Chapter 10: Corporate Level Strategy

Question 1

What 2 questions does corporate strategy address?

Answer 1

• What businesses and industries should we operate in?
• How can we create synergy between business units, so as to generate value as the corporate parent?

Question 2

What are the 2 broad groups of corporate strategies?

Answer 2

• Growth strategies: Organic growth & diversification; cooperative strategies (strategic alliances/joint ventures)
• Defensive strategies: retrenchment, recovery, divestiture & liquidation

Question 3

Why do companies pursue growth strategies?

Answer 3

• When there are opportunities in the market and they are well positioned to capitalise on them.
• Growth for the following reasons:
• Increased profitability or market share
• Improved competitive position (More bargaining power)
• Leverage existing technologies in new markets to lower costs

Question 4

What are the different growth strategies available?

Answer 4

• Organic growth: Market penetration (attract and retain customers within market, good for growing markets); Consolidation (Maintaining current market share through changing market conditions using reshaping/downscaling of mature product cycles)
• Market Development- access new markets or develop new uses for existing products in existing markets
• Product Development: modifying existing or developing new products (High R&D costs, necessary for products in their mature/declining life-cycle phase)
• Diversification: Related Diversification( Expanding into related industries unlocks potential economies of scale/scope and expertise, as well as possible complements and synergy)
  Unrelated Diversification= totally new industry (More risky but better if original industry is declining in size)
• Integration: M&As (horizontal, forwards & backwards vertical, hostile & friendly)
• Co-operative: Like M&As but without major investment (Joint ventures & strategic alliances)

Question 5

What are the different defensive strategies?

Answer 5

• 2 groups: Turnaround Strategies (Making business more profitable)
• Retrenchment: Cost-cutting & selling non-core assets
• Recovery: Nursing business back to health (Bringing in fresh entrepreneurial blood)
• Revenue growth
• End-game strategies(withdrawing investment or exiting market altogether):
• Divestiture (Internal divestiture, sell part of business, harvesting, niche focus)
• Market exit: Selling business, liquidation, bankruptcy

Question 6

Describe the parenting matrix.

Answer 6

Parents should should add more value through synergies between different business units (children) than what they require to maintain themselves.
4 types of children(business units):
* Ballast businesses-parent has good understand, but poor capability to help (Leave them be)
* Alien businesses- poor understanding & poor ability to help (Leave them alone)
* Value trap businesses- Parent has poor understanding but good ability to help/add value (very dangerous/risky)
* Heartland businesses- good understanding and good ability to help/add value (best scenario for parent to give input)