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Chapter 6

Chapter 6. Strategy Formulation: Corporate Strategy PowerPoint Slides Anthony F. Chelte Western New England College. Corporate Strategy . Three Key Issues: Firm’s directional strategy Firm’s portfolio strategy Firm’s parenting strategy. Corporate Directional Strategies.

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Chapter 6

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  1. Chapter 6 Strategy Formulation: Corporate Strategy PowerPoint Slides Anthony F. Chelte Western New England College Chapter 6 Wheelen/Hunger

  2. Corporate Strategy Three Key Issues: • Firm’s directional strategy • Firm’s portfolio strategy • Firm’s parenting strategy Chapter 6 Wheelen/Hunger

  3. Corporate Directional Strategies Chapter 6 Wheelen/Hunger

  4. Corporate Strategy Directional Strategy: • Orientation toward growth • Expand, cut back, status quo? • Concentrate within current industry, diversify into other industries? • Growth and expansion through internal development or acquisitions, mergers, or strategic alliances? Chapter 6 Wheelen/Hunger

  5. Corporate Strategy Directional Strategy: • Three Grand Strategies: • Growth strategies • Stability strategies • Retrenchment strategies Chapter 6 Wheelen/Hunger

  6. Corporate Strategy Growth Strategies: • Most widely pursued strategies • External mechanisms: • Mergers • Transaction involving two or more firms in which stock is exchanged but only one firm survives. • Acquisition • Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm. • Strategic Alliance • Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. Chapter 6 Wheelen/Hunger

  7. Corporate Strategy 2 Basic Growth Strategies: • Concentration • Current product line in one industry • Diversification • Into other product lines in other industries Chapter 6 Wheelen/Hunger

  8. Corporate Strategy Basic Concentration Strategies: • Vertical growth • Horizontal growth Chapter 6 Wheelen/Hunger

  9. Corporate Strategy Concentration: Vertical growth • Vertical integration • Full integration • Taper integration • Quasi-integration • Backward integration • Forward integration Chapter 6 Wheelen/Hunger

  10. Corporate Strategy Concentration: Horizontal Growth • Horizontal integration Chapter 6 Wheelen/Hunger

  11. Corporate Strategy Basic Diversification Strategies: • Concentric Diversification • Conglomerate Diversification Chapter 6 Wheelen/Hunger

  12. Corporate Strategy Diversification: Concentric: • Growth into related industry • Search for synergies Chapter 6 Wheelen/Hunger

  13. Corporate Strategy Diversification: Conglomerate: • Growth into unrelated industry • Concern with financial considerations Chapter 6 Wheelen/Hunger

  14. Corporate Strategy Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts International Entry Options Chapter 6 Wheelen/Hunger

  15. Corporate Strategy Stability Strategies: • Pause/proceed with caution • No change • Profit strategies Chapter 6 Wheelen/Hunger

  16. Corporate Strategy Retrenchment Strategies: • Turnaround • Captive Company Strategy • Selling out • Bankruptcy • Liquidation Chapter 6 Wheelen/Hunger

  17. Corporate Strategy Portfolio Analysis • How much of our time and money should we spend on our best products to ensure that they continue to be successful? • How much of our time and money should we spend developing new costly products, most of which will never be successful? Chapter 6 Wheelen/Hunger

  18. Corporate Strategy Portfolio Analysis BCG (Boston Consulting Group) Matrix • Product life cycle and funding decisions • Question marks • Stars • Cash cows • Dogs Chapter 6 Wheelen/Hunger

  19. BCG Matrix Chapter 6 Wheelen/Hunger

  20. GE Business Screen Long-term industry attractiveness Business strength/competitive position Chapter 6 Wheelen/Hunger

  21. C Winners Winners A Question B High Marks D Winners E Average Businesses F Industry Attractiveness Medium Losers H Losers G Low Profit Producers Losers Strong Average Weak Business Strength/Competitive Position General Electric’s Business Screen Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company. Chapter 6 Wheelen/Hunger

  22. International Portfolio Analysis 2 Factors: • Country’s attractiveness • Market size, rate of growth, regulation • Competitive strength • Market share, product fit, contribution margin, market support Chapter 6 Wheelen/Hunger

  23. Competitive Strengths Low High Dominate/Divest Invest/Grow High Joint Venture Selective Country Attractiveness Strategies Harvest/Divest Low Combine/License Portfolio Matrix for Plotting Products by Country Chapter 6 Wheelen/Hunger

  24. Corporate Strategy Portfolio Analysis Advantages: • Top management evaluates each of firm’s businesses individually • Use of externally-oriented data to supplement management judgment • Raises issue of cash flow availability • Facilitates communication Chapter 6 Wheelen/Hunger

  25. Corporate Strategy Portfolio Analysis Disadvantages: • Difficult to define product/market segments • Standard strategies can miss opportunities • Illusion of scientific rigor • Value-laden terms Chapter 6 Wheelen/Hunger

  26. Corporate Strategy Corporate Parenting: • Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units. Chapter 6 Wheelen/Hunger

  27. Corporate Strategy Corporate Parenting: • Strategic factors • Those elements of a company that determine its strategic success or failure • Performance improvement • Analyze fit Chapter 6 Wheelen/Hunger

  28. Corporate Strategy Corporate Parenting: • Parenting-Fit Matrix • Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole. Chapter 6 Wheelen/Hunger

  29. Corporate Strategy Corporate Parenting: • Parenting-Fit Matrix • 2 Dimensions • Positive contributions parent can make • Negative effects parent can have Chapter 6 Wheelen/Hunger

  30. Parenting-Fit Matrix Low Heartland Ballast Edge of MISFIT between critical success factors and parenting characteristics Heartland Alien Territory Value Trap High Low High FIT between parenting opportunities and parenting characteristics Chapter 6 Wheelen/Hunger

  31. Corporate Strategy Horizontal Strategy: • Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units. Chapter 6 Wheelen/Hunger

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