The content of strategy - corporate level and international Flashcards
An organisation can increase its scope through:
- Diversification
- Vertical integration
- Outsourcing
Diversification involves…served by an organisation.
…increasing the range of products or markets…
Related diversification involves expanding into products or services…
…with relationships to the existing business.
The two related diversification strategies
- Developing new products or services for existing markets
2. Bringing existing products or services into new markets
Ansoff’s matrix has two axis:… which are cross classified by being ‘existing’ or ‘new’.
- Markets
2. Products/services
The matrix can be further developed by considering these in terms of…
…competences.
Ansoff’s (1958) basic growth alternatives:
- Market penetration
- New products and services
- Market development
- Conglomerate diversification
Market penetration refers to an effort to increase company sales without…, either by…
departing from an original product-market strategy, …increasing volume of sales to present customer or by finding new customers for present products.
Market penetration:
- Builds on established strategic capabilities
2. Scope remains the same
Two constraints of market penetration:
- Retaliation from competitors - may intimate price war
2. Legal constraints - regulators restrain powerful companies or prevent M&As
Product development…develops products that have new and different…
…retains the mission and…characteristics that will improve the performance of the mission.
Product development can be expensive and high risk:
- Require new strategic capabilities
2. Project management risk - due to project complexity and changing project specification over time
Market development requires an adaptation of…
…present product line to new missions.
Two basic forms of market development:
- New users
2. New geographies i.e. internationalisation
Risks of market development:
- May lack the right marketing skills and brand
2. Difficulty of coordinating between different users and geographies - might have different needs
Conglomerate diversification involves…to existing businesses.
…diversifying into products or services with no relationships…
Diversification requires new…,…,…, and will almost invariably lead to physical and organisational changes in…
skill, techniques and facilities,… the structure of the business.
Vertical diversification involves…
…branching out into production of components, parts and materials.
Horizontal diversification involved the…
…introduction of new products.
Lateral diversification moves beyond…
…the confines of the industry, beyond present market structure.
Value-creating diversification drivers:
- Exploiting economies of scope - applying existing resources of competences that are under-utilised to new markets or services
- Stretching corporate management competences - across businesses that may not be sharing resources at the operating-unit level
- Increase market share - increase bargaining power
- Enhance industry attractiveness - defer entry
- Maintain growth/survival
Where diversification creates value it is described as…
…‘synergistic’ - the combined effects of activities is greater than the sum of its parts.
Value-destroying diversification drivers create negative synergies (non-strategic):
- Responding to market decline
- Spreading risk - while is wise to diversify risk across a number of distinct activities, an organisation should not have a stake in dozens of different companies
- Managerial ambition - can drive inappropriate diversification i.e. short-terms gains for manager but log-term destruction
The the diversification inverted U-shape maps performance against:
- Undiversified
- Related limited diversification
- Unrelated extensively diversified
Vertical integration is similar to diversification in that it… but different in that it…
…increases corporate scope… brings together activities up and down the same value network.
The vertical integration directions:
- Backward - development into activities with the inputs into the company’s current business, further back in the value network
- Forward - development into activities concerned with the output of a company’s current business, further forward in the value network
Dangers of vertical integration:
- Involves investment - which can affect the performance of the organisation if it is in less profitable activities than the original core business
- Involves different strategic capabilities
Outsource is the process by which…
…activities previously carried out internally are subcontracted to external suppliers. (who might have superior capabilities for that activity)
Outsourcing creates a risk of…
…opportunism by external subcontractors.
Opportunism is similar to the Porter’s five forces in that:
- Where there are few alternatives to the subcontractor they have the power
The decision to integrate or subcontract rests on the balance between two distinct factors:
- Relative strategic capabilities - does the subcontractor have the potential to do the work significantly better
- Risk of opportunism - is the subcontractor likely to take advantage of the relationship over time
Diversification is frequently unsuccessful, but not… . The role of the parent company is…
…inevitable. … pertinent in the final outcome.
Value-adding activities of a corporate parent:
- Envisioning - to maximise corporate-wide performance through commitment to a common purpose
- Facilitating synergies - through incentives, rewards and renumeration schemes
- Coaching - help business unit managers develop strategic capabilities
- Providing central services and resources - have greater leverage with bargaining power, and transfer of knowledge
- Intervening - improve performance by moving around managers
Value-destroying activities of a corporate parent:
- Adding management costs
- Adding bureaucratic complexity
- Obscuring financial performance
It is difficult to pursue all the different ways to create value and thus there exists three types of corporate parenting roles:
- Portfolio manager - operates as an active investor but does not get closely involved in the routine management
- Synergy manager - enhance value by managing synergies across units
- Parental developer - focus on transferring central capabilities downwards to enhance potential of business units
The parental developer challenges the ‘crown jewel’ problem, which is…
…where companies become attached to a business unit since it performs well, but adds little value.
