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Management > Chapter 9 - Corporate Strategy > Flashcards

Chapter 9 - Corporate Strategy Flashcards

1
Q

Business strategy

A 
For creative advantage in specific individual markets
—> focus on single industry:
1) which customers to serve?
 -> who - segmentation 
2) which customers needs to satisfy?
 ->what - differentiation
3) Resources + value chain activities necessary to satisfy customers needs 
 How - core differentiation
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2
Q

Corporate strategy

A

For competing advantage for the whole company
—> focus on multiple industries + 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 creation as a whole?

Diversification = corporate strategy to create corporate advantage

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3
Q

Evaluation criterions

A

1) Conglomerate Premium

2) Parenting advantage

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4
Q

Evaluation criterion no. 1

A

Conglomerate Premium

-> what makes the corporate whole add up to more than the sum of its business parts

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5
Q

Evaluation criterion no. 1 - key questions

A
  • which strategic business units to strategically select?
  • how to coordinate the SBUs operatively, culturally, spatially?
  • how can the SBUs be complementary?
    => strategic thinking driven by pursuit of value
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6
Q

Evaluation criterion no. 2

A

Parenting advantage

  • multi-business companies create value by influencing/ parenting the businesses they own
  • best parent companies create more value than any of their rivals would if they owned the business
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7
Q

Failure in corporate strategy

A

Conglomerate discount

Firms lose market value despite successful business strategies

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8
Q

Diversification general + motives

A 
Possible recipe for long-term success
Motives: 
growth 
Strategic renewal
Efficiency gains
Responding to declining markets
Spreading risks
Meeting stakeholder expectations
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9
Q

Types of diversification

A
  • into related businesses
  • into unrelated businesses
  • into both
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10
Q

Diversification into related businesses

A

Build shareholder value by capturing cross-business strategic fits:

  • transfer skills + capabilities
  • share facilities/ resources to reduce costs
  • leverage use of a common brand name
  • combine resources to create new strength + capabilities
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11
Q

Diversification into unrelated businesses

A

> to grow revenue + earnings as a whole

  • involves diversification without meaningful strategic fit
  • spread risks across completely different businesses
  • build shareholder value by superior choice of businesses to diversify + portfolio management of collection of the company’s businesses
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12
Q

Diversification into related business concepts

A
  • strategic fit
  • joint economies of scope
  • similar value chain
  • unifying strategic theme
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13
Q

Strategic fit (diversification related businesses concept)

A

-> when activities in value chains of different business are sufficiently similar
>present opportunities for..
- transferring expertise/technological know-how from one business to another
- cross-business collaboration to create competitively valuable Ressource strengths + capabilities
- combining common value chain activities => lower costs
- joint use a well-known brand name

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14
Q

Economies of scope (diversification into related businesses concept)

A
  • cost reduction —> from operating i. Multiple businesses
  • from strategic fit efficiencies along value chains of related businesses
  • sources of economies of scope:
    > use of common inputs in the generation of several outputs
    > spreading fix costs over more products
    > application of knowledge + core capabilities => generation of several outputs
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15
Q

Types of cross-business strategic fit along value chain

A
  • R+D technology fits
  • Supply chain fits
  • manufacturing fits
  • distribution fits
  • sales and marketing fits
  • managerial support fit
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16
Q

Supply chain fits (cross-business strategic fit)

A
  • skill transfer and/or cost reduction
    > joint procurement of materials
    > greater bargaining power over common suppliers
    > greater volume discounts
    > Benefits of added collaboration with supply chain partners
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17
Q

Manufacturing fits (cross-business strategic fit)

A

Transfer of a diversifier’s expertise to another business:

  • Quality manufacture
  • cost efficient
  • consolidation of production/ assembly activities to significantly reduce overall production cost
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18
Q

Distribution fits (cross-business strategic fit)

A

Cost saving opportunities via:

  • sharing same distribution facilities
  • sharing of whole sale distributors and retail dealers to access customers
19
Q

Diversification into unrelated businesses criteria

A
  • profitability targets
  • size targets (sustainable contribution)
  • capital requirements
  • union + labor situation
  • industry grow potential
  • industry vulnerability to recession, inflation, interest rates, government regulations, other potential negative factors
20
Q

Diversification into unrelated businesses advantages

A
  • risk spread over different industries
  • financial resources can be directed to SBUs offering best profit aspects
  • purchase of bargaining-prices firms with big profit potential-> enhance share holder wealth
  • stability of profits -> hard times on one industry => offset by good times in another
21
Q

Diversification into unrelated businesses Disadvantages

A

> managerial requirements

  • discerning good acquisition
  • selecting capable managers
  • judging strategies of business units
  • restructuring/ divestment if units stumble

> lack of cross-business strategy fit=> no potential for competitive advantage

  • consolidated performance of unrelated mostly not better than individual business
  • promise of greater profit stability over business cycles seldom realized
22
Q

Strategic action of diversification + performance models

A
  • value-enhancing model
  • inverted-U model
  • value-destroying mode
23
Q

Value enhancing model

A

1) market power advantages
2) economies of scale and scope due to multiple resources use
3) capital market advantages + more efficient allocation
4) reduction of risk + profit volatility

24
Q

Inverted U-Model

A

1) Synergy + parenting advantages only to a certain degree of diversification
2) competitive advantages restricted to related diversification
3) the less related the diversification, the more costs outlast benefits

25
Q

Value-destroying model

A

1) internal power struggles increase influence costs
2) inefficient internal capital markets
3) agency problems

26
Q

Managing the business portfolio

A

1) what business should the corporation be in?

