Chapter 9 Flashcards
Corporate strategy
Is about the overall scope of the organisation and how it adds value to its constituent businesses as a whole
Parenting advantage
The value-adding effect of head office to individual SBUs
Ansoff´s Matrix
Illustrated 4x4 matrix with Markets on the vertixal axis and Products/services on the horizontal axis. Creates 4 possible strategic directios; Market penetration, Products and services development, Market development and Unrelated diversification.
Diversification
Involves increasing the range of products or markets served by an organisation.
Diversification drivers
(i) Exploiting economies of scope. Efficiencies created by variety => shared inputs, shared distribution or applying existing resources and capabilities to new markets and services.
(ii) Stretching corporate management capabilities. Applying skills of corporate-level managers to new businesses.
(iii) Exploiting superior internal processes.
(iiii) Increasing market power, through diversification. Can increase potential for mutual forebearance. Secondly, diversified range of products can increase the power to cross-subsidise one business from the profits of other.
Synergies
Are benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of its parts (2+2=5)
Potential value destroying drivers
Responding to market decline, spreading risk, managerial ambitions.
Vertical integration
Describes entering activities where the organisation is its own supplier or customer.
Backward integration
Is movement into input activities concerned with the companys current business (i.e. further back in the value chain).
Forward integration
Is movement into output activities concerned with the companys current business (i.e., further forward in the value system).
Outsourcing
is the process by which value chain activities previously carried out internally are subcontracted to external suppliers.
Drivers for outsourcing
Drivers for outsourcing to suppliers is often based on their unique capabilities that allow lower costs to the sourcing organisation.
Threats with outsourcing
Oliver Williamson argues that the decision to integrate or outsource involves more than superior capabilities. Warns about underestimating the long-term costs of opportunitism by external subcontractors. Subcontractors are liable over time to take advantage of their position, either to reduce their standards or to extract higher prices. Market relationships tend to fail in controlling subcontractor opportunism where:
(i) There are few alternatives to the subcontractor and it is hard to shop around.
(ii) The product or service is complex and vjamgomg, and therefore impossible to specify fully in a legally binding contract.
(iii) Investments have been made in specific assets, which the subcontractors know will have little value if they withold their product or service.
Hence, the cost of opportunism can outweigh the benefits of subcontracting.
Divestment
Occurs when the organisation decides to pull out of one or more of its businesses. Where there is no added value by the corporate parent this might be warranted.
Value-adding activities
Envisioning: Corporate parent can provide a clear overall vision or strategic intent for its business units. This should guide and motivate business unit managers to maximise corporation-wide performance through commitment to a common purpose.
Facilitating synergies: The corporate parent can facilitate cooperation and sharing across business units, so improving synergies from being within the same corporate organisation.
Coaching: The corporate parent can help business unit managers develop capabilities by coaching them to improve their skills and confidence.
Providing central services and resources.: The centre can provide capital for investment as well as central services such as treasury, tax and human resource advice.
Intervening : The corporate parent can also intervene within its business units to ensure appropriate performance.
