

  23. Evaluation of Diversified Firms • Reveal contextual position of corporate portfolio BCG Growth-share Matrix High good Industry Growth Rate Low bad < 1.0 1.0 > 1.0 Behind Market Leader Market Leader Relative Market Share

  24. Evaluation of Diversified Firms • Reveal contextual position of corporate portfolio BCG Growth-share Matrix High good ? Stars Industry Growth Rate Low bad Cash Cows Dogs < 1.0 1.0 > 1.0 Behind Market Leader Market Leader Relative Market Share

  25. Evaluation of Diversified Firms • Reveal contextual position of corporate portfolio BCG Growth-share Matrix Light Bulbs High good Appliances Aircraft Engines Industry Growth Rate Low bad < 1.0 1.0 > 1.0 Behind Market Leader Market Leader Relative Market Share

  26. Evaluation of Diversified Firms • Reveal competitive position of corporate portfolio • G.E. Industry attractiveness/business strength matrix H Industry Long Term Attractiveness M L Str. Avg. Weak Firm’s Competitive Position

  27. Evaluation of Diversified Firms • Reveal competitive position of corporate portfolio • G.E. Industry attractiveness/business strength matrix Aircraft Engines Light Bulbs H Appliances Industry Long Term Attractiveness M L Weak Strong Avg. Firm’s Competitive Position

  28. Transformation Through Diversification • Enter new businesses • Change business portfolio (Monsanto) • Shift from commodity chemicals to agricultural biotechnology • Molecular biology • GM seed/plant technologies • Branded products Total Return MONSANTO Biotech (38%) S&P Chemicals (18%) 1994 Today

  29. Transformation Through Diversification Nokia • Founding -1989: Electrical conglomerate • 1993-today: 90% telecommunications Total Return Nokia Motorola S&P Eriksson 1989 1993 2009

  30. Strategic Management of Diverse, Multi-Unit Organizations • Turnaround • Restore competitiveness to poor performers • New advantages created within portfolio • Retrenchment • Narrow scope of portfolio • “Stick to your knitting” • Restructuring • Add new businesses / divest poor performers

  31. Disney: Capability Leverager Toy Story • Films • Videos • Network TV • Cable TV • Hotels • Cruise lines • Merchandise • Brand licensing • Retail Stores Theme Park TV Show Food Items Merchandise

  32. Blue CircleDominant-business Diversified Firm HQ Cement Cement Products • Core Competence: • Products related to home-building

  33. Blue Circle HQ Cement Bricks Gas Stoves Cement Products Lawn Mowers • Core Competence: • Products related to home-building?

  34. BoddingtonsVertically Integrated Firm HQ Pubs Beer Wholesaling Beer Brewing • Core Competence: • Hospitality, retailing, property management

  35. BoddingtonsRelated Horizontal Diversified Firm HQ Pubs Hotels Health Clubs Restaurants Nursing Homes • Core Competence: • Hospitality, retailing, property management

  36. Love Your Dogs

  37. Love Your Dogs • Why? • Dogs are under-appreciated • Neglected • Same category as “value stocks” Payoffs to investing in and paying greater operational-strategic attention to underperformers better than investing in unproven “stars” • Dogs need nurturing/attention • “Feed” them (resources, attention) • Have them “fixed” (new strategy) • Teach them “new tricks” (innovation) • “Adopt” someone else’s dogs

  38. Managing Multi-Unit Playing Cards • Organizational Units • Suit • Number 3, 4, 7, J • Managing Organizational Units • Positive Outcomes • Two-, Three-, Four-of-a-kind • Flush • Straight • Full house 7 J 4 3 3

  39. Questions…?

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