Corporate Strategies Flashcards
define the term corporate strategies
an integrated set of commitments the company as a whole uses to gain a competitive advantage (with the help of several businesses)
what is the purpose of corporate strategies?
- to define what businesses the company should be in
- how the group of businesses should be managed
what are the key elements of a corporate strategy?
- corporate SBU portfolio dev
- possible synergy (between SBU) dev
- balance of SBUs’ risk, cash flows, profit flows (diversification, GCB cash flows, legal optimisation of taxes)
how is the value of a corporate strategy defined?
by the degree of worth that all businesses have together if they are ‘under one roof’ (in one company) or in separate ones
how are corporate strategies classified depending on different directions a company can pursue? (3)
- growth
- stabilisation
- retrenchment
how are corporate strategies classified depending on attitude toward cooperation? (2)
- cooperation
2. independence
when can the growth strategy be used?
whenever the situation allows it (managerial growth theory)
which questions need to be answered within the growth strategy when it is pursued? (3)
- concentrate within the current industry or pursue another? (scope)
- focus on developing products, markets, or technologies? (dev prioritites)
- growing naturally or through mergers/acquisitions? (mode of growth)
define the term concentration (integration) strategy
= concentrating on the current business in one industry
it doesn’t mean the company hasn’t diversified in the past, just that it is not the plan now
what are the two possible ways to pursue the concentration strategy? explain what they mean (2+ab for one)
- horizontal (m&a with a competitor = same stage in VC)
- vertical
- — backward (m&a with a supplier)
- — forward (m&a with a distributor)
define the term diversification strategy
expanding into other industries
what are the two possible ways to pursue the diversification strategy?
- related (concentric)
2. unrelated (conglomerate)
define the term related (concentric) diversification and state one + and one -
expanding into related industries (= knowledge needed for them have the same stem)
+ business synergy (savings, knowledge transfer)
- step away from core activities
define the term unrelated (conglomerate) diversification and state 3 + and one -
growth into unrelated industries
+ financial synergies
+ profitable reinvesting of earnings (flipping businesses)
+ entry into a more attractive industry
- very risky due to the unknown part of it
define the levels of diversification a company can have/reach (4). start with the lowest!
- single business company (>95% income from 1 business )
- dominant business company (70%-95% income from 1 business)
- related business company (<70% income from dominant business, some links btw businesses)
- unrelated business company (<70% income from dominant business, no common links)
what is the connection between diversification and performance?
performance falls with diversification
why should we diversify? (2)
- some resources can create additional value
(intangibles = knowledge or capabilites, tangibles = cash or equipment) - strategic reasons
state strategic reasons for diversification that have a neutral effect on company’s strategic advantage (and state why they have a neutral effect) (6)
- antitrust regulations (discourage related-industry mergers and encourage unrelated ones)
- tax laws (high taxes on dividends cause a shift from issuing dividends in your industry to buying companies)
- low performance (attempt to save the company by diversification)
- risk reduction (defense toward product line maturity)
- possession of free excess resources
- managerial incentives (personal gains for managers)
state strategic reasons for diversification that have a positive effect on company’s strategic advantage - for related diversification (2)
+ economies of scope = business synergies
created through:
++++ operational relatedness (sharing primary or support activities)
++++ corporate relatedness (transfer of corporate units amongst units)
+ market power
state strategic reasons for diversification that have a positive effect on company’s strategic advantage - for UNrelated diversification (1ab)
+ financial benefits
+++ efficient internal capital allocation
+++ business restructuring (flipping businesses)
explain the Market-Product matrix:
- who developed it?
- what are the x and y axes?
- what do the fields mean?
developed by Ansoff.
x: products (existing or new)
y: markets (existing or new)
existing^2: market penetration strategy (increasing sales of current products)
existing markets, new products: product dev strategy (improving existing or adding new, but remaining within the same business)
new markets, existing products: market dev strategy (targeting new segments or going international)
new^2: diversification strategy (external growth to go into new businesses)
what is the upgraded version of the Market-Product matrix?
- who added the additional dimension?
