Corporate Level Strategy 1 Flashcards
Discuss the corporate level strategy in relation to business model
- Corporate level strategy should be used to promote business model
- Construct business model at two levels:
1. business models and strategies: covers every business division in every industry
2. higher level multi-business model: its entry into different businesses and industries
Discuss strategies for repositioning and redefining a company’s business model
- Horizontal integration: acquiring or merging with industry competitors
- Vertical integration: expanding backwards to produce for self as supplier or forward to distributing the product
- Strategic outsourcing: allowing value creation activities within firm to be conducted by independent entity
Define and explain horizontal integration (single industry strategy)
Horizontal involves merging or acquiring competitors to achieve competitive advantage through large scale and scope
- staying inside a single industry allows a company to:
- focus resources: company can focus managerial, tech, financial, and functional resources towards competing successfully in one area
- stick to what it knows: stays focused on what it does best instead of entering new industry where resources might be of little value
List the advantages and disadvantages of horizontal integration
Advantages -lowers the cost structure -increases product differentiation -leverages a competitive advantage -reduces rivalry within industry -increases bargaining power over suppliers and buyers Disadvantages -difficult to implement -conflict with Federal Trade Commission (FTC) *increase in in prices *abuse of market power *crushing potential competitors
Define and explain vertical integration (entering new industries)
Involves expansion of company’s operations to penetrate new markets or segments
- backward vertical integration: expands its operation into industry where they supply products
- forward vertical integration: expands into industry that uses distributes and sell company’s products
- full integration: covers both backward and forward integration making company its own supplier and distributer
- taper integration: in addition to own, companies will also use other external suppliers or outlets
How can profits be increased through vertical integration
Company uses vertical integration to strengthen business model or improve competitive position
- facilitates investments in effeciency-enhancing specialised assets. Lower cost structure and improve differentiation
- enhancesor protects product quality. Through foward or backward integration
- improved scheduling. More cost effective and stronger value chain. Company can respond better to demand
What are the issue with vertical integration
- increasing cost structure: cost of new area of operations and bureaucratic costs
- fast changing technology: integration may start with old technology. Expensive to update technology
- demand is unpredictable
- creates risks in vertical integration investments: may lead to vertical disintegration
Discuss cooperative relationships as alternative to VI
Utilising long term relationships or investments into some of the activities normally performed by supplier or distributer
- short term contracts and competitive bidding: may signal lack of commitment to supplier
- strategic alliances and long term contracting
- creation of long term relationship
- substitute for vertical integration
- avoids issue of management of a new sectorial business
Discuss some strategies to build long term cooperative relationships
- hostage taking: the exchange of valuable resources to ensure both sides are in it for the long run and agree to keep its side of the bargain
- credible commitment: convincing promise/pledge to support development of a long term relationship between companies
- each company should possess some form of leverage to ensure other side sticks to deal
Define and discuss strategic outsourcing
Allows one or more of a company’s value chain activities to be performed by other independent specialised companies that focus all their energy on that specific activity
- company choosing to focus on fewer activities to strengthen business model
- companies typically focus on noncore or nonstrategic activities to determine if they can be performed effeciently by independent specialised companies
- virtual corporation: describes a company that have pursued extensive strategic outsourcing
List the benefits and risks of outsourcing
Benefits -reduced cost structure -enhanced differentiation -focus can be directed to core business Risks -increased competition -loss of internal learning opportunity and information gain -company may become to dependent on specialist
What does corporate level strategy identify
- Businesses or industries that a company should compete in
- Value creation activities that company should implement in the chosen business or industry
- Method for entering or leaving industry to ensure profits are kept to a maximum
