Corporate Strategy Part II

1. Corporate Strategy Part II Prof. T.Voskanian

2. Diversification Diversification is typically defined as a strategy which takes the organization away from its current markets or products or competences Related diversification is strategy development beyond current products and markets, but within the value system or “industry” in which the company operates Unrelated diversification is an organization moving beyond its current value system or industry

3. Possible advantages of diversification Control of supplies Quantity Quality Price Control of markets Access to information Cost savings Building on: Core competences Technology Spreading risk Resource utilization Parenting

4. Corporate Diversity

5. Unrelated diversification Unrelated diversification is an organization moving beyond its current value system or industry Diversification into quite new markets Creation of new markets Creation of new competences for new market opporuniries

6. Diversification and performance The target is to study the relationship between diversification and performance of the company The balance of evidence is that relatedness of diversification is financially beneficial is so far as it allows an organization to build on and leverage common resources and competences The cost of managing diversity could be considerable Combination of diverse location and diverse business units again gives rise to level of complexity Underutilization of physical resources or intangible resources is likely to encourage related developments, whereas excess financial resources may well be used to underwrite unrelated developments

7. Bases of strategic choice at the business level

8. The strategy clock: competitive strategy options

9. The strategy clock: competitive strategy options

10. Sustaining competitive advantage Sustaining low price advantage Achieving and sustaining competitive advantage throuhg low price is dependent on low cost but that is difficult to sustain Being a price leader (market share-economies of scale) Low cost production (reduction through value chain: low cost materials through quantities purchased or efficiency achieved)Strategy may result in the customer perceiving a lower added value product or services Sustaining differentiation-based strategy Conditions to sustain differentiation: Difficulties of imitation Complexity Causal ambiguity Imperfect mobility More intangible assets Switching cost The delta model and ‘lock-in’

11. Game Theory The general idea is that the strategist, has to anticipate the reaction of others competitors. Simultaneous game – where the competitors make decisions or moves at the same time without knowing what each other is doing Sequential games- try to thing through sequence of moves that competitors make make based on a reasonable assumption about what competitor desires as the outcome. The importance of timing in strategic moves The importance of careful weighing of risk The importance of establishing credibility and commitment Repeated games – presence of co-operation

12. Repeated games The presence or absence of implicit co-operation will be dependent upon a number of factors: The number of competitors on the market If there are small competitors competing with larger competitors Where there are substantial differences between firms If there is a lack of transparency on bases of competitors within the market

13. The ‘Prisoner’s Dilemma’

14. Dominant vs dominated The dominant strategy is one that outperfprms all other strategies whatever rivals choose If a firm does not have a dominant strategy game theory suggests that it is important to identify if there are any non dominated strategy and; and if yes to eleiminate the possibility of the situation occuring. Equilibrium is a situation

15. Competitive strategy in hyper competitive conditions Advantage base on price or differentiation Seeking advantage through market-base strategic moves First-mover advantage Developing New Products and new markets Seeking advantage by building barriers Resource based advantage Strongholds The advantages of ‘deep pockets’ Scale of the operation

16. Escalation of bases of competition

17. Product-market expansion grid

18. Methods of Strategy development Internal Development Acquisition Joint Ventures

19. Internal development Internal development is where strategies are developed by building up an organization’s own resources base and competences For product that are highly technical in design and manufacture, businesses may choose to develop new products themselves Development of the new market by direct involvement Process of knowledge creation Cost of acquiring could be higher than internal development

20. Merger and acquisition Acquisition is where an organization develops its resources and competences by taking over another organization Motives for acquisition & merger Speed to enter the new markets and product position Case of static market with reasonably stable market share of competitors A lack of resources or competences Cost efficiency Value to shareholders

21. Making acquisition work Problems my arise: Paid to much Acquire may be unable to add value Inability to integrate the new company into activities of the old Problems of cultural fit

22. Making acquisition work There are three broad approaches to issues of post-merger cultural fit: Assimilation Hybrid Separate (appropriate when the reason for acquisition Is more financial than strategic) 70% of acquisition end up with lower return to shareholders of both organization

23. Joint ventures A joint development is where two or more organization share resources and activities to pursue a strategy. Alliances may be formed either to exploit current resources and competences or ot exploit new possibilities Motives for alliances: The need for critical mass which alliances can achieve by co-operation of either competitors or providers of complementary products Co-specialization – allowing each partner to concentrate on activities that best match their resources and competences. To enter new geographical markets. Learning from partners and developing competences that may be more widely exploited elsewhere.

