Corporate Strategy Flashcards
What are the Corporate Strategy Directions?
- Market Penetration (existing products & existing markets).
- Product/Service Development (new products & existing market).
- Market Development (existing products & new market)
- Unrelated Diversification (new products & new market).
What is Related Diversification?
Diversifying into products with relationships to existing business.
What is Market Penetration?
Strategy of increasing share of current market with current product range.
How to Increase Market Share:
- Builds on established strategic capabilities
- Organisation’s scope is unchanged
- Provides great EoS and experience curve benefits.
What is Product/Service Development and Market Development?
Product/Service Development -
Strategy involves varying degrees of related diversification. Can be expensive & risky.
Market Development -
Strategy involves creating new segment in existing markets, new geographic markets, and new strategic capabilities in international markets.
What is Unrelated (Conglomerate) Diversification?
Takes organisation beyond existing markets & products. Radically increases scope.
Potentially increased reputation & lower financing costs.
Extreme, no strategic linkages between businesses.
Example of Unrelated Diversification:
Virgin Group:
* Market Penetration -
Virgin Money acquired Northern Rock (2011).
* Product and Service Development -
Launch Virgin Media in partnership with NTL-Telewest (2006).
* Market Development -
Extension of Virgin Mobile to Poland, Chile, etc…
* Unrelated Diversification -
Move from Virgin Records Stores to airline business (1984).
Drivers of Diversification
- Exploiting EoS
- Stretching corporate management capabilities
- Exploiting superior internal processes
- Increasing market power via cross subsidisation.
What was the Dominant Logic in Virgin Group?
Diversification strategy mainly driven by growth & value creation for shareholders. Done by investing into industries where profitability low but barriers to entry high.
Competitive advantage by transferring brand & market capabilities.
What is Corporate Strategy?
Concerned with choices made about the scope of an organisation.
What is Vertical Integration?
Describes entering activities where organisation is its own supplier & customer.
Backwards Integration.
Forwards Integration.
What is Backwards Integration?
Development into activities concerned with inputs of organisation (pre-production process).
What is Forward Integration?
Development into activities concerned with outputs of organisation (post-production process).
What is Outsourcing?
Previously internal activities of the value chain now subcontracted externally.
What is Outsourcing Dependent on?
Relative strategic capabilities of organisation.
Risk of opportunism (subcontractor likely to take advantage of relationship overtime?)
What is Divestment?
When organisation pulls out of one or more of its businesses. Could be due to poor performance, investor pressure, or cost of strategic business unit (SBU).
What are the 2 Types of Divestment?
Sell-off, SBU to another company.
Spin-off, SBU shares distributed to parent company shareholders.
What are the Corporate Rationales?
Portfolio Manager
Synergy Manager
Parent Developer
What is the Role of a Portfolio Manager?
To operates as an active investor in a way shareholders in stock market are unable to do.
What is the Role of a Synergy Manager?
Corporate parent
Seeks to enhance value of business units by managing synergies across business units.
What is the Role of a Parent Developer?
Seeks to Employ its own central capabilities to add value to its business.