2) How should the corporate office manage its business units

27
Q

Analysis steps for industry attractiveness/ SBUs competitive strength (Step 1+2)

A
  1. Select industry/ competitive strength attractiveness factors
  2. Assign weight to each factor (summed up 1,0)
  3. Rate each Industry/ SBU on each factor (1-10)
  4. Calculate weighted ratings; sum it get an overall industry/strength rating for each industry/ SBU
28
Q

Interpretation of industry attractiveness score

A

<5,0 no pass
All >5,0 => group of industries the firm operates in is “attractive” as a whole
- “strong performer” => principal SBUs should be in attractive industries that have:
> good outlook for growth
> above-average profitability

29
Q

Interpretation of competitive strength score

A

> 6,7 : SBU strong market contender
3,3< rating< 6,7 : SBU moderately competitive strong
< 3,3 : competitively weak market position
All SBUs rating over 5,0 : all fairly strong market contenders in their industries

30
Q

Visualization in “nine cell matrix”

A
  • Industry attractiveness on y-axis
  • competitive strength on x-axis
  • bubble size presents SBU’s revenues/ corporate revenues
31
Q

Nine cell matrix consequences (competitive strength/ attractiveness)

A
  • concentrate resources in SBUs with high industry attractiveness + competitive strength
  • make selective investments in SBUs with intermediate positions
  • withdraw resources from SBUs low in attractiveness + strength (unless exceptional potential)
32
Q

Step 3 check for cross-business strategic fits

A

=> Identification of value chain strategic fits
Identify these SBUs to:
- transfer skills + capabilities
- share facilities/ resources => reduce costs
- leverage use of a common brand name
- combine resources => create new strength + capabilities

33
Q

Step 4 check resource fit

A

Company wide performance
Financial strength
Specifics resource strength
Competitive capabilities

34
Q

Step 5 Rank SBU based on performance + priority for resource allocation

A

Factors to consider

  • sales growth
  • profits growth
  • contribution to company earnings
  • return on capital employed
  • economic value added
  • cash flow generation
  • industry attractiveness + competing strength rating
35
Q

Step 6 craft new strategies moves to improve performance

A

Strategic options:

  • stick closely with existing business lineup + pursue these opportunities
  • broaden business scope by making new acquisitions i. new industries
  • divest certain businesses + retrench to a narrower base of business
  • restructure company’s business lineup
  • pursue multinational diversification => globalize operations of SBUs
36
Q

Portfolio matrices - The growth/ share (BCG) matriculates components

A
  • Markte growth - relative share (Axis)

- Stars, cash cows, question marks, poor dogs

37
Q

Stars (BCG matrix)

A
  • Business unit with high market share in growing market

- High investment needs to keep up with growth or sufficient profits to be self-sufficient in terms of investment needs

38
Q

Cash cows (BCG matrix)

A
  • Business unit with high market share in mature market
  • Low investment needs due to low growth
  • Business units with high marketshare should be profitable
39
Q

question marks (BCG matrix)

A
  • business unit with low market share in growing market

- invest to grow business unit to star or divest

40
Q

poor dog (BCQ matrix)

A
  • business unit with low market share in static / declining market
  • divestment or closure
41
Q

growth/share matrix advantages

A
  • Good way to visualize different needs and potentials of the business units within the corporate portfolio
  • Transparency over possible development paths of business units
  • Tool to generate internal financial balance
42
Q

growth/share matrix disadvantages

A
  • Definitional vagueness (market (share))
  • Capital market assumptions
  • Danger of self-fulfilling prophecy (cash cows -> poor dogs due to denied investments)
  • Neglect of ties (dependencies) between business units
43
Q

Business portfolio evaluation process

A

6-step evaluation process

  1. evaluate industry attractiveness
  2. asses competitive strength of SBUs
  3. Check for cross-business strategic fits
  4. Check resources fit
  5. Rank SBUs based on performance + priority for resource allocation
  6. craft new strategic moves to improve performance
44
Q

Conglomerate discount potential reasons

A
  • lack of coherence in SBUs activities
  • increasing coordination and control costs
  • in-transparency
  • resource inefficiency/ misallocation hypothesis: cross subsidies
  • influence costs: middle managers manipulate/ embellish business plans
  • analyst mismatch

Management (11 decks)

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