- what new fields appear?
https://www.notion.so/earie/7-Corporate-Strategy-46cafcc840b149f49dadeef8dfdb7831
Market-Product-Technology matrix by Pučko.
added a third dimension z of technologies (existing and new)
all previous fields have exisiting tech!
existing^2 + new tech: technology dev strategy
existing markets + new products + new tech: product-tech diversification strategy
new markets + existing products + new tech: market-tech diversification strategy
new^3: conglomerate strategy
what are the two mechanisms of the internal growth strategy?
- internal dev of new products, tech, services
- organic growth (= increasing production and sales, possibly by building new facilities)
state and define four mechanisms of the external growth strategy
- merger = integration of operations of two companies on a relatively co-equal basis
- acquisition = one company buys the controlling share (or 100%) of another, with intent of making it an SBU or subsidiary
- takeover = hostile type of 2. (manager of acquired company doesn’t agree, but the controlling company gives an offer the acquired owners cannot refuse)
- strategic alliance = partnership (two or more companies) with mutually beneficial objectives
which takes less time - internal or external growth strategy?
external.
which involves less risk - internal or external growth strategy?
internal.
which companies make use of stability strategies? (2)
- ones who wish to maintain status quo (deliberate decision not to grow; no strategic gap)
- ones that wish to consolidate (cannot grow right now; strategic gap exists)
state and define 4 stability strategies.
- pause = consolidating resources after a long rapid growth
- proceed with caution = making no sudden moves, taking no major investments (even though it might be profitable)
- no change = self explanatory
- profit strategy = cutting some expenses (e.g. R&D), maximising profit (basically milking it out)
which companies make use of retrenchment strategies? (2)
- those whish wish to reduce the extent of their business (usually family businesses)
- those which have a crisis going on
state five alternative retrenchment strategies
- narrow understanding of retrenchment
- turnaround
- selling out (divesting)
- bankruptcy and/or liquidation
- other types
define how the term retrenchment strategy is understood in a narrow way
= reducing output size without major changes in the company’s substructure
it is used to keep the company solvent for some time (before it can return to normal)
when is the narrow understanding of retrenchment used?
when demand is reduced (e.g. for slovenian companies when it became independent)
define the term turnaround strategy
= emphasising company efficiency and making major changes
stopping the loss of a critical resource = the most liquid one
in what situtation is turnaround strategy used?
‘we have a bleed somewhere’
i.e. our products / tech / market position are wrong in some way
state a concrete example how the turnaround strategy is implemented (first response x2, middle term and long term)
FIRST RESPONSE: if the critical resource is cash (usually is), finance is usually centralised = minimising outflows by cutting budgets and increasing the authority needed for outflow approval MIDDLE TERM: layoffs LONG TERM (few weeks up to a yr): solving the original problem with the turnaround strategy
when is the turnaround strategy used?
when there’s a long-term declining performance - when the company is in crisis
define the term selling out (divestment)
= selling important fixed assets or business units
when is selling out (divestment) used? (2)
- when the company has a weak competitive position
2. when the company wishes to clean its portfolio (to redefine the business)
define the terms bankruptcy and liquidation
= giving up management of the company to the courts
= start of a liquidation procedure (closing of a company)
when are bankruptcy and liquidation used?
- when the industry becomes unattractive
2. when the company is in bad shape with no other strategic alternatives
what are the two roles of the bankruptcy commissioner?
- recovering cclaims and realising other assets
2. establishing liabilities and repaying the creditors
what is the potential outcome of bankruptcy?
a smaller part of the company survives while the others are cleaned up
who can start the liquidation process?
owners (of their own freewill) or the court (coercive)
why is liquidation still considered a strategy?
because it can last long and includes several important decisions
define the two groups of strategies that are classified based on attitude towards cooperation
- independence
2. cooperation (strategic alliance)
define the subcategories of the cooperation strategy
a. equity-based
- —- joint-venture
- —- risky capital investment (angel investor, big company invests in a small one)
b. non-equity based
- —- subcontracting
- —- licensing (for a certain period of time, buying the right to produce and sell)
- —- franchising (for unliimited amount of time, use of logo as well, wider than licensing)
- —- other
