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Strategic and International Management > 7 > Flashcards

7 Flashcards

1
Q

What is corporate strategy?

A

The strategy of an enterprise is defined by the answers to two questions: where does the firm compete and how does it compete?

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2
Q

what is the key question of corporate strategy?

A

How to create a competitive advantage for the whole company.

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3
Q

What should corporate strategy focus on?

A

Focus on multiple industry environments and the development of a set of business strategies:
1. What businesses should we be in?
2. How should these be managed?
3. How to create value for the corporation as a whole?

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4
Q

What is the key question of business strategy?

A

How to create a competitive advantage in specific individual product markets.

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5
Q

What should business strategy focus on?

A
  1. Which costumers to serve (who?) – segmentation
  2. Which costumer needs to satisfy (what?) – differentiation
  3. Resources and value chain activities necessary to satisfy customer needs (how?) –
    “core competencies”
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6
Q

What is the evaluation criteria 1(Does the CS make sense?) ?

A

Is the corporate strategy providing for a logical and compelling narrative from a resource- based, market-based and normative perspective?

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7
Q

What is the Evaluation criteria 2: Does the CS create financial value?

A

Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts.

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8
Q

What is corporate surplus?

A

The value of the company is higher than the sum of its parts.

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9
Q

What is the Evaluation criterion 3: parenting advantage?

A

Multi-business companies create value by influencing – or parenting – the businesses they own. The best parent companies create more value than any of their rivals would if they owned the same businesses. Those companies have what we call parenting advantage.

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10
Q
A
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11
Q

What are the types of diversification?

A
  • Diversification into related businesses
  • Diversification into unrelated businesses
  • Diversification into both related and unrelated businesses
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12
Q

What is diversification into related business?

A

Enhance shareholder value by capturing cross-business strategic fits:
- Transfer skills and capabilities from one business to another
- Share facilities or resources to reduce costs
- Leverage use of a common brand name
- Combine resources to create new strengths and capabilities
Diversify into an industry because of strategic reasons.

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13
Q

What is diversification into unrelated businesses?

A
  • Spread risk across completely different businesses
  • Build shareholder value by doing a superior job choosing businesses to diversify into and of managing the whole collection of businesses in the company’s portfolio.
    Diversification into businesses that allow the company as a whole to grow its revenues and earnings.
    Involves diversifying into businesses with no meaningful strategic fit.
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14
Q

What is a strategic fit?

A

A strategic fit exists whenever one or more activities in the value chains of different businesses are sufficiently similar to present opportunities for:
- Transferring expertise or technological know-how from one business to another
- Cross-business collaboration to create competitively valuable resource strengths and capabilities
- Combining performance of common value chain activities to achieve lower costs
- Using of a well-known brand name

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15
Q

What are economies of scope?

A

Economies of scope are cost reductions that result from operating in multiple businesses. Stem directly from strategic fit efficiencies along the value chains of related businesses.

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16
Q

What are the sources of economies of scope?

A
  • Use of one or more common resources (or inputs) in the production of both outputs
  • Spreading fix costs over more products
  • Application of knowledge and core capabilities to the production of several
    outputs
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17
Q

What is the criteria for diversification into unrelated businesses?

A
  • Businesses that meet corporate targets for profitability and ROI
  • Industries with attractive growth potentials
  • Businesses that are big enough for substantial contributions
  • Required capital
  • Union and labor situation
  • Industry vulnerability to recession, inflation, high interest rates, governments
    regulations, other potential negative factors.
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18
Q

What are the advantages of unrelated diversification?

A
  1. Business risk is spread over different industries
  2. Financial resources can be directed to those industries offering best profit prospects
  3. If bargaining-priced firms with big profit potential are bought, shareholder wealth can be enhanced.
  4. Stability of profits. Hard times in one industry may be offset by good times in another industry.
19
Q

What are the disadvantages of unrelated diversification?

A
  • The greater the number and diversify of businesses, the more demanding the managerial requirements:
    o Discern good acquisitions
    o Select capable managers
    o Judge strategies of business-units
    o Know what to do if a business subsidiary stumbles
  • The lack of cross-business strategic fits offers no potential for synergistic advantages:
    o Consolidated performance of unrelated businesses tends to be no better than individual businesses
    o Promiseofgreatersales-profitstabilityoverbusinesscyclesisseldomrealized.
20
Q

What is the basis for measuring diversification?

A

Standard industrial classification code list (SIC).

21
Q

What are the elements of the growth/share matrix?

A

question marks, stars, poor dogs, cash cows.

22
Q

What are question marks?

A

Norm strategy: selective behaviour

23
Q

What are stars?

A

Norm strategy: support, invest

24
Q

What are poor dogs?

A

Norm strategy: disinvest, liquidate.

25
Q

What are cash cows?

A

Norm strategy: hold position, harvesting.

26
Q

What is the 6-step evaluation process to manage a business portfolio?

