1. Introduction to Corporate Strategy

Question 1

What is Strategy?

Answer 1

• Describes where a firm is competing
• How it is competing
• And the direction in which it is developing

Question 2

How to describe a Firm’s Strategy?

Answer 2

• Direction = What do we want to become, achieve?/ How to get there?
• Positioning = Where & how do we compete?

Question 3

Levels of Strategy (Business, Corporation, Functional)

Answer 3

• Corporate Strategy = The scope of its activities -> Where a firm competes/ Considers set of (unrelated) businesses and how they may work together/ Focus on shared resources & capabilities
• Business Strategy = Competitive strategy -> How to compete?/ Individual strategy to serve customers and value creation
• 3. Functional Strategy = Tactics to operationalize and implement the strategy

Question 4

Two levels of strategy general

Answer 4

• Rate of profit above the cost of capital -> Industry Attractiveness & Competitive Advantage -> Corporate Strategy & Business Strategy
• Before business strategy, corporate strategy has to be defined
• Both have to be aligned in order to generate profit

Question 5

How is CA created by each business unit

Answer 5

• Industry Structure (Porters 5 Forces)
• Relative Position within the industry (Porters Value Chain)
• Industry Structure + Relative Position = Firm Economic Performance

Question 6

Business strategy knowledge (CA)

Answer 6

• Organizational Capabilities = Tangible (Financial, Physical) & Intangible (Technology, Reputation, Culture)/ Human (Skills, Capacity for communication, Motivation)
• Industry Key Success Factors
• Industry Key Success Factors + Organizational Capabilities -> Strategy -> Competitive Advantage

Question 7

Business vs. Corporation

Answer 7

• Business = Unit that provides product or service in particular market/ Clearly defined value
• Corporation = Family of businesses/ Set of businesses under corporate umbrella

Question 8

ACID test for Corporate Strategy

Answer 8

• The company’s businesses must not be worth more to another owner
• Must be best parent in the market allowing businesses to gain competitive advantage

Question 9

Premises of Corporate Strategy

Answer 9

• Competition occurs at the business level -> Corporations don’t compete but businesses
• Being part of a diversified company involves inevitable (unvermeidliche) costs for business units -> Coordination/ Management costs
• Shareholders can diversify directly at a lower cost -> Only enter new market if they can create more value for shareholders

Question 10

Scopes of a Firm (Vertical, geographical, product, growth strategies)

Answer 10

• Vertical scope = Vertical integration -> Range of vertical linked activities/ Disney is VI because of production, theme parks vs. Nike outsourcing a lot/ Reason for case of Zara
• Geographical scope = Internationalization -> Geographical spread of activities/ Why going abroad or not?
• Product scope = Diversification -> Specialization in range of products/ How diversified should product portfolio be?
• Growth Strategies (external) -> M&As/ Alliances