The BCG maps on a continuum:
- Market share
2. Market growth
The four stages of a business portfolio:
- Stars - requires high investment but yields sufficient profits
- Question marks - can be developed into a star through heavy investment, though high risk of failure
- Cash cows - low investment needs and high profits to help questions marks
- Dogs - cash drain and use disproportionate managerial time and resources
Matrix advantages:
- Visualises - the different needs and potential of units
- Financial - warns of the financial demands and desirable portfolios
- Illustrates - that surplus’ should be strategically allocated
Matrix disadvantages:
- Definitional vagueness - with regards to high and low growth and share
- Capital market assumptions - assumes that capital cannot be raised in external markets
- Unkind to animals - cows and dogs receive ungenerous treatment which causes motivational problems for relevant managers. Also added self-fulfilling prophecy where cows become dogs quicker
- Ignores commercial linkages - a business unit in the portfolio may depend upon keeping a dog alive
Diversification can maintain growth and survival by… of the product life cycle?
…avoiding the decline stage…
Multistep process to make decisions:
- Determine the preferred are for search
- Select a number of diversification opportunities within these areas and to subject them to a preliminary evaluation
- make a final evaluation leading to selection of a specific step
(Ansoff, 1958)
More details…
from Ansoff’s paper?
Global strategy involves high coordination of extensive activities…
…dispersed geographically in many countries around the world.
International strategy refers to a range of options for operating…
…outside an organisation’s country or origin.
Things to consider before international strategy:
- Internationalisation drivers
2. Advantages - firm-specific or geographic
Yip’s globalisations framework sees international strategy potential as determined by four drivers:
- Market drivers
- Cost drivers
- Government drivers
- Competitive drivers
Market drivers:
- Global customers
- Similar customer needs
- Transferable marketing
Cost drivers:
- Scale economies
- Take advantage of variation i.e. cheap labour in some markets, reputation of knowledge in others
- Where the cost of moving products or services across borders is small relative to their final value
Government drivers:
- Reduction of barriers to trade accelerate internationalisation
- Compatible standards made it easier
Competitive drivers:
- Interdependence between countries
2. Competitors’ global strategies
The key insight from Yip’s framework is that the internationalisation… of industries is…
…potential… variable.
Yip’s framework considers firm-or organisation-specific advantages, but fails to consider…
country-specific or geographical advantages.
Two principles to consider when considering advantages:
- Locational advantages - Porter’s diamond
2. The international value system
The dimensions of Porter’s diamond:
- Factor conditions - raw materials, land and labour
- Home demand conditions
- Related and supporting industries
- Firm strategy, industry structure and rivalry - competitive industries and strong local rivals can force companies to improve
Porter’s diamond identifies the extent to which organisations can… to create…
…build on home-based advantage… CA in relation to others internationally.
The IVC involves purchasing services and components from the most appropriate suppliers around the world, aka…
… global sourcing.
Locational advantages:
- Cost advantages i.e. labour, transportation and communication
- Unique local capabilities
- National market characteristics - develop differentiated products aimed at different segments
When developing an international strategy a firm must consider the…
…global-local dilemma.
The international strategy axis are:
- Pressure for local responsiveness
2. Pressure for global integration
The international strategies:
- Export
- Multi-domestic
- Global
- Transnational
Export strategy:
- Leverages home country capabilities, innovations and products
- Risk of skilled competitors getting ahead
Multi-domestic strategy:
- e.g. food and consumer product industries
- Risk of
Global strategy:
- Standardised products and services
- e.g. Non-commodity companies
- Reduced flexibility due to standardisation
Transnational strategy:
- Maximises learning, knowledge exchange and innovation between units
- Very difficult
Arbitrage implies that multinationals take advantage of…
…price difference between two or more markets by purchasing goods cheaply in more markets and selling them at higher prices in another.
Which if the PESTEL factors can be used to assess market selection?
- Political
- Economic
- Social
- Legal
The CAGE framework emphasises the importance of considering the…
…match between country and firm.
The CAGE distances are:
- Cultural - differences in religion, social norms etc
- Administrative and political - makes opportunities for some countries, restricts others
- Geographical - size, sea access etc
- Economic - disparities in wealth internationally
The staged international expansion model proposes a…, as they build knowledge and capabilities.
…sequential process whereby companies gradually increase their commitment to newly entered markets,…
The gradualism of staged international expansion is challenged by two phenomena:
- ‘Born-global firms’
2. Emerging-country multinationals
The fundamental principles to guide entry mode:
- The breadth of CA
2. Tradability
Modes of entry:
- Export
- License/franchise - CA too narrow to go it alone and can rely on contract not to be abused
- Joint ventures - gives foreign country more control to ensure they have an interest to maximise value
- Wholly owned subsidiary - transport difficulties rule out export
Export:
Advantages: 1. Easier 2. No needs for operational facilities in host country Disadvantages: 1. Lose locational advantages in host country 2. Dependence on export intermediaries 3. Exposure to trade barriers 4. Transportation costs
Joint ventures and alliances:
Advantages: 1. Shares investment risk 2. Complementary resources Disadvantages: 1. Find trustworthy partner 2. Relationship management 3. Difficult to integrate and coordinate
Foreign Direct Investment (FDI):
Advantages:
1. Full control
2. Integration and coordination possible
3. Greenfield investments are possible and may be standardised
Disadvantages:
1. Substantial investment and commitment
2. Greenfield investments are time consuming and unpredictable
The investor U-shope of internationalisation exists because the combination of diverse locations and business units gives rise to…
…high levels of organisational complexity
Service-sector disadvantages of internationalisation:
1.
