Corporate Strategy 2 Flashcards
Transaction costs are low when:
- Organizations are exchanging nonspecific goods and services
- Uncertainty is low
- There are many possible exchange partners
Inter-organizational Strategies for Managing Resource Dependencies
-Linkage mechanisms, while controlling interdependency, require coordination
-Coordination reduces each organization’s freedom to act
-Organizations aim to choose the inter-organizational strategy that offers
the most reduction in uncertainty with
the least loss of control
Inter-organizational Strategies for Managing Resource Dependencies
Transaction costs vs. Bureaucratic costs
Symbiotic interdependencies
Competitive interdependencies
Keiretsu
Japanese system for achieving the benefits of formal linkages without incurring its costs
Basic Diversification Strategies
Concentric Diversification (RELATED) Growth into a related industry (Search for synergies)
Conglomerate Diversification (UNRELATED) Growth into unrelated industry (Concern with financial considerations)
Value-Creating Diversification: Related Strategies
- Operational Relatedness: Sharing activities
- Corporate Relatedness: Core competency transfer
- Market Power
Operational Relatedness: Sharing activities
- Can gain economies of scope
- Share primary or support activities (in the value chain)
- Risky as ties create links between outcomes
- Related constrained diversified firms to share activities in order to create value
- Not easy, often synergies not realized as planned
Corporate Relatedness: Core competency transfer
- Complex sets of resources and capabilities linking different businesses through managerial and technological knowledge, experience, and expertise.
- Two sources of value creation
- Use related-linked diversification strategy
Two sources of value creation
- Core competence can be developed in one business unit and transferred to other business units at no additional cost
- Intangible resources difficult for competitors to understand and imitate, so immediate competitive advantage over the competition can be achieved through the transfer of corporate-level core competence
Market Power
- Exists when a firm is able to sell its products above the existing competitive level or to reduce costs of primary and support activities below the competitive level, or both.
- Can come from increasing scale or size
Market power can also be created through
Multipoint Competition
Exists when 2 or more diversified firms simultaneously compete in the same product or geographic markets.
Vertical Integration
Exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration)
Corporate Parenting Strategy
-Strategic factors
Examine each business unit in terms of its strategic factors
-performance improvement
Examine each business unit in terms of areas in which performance can be increased
-Analyze fit
Analyze how well the parent corporation fits with the business unit
The primary job of corporate headquarters
is to obtain synergy among the business units by providing needed resources to units, transferring skills and capabilities among the units, and coordinating the activities of shared unit functions to attain economies of scope.
(LEARNING ORGANIZATION)
This is especially important given that 75% or more of an organization’s market value stems from its intangible assets – the organization’s knowledge and capabilities.
Unrelated strategies, Creates value through two types of financial economies
Efficient internal capital market allocation (versus external capital market)
Restructuring of acquired assets
Firm A buys firm B and restructures assets so it can operate more profitably, then A sells B for a profit in the external market
financial economies
cost savings realized through improved allocations of financial resources based on investments inside or outside firm
Portfolio Analysis 1
Resource commitment on best products to ensure continued success
Resource commitment on new costly products high risk
Portfolio Analysis 2
Puts the corporate headquarters into the role of an internal banker
Top management views its product lines and business units as a series of investments from which it expects a profitable return
Portfolio Analysis –
Requires the continual evaluation of a firms portfolio of business units
This involves
- Assessing the attractiveness of the industries the firm competes in
- Assessing the competitive strength of a firm’s business units
- Checking the competitive advantage potential of sharing activities and/or transferring competencies across business units
- Checking the potential for capturing financial economies
Best Case Scenario
-All of a firm’s business units compete in attractive industries and have strong competitive positions
and
-There are ample opportunities to capture economies of scope and/or financial economies
Useful Tools for Portfolio Analysis Include:
Nine cell industry attractiveness and competitive strength matrix
BCG growth share matrix
GE Business Screen
Portfolio Analysis – Disadvantage:
because it tends to primarily view matters financially, it regards business units and product lines as separate and independent.
It fails to deal with the question of :
- what industries a corporation should enter or
- with how a corporation can attain synergy among its product lines and business units.
These questions are addressed by;
“Corporate Parenting Strategy”
International Entry Options
Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing (Outsourcing) Turnkey Operation BOT Concept (Build, Operate, Transfer) Management Contracts
Growth Strategies
- Internal mechanisms
- External mechanisms
Mergers
Acquisitions
Strategic alliances
