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0 Strategic Management > Corporate Strategies > Flashcards

Corporate Strategies Flashcards

1
Q

define the term corporate strategies

A

an integrated set of commitments the company as a whole uses to gain a competitive advantage (with the help of several businesses)

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2
Q

what is the purpose of corporate strategies?

A
  • to define what businesses the company should be in

- how the group of businesses should be managed

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3
Q

what are the key elements of a corporate strategy?

A
  1. corporate SBU portfolio dev
  2. possible synergy (between SBU) dev
  3. balance of SBUs’ risk, cash flows, profit flows (diversification, GCB cash flows, legal optimisation of taxes)
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4
Q

how is the value of a corporate strategy defined?

A

by the degree of worth that all businesses have together if they are ‘under one roof’ (in one company) or in separate ones

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5
Q

how are corporate strategies classified depending on different directions a company can pursue? (3)

A
  1. growth
  2. stabilisation
  3. retrenchment
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6
Q

how are corporate strategies classified depending on attitude toward cooperation? (2)

A
  1. cooperation

2. independence

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7
Q

when can the growth strategy be used?

A

whenever the situation allows it (managerial growth theory)

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8
Q

which questions need to be answered within the growth strategy when it is pursued? (3)

A
  1. concentrate within the current industry or pursue another? (scope)
  2. focus on developing products, markets, or technologies? (dev prioritites)
  3. growing naturally or through mergers/acquisitions? (mode of growth)
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9
Q

define the term concentration (integration) strategy

A

= 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

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10
Q

what are the two possible ways to pursue the concentration strategy? explain what they mean (2+ab for one)

A
  1. horizontal (m&a with a competitor = same stage in VC)
  2. vertical
    - — backward (m&a with a supplier)
    - — forward (m&a with a distributor)
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11
Q

define the term diversification strategy

A

expanding into other industries

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12
Q

what are the two possible ways to pursue the diversification strategy?

A
  1. related (concentric)

2. unrelated (conglomerate)

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13
Q

define the term related (concentric) diversification and state one + and one -

A

expanding into related industries (= knowledge needed for them have the same stem)
+ business synergy (savings, knowledge transfer)
- step away from core activities

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14
Q

define the term unrelated (conglomerate) diversification and state 3 + and one -

A

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

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15
Q

define the levels of diversification a company can have/reach (4). start with the lowest!

A
  1. single business company (>95% income from 1 business )
  2. dominant business company (70%-95% income from 1 business)
  3. related business company (<70% income from dominant business, some links btw businesses)
  4. unrelated business company (<70% income from dominant business, no common links)
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16
Q

what is the connection between diversification and performance?

A

performance falls with diversification

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17
Q

why should we diversify? (2)

A
  1. some resources can create additional value
    (intangibles = knowledge or capabilites, tangibles = cash or equipment)
  2. strategic reasons
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18
Q

state strategic reasons for diversification that have a neutral effect on company’s strategic advantage (and state why they have a neutral effect) (6)

A
  • 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)
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19
Q

state strategic reasons for diversification that have a positive effect on company’s strategic advantage - for related diversification (2)

A

+ economies of scope = business synergies
created through:
++++ operational relatedness (sharing primary or support activities)
++++ corporate relatedness (transfer of corporate units amongst units)

+ market power

20
Q

state strategic reasons for diversification that have a positive effect on company’s strategic advantage - for UNrelated diversification (1ab)

A

+ financial benefits
+++ efficient internal capital allocation
+++ business restructuring (flipping businesses)

21
Q

explain the Market-Product matrix:

  • who developed it?
  • what are the x and y axes?
  • what do the fields mean?
A

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)

22
Q

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

A

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

23
Q

what are the two mechanisms of the internal growth strategy?

A
  • internal dev of new products, tech, services

- organic growth (= increasing production and sales, possibly by building new facilities)

24
Q

state and define four mechanisms of the external growth strategy

A
  1. merger = integration of operations of two companies on a relatively co-equal basis
  2. acquisition = one company buys the controlling share (or 100%) of another, with intent of making it an SBU or subsidiary
  3. takeover = hostile type of 2. (manager of acquired company doesn’t agree, but the controlling company gives an offer the acquired owners cannot refuse)
  4. strategic alliance = partnership (two or more companies) with mutually beneficial objectives
25
Q

which takes less time - internal or external growth strategy?

A

external.

26
Q

which involves less risk - internal or external growth strategy?

A

internal.

27
Q

which companies make use of stability strategies? (2)

A
  1. ones who wish to maintain status quo (deliberate decision not to grow; no strategic gap)
  2. ones that wish to consolidate (cannot grow right now; strategic gap exists)
28
Q

state and define 4 stability strategies.

A
  1. pause = consolidating resources after a long rapid growth
  2. proceed with caution = making no sudden moves, taking no major investments (even though it might be profitable)
  3. no change = self explanatory
  4. profit strategy = cutting some expenses (e.g. R&D), maximising profit (basically milking it out)
29
Q

which companies make use of retrenchment strategies? (2)

A
  1. those whish wish to reduce the extent of their business (usually family businesses)
  2. those which have a crisis going on
30
Q

state five alternative retrenchment strategies

A
  1. narrow understanding of retrenchment
  2. turnaround
  3. selling out (divesting)
  4. bankruptcy and/or liquidation
  5. other types
31
Q

define how the term retrenchment strategy is understood in a narrow way

A

= 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)

32
Q

when is the narrow understanding of retrenchment used?

A

when demand is reduced (e.g. for slovenian companies when it became independent)

33
Q

define the term turnaround strategy

A

= emphasising company efficiency and making major changes

stopping the loss of a critical resource = the most liquid one

34
Q

in what situtation is turnaround strategy used?

A

‘we have a bleed somewhere’

i.e. our products / tech / market position are wrong in some way

35
Q

state a concrete example how the turnaround strategy is implemented (first response x2, middle term and long term)

A 
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
36
Q

when is the turnaround strategy used?

A

when there’s a long-term declining performance - when the company is in crisis

37
Q

define the term selling out (divestment)

A

= selling important fixed assets or business units

38
Q

when is selling out (divestment) used? (2)

A
  1. when the company has a weak competitive position

2. when the company wishes to clean its portfolio (to redefine the business)

39
Q

define the terms bankruptcy and liquidation

A

= giving up management of the company to the courts

= start of a liquidation procedure (closing of a company)

40
Q

when are bankruptcy and liquidation used?

A
  1. when the industry becomes unattractive

2. when the company is in bad shape with no other strategic alternatives

41
Q

what are the two roles of the bankruptcy commissioner?

A
  1. recovering cclaims and realising other assets

2. establishing liabilities and repaying the creditors

42
Q

what is the potential outcome of bankruptcy?

A

a smaller part of the company survives while the others are cleaned up

43
Q

who can start the liquidation process?

A

owners (of their own freewill) or the court (coercive)

44
Q

why is liquidation still considered a strategy?

A

because it can last long and includes several important decisions

45
Q

define the two groups of strategies that are classified based on attitude towards cooperation

A
  1. independence

2. cooperation (strategic alliance)

46
Q

define the subcategories of the cooperation strategy

A

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

0 Strategic Management (12 decks)

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