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CH 6 Notes
CH 6 Notes
CH 6 Notes
What businesses the corporation should be in? How should corporate headquarters manager its group of businesses? Corporate Strategy is what makes the whole company greater than the sum of its business units.
Diversification Manage additional businesses - Apply excess resources, capabilities, and core competencies that have multiple uses
Corporate Strategy
Directional Strategy overall orientation towards growth, stability, retrenchment Portfolio Strategy industries/markets that the firm competes in through products lines & business units Parenting Strategy coordination and transfer of resources between product lines & business units
Geographic Diversification: (In this case undiversifying ) Example: Waste Management sold its Australian and Italian waste management subsidiaries.
Strategy Formulation: Corporate Strategy Limited Diversification Single Business 95% or more of corporate revenue come from a single business unit Wm. Wrigley Jr. Co.
Limited Diversification Between 70-95% of corporate revenues comes from 70a single business unit. Hershey Foods Corporation
Strategy Formulation: Corporate Strategy Related Diversification RelatedRelated-Diversified Firm: Less than 70 percent Firm: of firm revenues comes from a single business unit, and different business units share numerous links and common attributes. Proctor & Gamble
Related Linked Diversification Less than 70 percent of firm revenues comes from a single business unit, and different business units share only a few links and common attributes or different links and common attributes. General Electric
Unrelated Diversification Less than 70% of firm revenues comes from a single business, and there are few, if any, links or common attributes among businesses.
Vertical Integration: Coordinating upstream activities (those closer to the raw materials) with downstream activities (those closer to the customer) Acquisitions, Strategic Alliances, Internal Development
reduces or eliminates costs of buying and selling (Transaction Costs) smoother, more efficient operation
Differences in minimum efficient scale in vertically integrated corporation. Must remain innovative in all Value Chain activities. Possible incompatibilities between managerial skills and corporate cultures that make upstream and downstream activities successful.
Strategy Formulation: Corporate Strategy Vertical and Horizontal Integration - Value Chain Activities Horizontal Integration
Coordinating
Corporate managers have expertise to recognize undervalued stocks that many individual investors would miss. Corporations have economies of scale for financing acquisitions that individuals do not.
Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks. Takeover premiums: corporations usually pay a premium over the normal trading price of the target s stock.
Illustration of Integration Activities: Unilever PLC (Anglo-Dutch) buys SlimFast for $2.3 billion and Ben (Anglo& Jerry s for $326 million First deal (SlimFast) is a high price but it has got good growth rates. Second deal (Ben & Jerry's) is a very high price, but it has got some very difficult growth rates Ben & Jerry s deal seen as a competitive response to an agreement by Unilever's arch-rival Nestle SA (Swiss) last year archto form a U.S. ice cream joint venture with Pillsbury (unit of Diageo British).
The Nestle-Pillsbury deal put together Nestle's U.S. novelty ice Nestlecream unit and Pillsbury's U.S. Haagen-Dazs business, creating Haagena strong force in the growing premium ice cream market.
Increased market power Capitalizing on core competencies Overcome entry barriers Bypass cost of new product development: Increased speed to market Increased diversification Avoiding excessive competition
Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focused on acquisition/merger Too large (bureaucratic)
questions marks: business growth rate - high; relative marks: competitive position - weak stars: stars: business growth rate - high; relative competitive position - strong cash cows: business growth rate - low; relative cows: competitive position - strong dogs: dogs: business growth rate - low; relative competitive position - weak
Strategy Formulation: Corporate Strategy Portfolio Analysis Strengths: evaluate businesses individually, raises issues of cash flow for expansion Weaknesses: difficult to define product & market segments, subjective determinations, lack of clarity of product life cycle position, static comparisons.
Relevant Product Markets areas of product overlap include pizzas, desserts, and ready-made meals. readyRelevant Geographic Markets areas of geographic overlap for above-mentioned products include United Kingdom and aboveIreland Competitive Assessment only market where parties products would have market share in excess of 25% is the Irish market for frozen ready-made meals, where parties readyachieve 30%. However, merged entity will continue to face competition from rapidly growing retailer brands (value increased by over 50% over three years) that account for 30% of market. Bird s Eye has more than 10% and Nestle has more than 5% market share.