A
  1. Evaluate industry attractiveness
  2. Assess competitive strength of firm’s business unit
  3. Check competitive advantage of cross-business strategic fits
  4. Check whether firm’s resources fit requirements
  5. Rank performance prospects of business units and determine priority for resources
    allocation
  6. Craft new strategic mover to improve overall company performance
27
Q

What are the industry attractiveness factors?

A
  • Market size and projected growth
  • Intensity of competition
  • Emerging opportunities and threats
  • Presence of cross-industry strategic fits
  • Resource requirements
  • Seasonal and cyclical factors
  • Social, political, regulatory, and environmental factors
  • Industry profitability
  • Degree of industry uncertainty and business risk
28
Q

How do we calculate attractiveness scores?

A

Step A: select industry attractiveness factors.
Step B: assign weights to each factor (sum of weigths = 1)
Step C: rate each industry on each factor, using a scale of 1 to 10
Step D: calculate weighted ratings; sum to get an overall industry attractiveness rating for each industry

29
Q

How do we interpret industry attractiveness scores?

A
  • Industries with a score much bellow 5.0 do not pass the attractiveness test.
  • If a company’s industry attractiveness scores are all above 5.0, the group of industries the firm operates in is attractive as a whole.
  • To be a strong performer, a diversified firm’s principal businesses should be in attractive industries with:
    o A good outlook for growth and o Above-average profitability
30
Q

What are the difficulties of interpreting attractiveness scores?

A
  • Deciding on appropriate weights for industry attractiveness factors:
    o Different analysts have different weights
    oDifferent weights appropriate for different companies
  • Gaining sufficient command of an industry to assign objective ratings:
    o Statistical data to assign objective ratings is straightforward for, e.g., market size, growth rate, industry profitability
    o Assessing the intensity of competition factor is more difficult due to the different types of competitive influences.
31
Q

What are the objectives of BU competitive strength?

A
  • Appraise how well each business is positioned in its industry relative to rivals.
  • Evaluate whether it is or can be competitively strong enough to contend for market leadership.
32
Q

What are the competitive strength factors?

A
  • Relative market share
  • Costs relative to competitors
  • Beat rivals on key product attributes
  • Benefit from strategic fits with sister businesses
  • Exercise bargaining leverage with key suppliers or customers
  • Caliber of alliances and collaborative partnerships
  • Brand and image and reputation
  • Competitively valuable capabilities
  • Profitability relative to competitors
33
Q

How do we calculate competitive strength scores?

A

Step A: select competitive strength factors.
Step B: assign weights to each factor (sum of weights = 1.0).
Step C: rate each business on each factor, using a scale of 1 to 10.
Step D: calculate weighted ratings; sum to get an overall strength rating for each business.

34
Q

How do we interpret competitive strength scores?

A

Ratings above 6.7: business units are string market contenders.
Ratings between 3.3 & 6.7: businesses have moderate competitive strength vis-à-vis rivals.
Ratings below 3.3: business units are in competitively weak market positions.
Scores above 5.0: all business units are fairly strong market contenders in their respective industries.

35
Q

What is the plotting procedure of integrating industry attractiveness and competitive strength?

A
  • Industry attractiveness plotted on vertical axis.
  • Competitive strength plotted on horizontal axis
  • Each business unit appears as a “bubble”: size of each bubble is scaled to percentage
    of revenues the business generates relative to total corporate revenues.
36
Q

What are the businesses in upper right corner?

A
  • Accorded top investment priority
  • Strategic prescription – grow and build
37
Q

What are the businesses in three diagonal cells?

A
  • Given medium investment priority
  • Invest to maintain position
38
Q

What are the businesses in lower left corner?

A
  • Candidates for harvesting or divestiture
  • Potential candidates for an overhaul and reposition strategy
39
Q

What are the strategies implications of integrating industry attractiveness and competitive strength?

A
  • Concentrate resources in businesses with high industry attractiveness and competitive strength
  • Make selective investments in businesses with intermediate positions
  • Withdraw resources from businesses low in attractiveness and strength unless they offer exceptional potential.
40
Q

What is the identification of value-chain match-ups?

A

Identification of value chain match-ups:
- Identify businesses with value chain match-ups offering opportunities to:
o Reduce costs
o Transfer skills/technology/intellectual capital from one business to another o Share use of a powerful brand name
o Createvaluablenewcompetitivecapabilities

41
Q

What is the resource fit?

A

Companywide performance, financial strengths, specific resource strengths, competitive capabilities.

42
Q

Regarding step 5, what are the factors to consider in judging business-unit performance?

A
  • sales growth
  • profit growth
  • contribution to company earnings
  • return on capital employed in business
  • economic value added
  • cash flow generation
  • industry and business strength ratings.
43
Q

What are the strategic options of step 6?

A
  • broaden the business scope by making new acquisitions in new industries
  • divest certain businesses and retrench to a narrower base of business operations
  • restructure company’s business lineup, putting a new face on business makeup
  • pursue multinational diversification, striving to globalise operations of business units
  • stick closely with existing business lineup and pursue these opportunities.

Strategic and International Management (10 decks)

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