24. Form of alliances Joint ventures are through of as arrangements where organizations remain independent but set up a newly created organization jointly owned by parents Consortia – typically more focused on a particular venture Opportunistic alliances might be organized around particular project without any formality. Network – work through a mechanism of mutual advantages and trust Franchising, Licensing, sub-contracting,

25. Factors influencing the form of alliances Business environment dictates the need to create alliance Resource reason – scale economies, desire to learn from partner, new countries, new technologies Some organizations will operate in situations where there are expectations that alliances should be preferred development method: spread of financial risk, political climate, fashionable in some industries

26. Ingredients of successful alliances Trust Competence based Character based Senior Management support Clear goals and organizational arrangements Compatibility at the operational level

27. Success criteria Suitability is concerned with whether a strategy addresses the circumstances in which an organization is operating – the strategic position Exploiting opportunities Capitalizing on an organizational strengths addressing expectations Acceptability is concerned with the expected performance outcomes of a strategy Feasibility is concerned with whether an organization has the resources and competences to deliver a strategy

28. Why strategy can be unsuitable There could be other strategies more suitable. Rank strategies Decision trees Scenarios Absence of internal consistency – the competitive strategy, the development directions and development methods need to be consistent

29. Acceptability Approaches to measure return Profitability analysis ROCE Payback period Discount Cash Flow Analysis Cost benefits – suggests that a money value can be put on all the costs and benefits of a strategy, including tangible and intangible returns Real options based approach Shareholder Value Analysis

30. Acceptability Risk – can be particularly high for the organizations with majot long-term programmes of innovation or where high level of uncertainty exist about key issues in the environment. Financial rations Capital structure Liquidity Sensitivity analysis – what if? Stakeholder reactions Issue of new shares is necessary for the new strategy Plans to merge could be necessary E-commerce model may cut out channels Attempt to gain market share can be resulted in price war

31. Feasibility Financial feasibility Fund flow forecasting Resource deployment

32. Organizing for success An organization’s configuration consists of the structures, processes relationship and boundaries through which the organization operates

33. Structural Types The simple structure The functional structure The multidivisional structure The holding company structure The matrix structure The team-based structure The project-based structure Intermediate structures

34. Functional

35. Divisional

36. Type of organizational structure

37. Other structures A holding company is an investment company consisting of shareholdings in a variety of separate business operations A team-based structure attempts to combine both horizontal and vertical coordination through structuring people into cross-functional teams A project-based structure is one where teams are created, undertake the work and are then dissolved

38. Processes - Excluding Direct supervision Planning and control systems Performance targets Market mechanism Social/cultural processes Self-control (personal behavior and motivation)

39. Processes Excluding Direct supervision is the direct control of strategic decisions by one or a few individuals Planning and control is where successful implementation of strategies is achieved through systems that plan and control the allocation of resources and monitor their utilization Performance targets relate to the outputs of an organization such as product quality , prices, or its outcomes such as profit -PIs Balance scorecards combine both qualitative and quantitative measures, acknowledge the expectations of different stakeholders and relate to assessment of performance to choice of strategy

40. The balance scorecards Excluding

41. Processes Excluding Market mechanisms involve some formalized system of ‘contracting’ for resources Social/cultural processes are concerned with organizational culture and standardization of norms Knowledge integration occurs through the taken-for-granted assumption of the organization Process of self-control achieve the integration of knowledge and co-ordination of activities by the direct interaction of individuals without supervision Channel to interact Credibility of manager

42. Types of change Excluding

43. Types of change. Balogun and hope Hiley Excluding

44. Types of change Excluding Adaptation is change which can be accommodated within current paradigm and occurs incrementally. Reconstruction is the type of change which may be rapid and could involve a good deal of upheaval in an organization, but which does not fundamentally change the paradigm Evolution is a change in strategy which requires paradigm change, but over time Revolution is change, which requires rapid and major strategic and paradigm change, perhaps in circumstances where such drift has resulted in circumstances where pressure for change are extreme