6. Corporate Strategy

Question 1

What is Corporate Strategy?

Answer 1

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

Question 2

Value through Corporate Strategy

Answer 2

Scope and Boundaries

Question 3

Scope

Answer 3

Chose the right business to be in, where synergies can be realised
Market, Value Chain, Geographic Diversification.

Question 4

Boundaries

Answer 4

Ownership and how to obtain the necessary resources (in-house or external)

Question 5

Organisational Design and Coordination

Answer 5

How should the portfolio of the business be coordinated and which processes are needed to create value

Question 6

Product market Diversification

Answer 6

Motivations to diversify, which markets to enter and its consequences

Question 7

Types of Diversification

Answer 7

Low Div.
- Single Business
- Dominant Business

Moderate High Div.
- Related Constrained
- Related linked

Very High Div.
- Unrelated

Question 8

Low levels

Answer 8

Single - 95% rev from single business

Dominant - 70-95% from single

Question 9

Moderate High DIV.

Answer 9

Related Constrained - <70% From dom biz - all biz share product, tech, and distribution linkages

Related linked - <70% From dom biz - limited links between business

Question 10

V.High DIV.

Answer 10

Unrelated- <70% from dom biz - no common lines between biz

Question 11

Related Diversification

Answer 11

Synergies and economies of scope
Market power

Question 12

Unrelated Diversification

Answer 12

Conglomerates - subsidiaries enjoy operational autonomy

Question 13

Downside to Diversification

Answer 13

Distraction from core business
Coordination cost
Lack of managerial experience in all areas (Top man)

Question 14

Why Vertical Integration

Answer 14

Streamline ops by taking direct ownership of various stages of the production process
Determines boundaries of the company

Question 15

Vertical Ownership Benefits

Answer 15

Potentially lowers cost
Control over quality
Offset/limits bargaining power of buyers/suppliers

Question 16

Vertical Ownership Risks

Answer 16

Increase in costs
Reduction in quality
Lack of incentive to operate most efficiently

Question 17

Outsourcing Benefits

Answer 17

Focus on core capabilities where you can really create value

Question 18

Outsourcing Risks

Answer 18

Reputation risks
Hold up situation if supplier has high bargaining power

Question 19

Transaction Cost Theory

Answer 19

Used to assess if vertical integration makes sense- explain and predict boundaries of the firm

Cost (inhouse) < C(market)= Vertically integrate

Question 20

Build Borrow Buy Challenges

Answer 20

1. Recognise resource gaps
2. Choosing the right path to obtain the resources
3. Implementing the chosen path

Question 21

What is Build

Answer 21

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

Question 22

When Borrow

Answer 22

Borrow when resources are tradable-
- Borrow through alliances
Risks - reluctance to share control or payoff

Question 23

Buy (Acquisitions)

Answer 23

Need more control than achieved through alliances - more encompassing access to resources

Question 24

BBB summary

Answer 24

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