Chapter 5 - Corporate level strategy Flashcards
What is this chapter about? Elaborate on it brieefly
This chapter is about tackling the “issue of corporate configuration”.
Corporate configuration is about selecting an array of businesses to include in the firm’s portfolio, and also how to integrate them with each other. Relating them to one another.
This is a problem at a higher level than the business level strategy. It is concerned with a more holistic approach.
do all firms have a corporate configuration?
yes. It will either be intentially designed or not though. But the term corporate configuration is so general that it apply to all firms
elaborate on the key elements of corporate configuration
Corporate configuration is about dealing with 2 main questions:
1) What businesses should we be avtive in?
2) How should this group of businesses be managed?
We refer to these two questions as:
1) Corporate composition
2) Corporate management
elaborate on corporate composition
the corporate composition is defined as the combinaiton of the scope and distribution of the corporate. In other words, what businesses, and what is the distribution in which we are active in them? Uniform, etc.
how can a firm go from single-business to multi-business?
We typically have 2 ways:
1) Internal growth
2) Acquisitions
Both have advantages and disadvantages
elaborate on corporate growth directions
Corporate growth directions refer to the abstract direction of the growth. There are typically 4 categories:
1) Backward vertical integration
2) Forward vertical integration
3) Horizontal diversification
4) Horizontal integration
One of these is called diversification, while the ohters are called integration. This is because this partocular growth direction refer to going outside of the industry as a whole, and simply starting off activities in something completely unrelated.
Then we have the classics like horizontal integration (market development through geographic and/or segment changes, product offering etc.),
and the vertical integration (forward and backward) that relate to supply chain movement.
elaborate on corporate management
corporate management refer to the way the corporation will manage the whole of multiple businesses.
A core component in corporate management is the division of SBUs. Strategic business units. Oftne referred to as “M-form”. (multi divisional form).
Strategic because each unit is driven by its own business level unit.
There is a real challenge to the M-form of SBUs. When each unit have its own strategy, they will be relatively autonomous. This can be ok, but if we wanted to explore how having multiple firms together under the same corporation is more beneficial than having them separated, then we need to find a way to integrate them.
SO, if you live under the assumption that there are no possible synergies to realize, then you’d need not do anything, I suppose. however, there will always be synergies. If not material, financial etc.
The challenge for managers is to find the most efficient way of integrating the SBUs.
In regards to integration, we have the usual suspects of integration mechaniusms:
1) Centralization
2) Standardization
3) Coordination
however, without any additional info, we would not know whose responsibility it is to enforce the integration. Therefore, we have 2 methods which can fix it:
1) Control
2) Cooperation
Control is about having a corporate level manager or something similar that has the autority to enforce the integration. Typically through various objectives and working as a liason officer etc.
Cooperation is another approach that works by making it the best interest of the individual SBUs to cooperate for mutual gain. Powerful, but difficult.
In relation to the control and cooperation mix, the corporate level strategist/manager has 3 options:
1) Financial control style
2) Strategic control style
3) Strategic planning style
The control/planning style is mostly determined by the level of synergy vs autonomy the firm wish to have.
How do we decide on the portfolio of businesses we want to be active in?
Difficult question to answer, but Porter has a statement on it:
The corporate scope and distribution will depend on how the strategist intend to create value. There must be some advantage in having multiple businesses rather than one, or else he would not do it. there must be a value associated with having them together.
downside of synergies
Can lead to large amount of beurocratic tendencies, and create excessive overhead.
What would best describe the case between synergies and autonomy/responsiveness?
A constant struggle between balancing. more of one typically leads to a state where we want to get more of the other.
what sources of synergy do we have?
1) Resources
2) Activities
3) Product offering
what is the motivation behind the demand ofr business responsiveness+
If a business unit is not responsive, they will loose their position to more responsive rivals.
What is the motivation behind synergies?
diversification into new businesses can only be economically justified if it leads to value creation.
I suppose that it is better for an investor to select a portfolio, rather than the firm do so. A firm should focus on its edge. Therefore, if a firm should choose to enter other lines of business, then there must be a reason for this.
This is where Porter has the 3 tests:
1) Attractiveness
2) Cost of entry should not be too high
3) the better off test xxxxxxxxxxxx
It is the better off test that is important tu us in cirporate level strategy. There needs to be a reason why the addition is beneficial. And this is where the synergies come into play.
what are the perspectives in this chapter called+
portfolio organization
integrated organization
elaborate on the portfolio organization perspective
High responsiveness is needed to excel, and this requires freedom (autonomy) from the corporate whole.
Only a few financial synergies are “allowed”.
