6. Corporate Strategy Flashcards
What is Corporate Strategy?
Actions and plans a firm implements to ensure that the businesses in its portfolio are worth more under the management of the company than they would be under any other ownership.
Actions and Plans are worth the most under the current management
Value through Corporate Strategy
Scope and Boundaries
Scope
Chose the right business to be in, where synergies can be realised
Market, Value Chain, Geographic Diversification.
Boundaries
Ownership and how to obtain the necessary resources (in-house or external)
Organisational Design and Coordination
How should the portfolio of the business be coordinated and which processes are needed to create value
Product market Diversification
Motivations to diversify, which markets to enter and its consequences
Types of Diversification
Low Div.
- Single Business
- Dominant Business
Moderate High Div.
- Related Constrained
- Related linked
Very High Div.
- Unrelated
Low levels
Single - 95% rev from single business
Dominant - 70-95% from single
Moderate High DIV.
Related Constrained - <70% From dom biz - all biz share product, tech, and distribution linkages
Related linked - <70% From dom biz - limited links between business
V.High DIV.
Unrelated- <70% from dom biz - no common lines between biz
Related Diversification
Synergies and economies of scope
Market power
Unrelated Diversification
Conglomerates - subsidiaries enjoy operational autonomy
Downside to Diversification
Distraction from core business
Coordination cost
Lack of managerial experience in all areas (Top man)
Why Vertical Integration
Streamline ops by taking direct ownership of various stages of the production process
Determines boundaries of the company
Vertical Ownership Benefits
Potentially lowers cost
Control over quality
Offset/limits bargaining power of buyers/suppliers
Vertical Ownership Risks
Increase in costs
Reduction in quality
Lack of incentive to operate most efficiently
Outsourcing Benefits
Focus on core capabilities where you can really create value
Outsourcing Risks
Reputation risks
Hold up situation if supplier has high bargaining power
Transaction Cost Theory
Used to assess if vertical integration makes sense- explain and predict boundaries of the firm
Cost (inhouse) < C(market)= Vertically integrate
Build Borrow Buy Challenges
- Recognise resource gaps
- Choosing the right path to obtain the resources
- Implementing the chosen path
What is Build
Internal development - gives control over the IP avoids costs
- Similar to resources the firm needs
- Superior to those of the competition in the focal area
When Borrow
Borrow when resources are tradable-
- Borrow through alliances
Risks - reluctance to share control or payoff
Buy (Acquisitions)
Need more control than achieved through alliances - more encompassing access to resources
BBB summary
Right processes in place to evaluate how to pursue growth - Comp Adv.
Firms that have a balance of BBB have a higher likelihood of surviving
