Chapter 7: Strategy Formulation - Corporate Strategy

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The firm's overall orientation toward growth, stability, or retrench-
Directional Strategy
ment.
The industries or markets in which the firm competes through its
Portfolio Analysis products and business
units.
The manner in which management coordinates activities and
Parenting Strategy transfers resources and cultivates capabilities among product
lines and business units.
It is primarily about the choice of direction for a firm as a whole and
Corporate Strategy
the management of its business or product portfolio.
1. Growth Strategies
Grand Strategies 2. Stability Strategies
3. Retrenchment Strategies
Growth Strategies They expand the company's activities.
Stability Strategies They make no change to the company's current activities.
Retrenchment Strategies They reduce the company's level of activities.
It is a transaction involving two or more corporations in which stock
Merger
is exchanged but in which only one corporation survives.
The purchase of a company that is completely absorbed as an
Acquisition
operating subsidiary or division of the acquiring corporation.
Hostile Acquisitions They are often called takeovers.
Organization Slack Unused resources.
Concentration Growth strategy on current product line(s) in one industry.
Diversification Growth strategy into other product lines in other industries.
It can be achieved by taking over a function previously provided
Vertical Growth
by a supplier or by a distributor.
The degree to which a firm operates vertically in multiple locations
Vertical Integration on an industry's value chain from extracting raw materials to
manufacturing to retailing.
Backward Integration It means going backward on an industry's value chain.
Forward Integration It means going forward on an industry's value chain.
It proposes that vertical integration is more efficient than contract-
Transaction Cost Economies ing for goods and services in the marketplace when the transac-
tion costs of buying goods on the open market become too great.
Under this, a firm internally makes 100% of its key supplies and
Full Integration
completely controls its distributors.
Taper Integration It is also called concurrent sourcing.
With this, a firm internally produces less than half of its own
Taper Integration
requirements and buys the rest from outside suppliers.
With this, a company does not make any of its key supplies but
Quasi-Integration purchases most of its requirements from outside suppliers that are
under its partial control.
These are agreements between two firms to provide agreed-upon
Long-Term Contracts
goods and services to each other for a specified period of time.
It is a contract that specifies that the supplier or distributor cannot
Exclusive Contract
have a similar relationship with a competitive firm.
This is a company that, although officially independent, does most
Captive Company of its business with the contracted firm and is formally tied to the
other company through a long-term contract.
In which resources are purchased from outsiders through
Outsourcing
long-term contracts instead of being made in-house to strate-
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Chapter 7: Strategy Formulation - Corporate Strategy
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Horizontal Growth
Horizontal Integration
Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing
Turnkey Operations
BOT (Build, Operate, Transfer) Concept
BOT (Build, Operate, Transfer) Concept
Management Contracts
Concentric (Related) Diversification
Synergy
Conglomerate (Unrelated) Diversification
Pause/Proceed-With-Caution Strategy
No-Chance Strategy
Profit Strategy
Turnaround Strategy
Contraction
Consolidation
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gic alliances, in which partnerships, technology licensing agree-
ments, and joint ventures supplement a firm's capabilities.
A firm can achieve this by expanding its operations into other
geographic locations and/or by increasing the range of products
and services offered to current markets.
The degree to which a firm operates in multiple geographic loca-
tions at the same point on an industry's value chain.
It is done by shipping goods produced in the company's home
country to other countries for marketing.
Under this agreement, the licensing firm grants rights to another
firm in the host country to produce and/or sell a product.
Under this agreement, the franchiser grants rights to another
company to open a retail store using the franchiser's name and
operating system.
Companies often form these to combine the resources and exper-
tise needed to develop new products or technologies.
It is done by purchasing another company already operating in
that area.
If a company doesn't want to purchase another company's prob-
lems along with its assets, it may choose this development and
build its own manufacturing plant and distribution system.
It means the process of combining the higher labor skills and
technology available in developed countries with the lower-cost
labor available in developing countries.
These are typically contracts for the construction of operating
facilities in exchange for a fee.
It is a variation of the turnkey operation.
Instead of turning the facility (usually a power plant or toll road)
over to the host country when completed, the company operates
the facility for a fixed period of time during which it earns back its
investment plus a profit.
These contracts offer a means through which a corporation can
use some of its personnel to assist a firm in a host country for a
specified fee and period of time.
Growth through this diversification into a related industry may be
a very appropriate corporate strategy when a firm has a strong
competitive position but industry attractiveness is low.
It is the concept that two businesses will generate more profits
together than they could separately.
It is diversifying into an industry unrelated to its current one.
It is, in effect, a timeout—an opportunity to rest before continuing
a growth or retrenchment strategy.
It is a decision to do nothing new—a choice to continue current
operations and policies for the foreseeable future.
It is a decision to do nothing new in a worsening situation but
instead to act as though the company's problems are only tem-
porary.
It emphasizes the improvement of operational efficiency and is
probably most appropriate when a corporation's problems are
pervasive but not yet critical.
It is the initial effort to quickly "stop the bleeding" with a general,
across-the-Cboard cutback in size and costs.
It implements a program to stabilize the now-leaner corporation.
Chapter 7: Strategy Formulation - Corporate Strategy
Study online at https://quizlet.com/_3tbk9a
Captive Company Strategy It involves giving up independence in exchange for security.
It makes sense if management can still obtain a good price for its
Sell-out Strategy shareholders and the employees can keep their jobs by selling the
entire company to another firm.
If the corporation has multiple business lines and it chooses to sell
Divestment
off a division with low growth potential.
It involves giving up management of the firm to the courts in return
Bankruptcy
for some settlement of the corporation's obligations.
Liquidation It is the termination of the firm.
In which a company goes through a process of secrecy and de-
Cycle of Decline nial, followed by blame and scorn, avoidance and turf protection,
ending with passivity and helplessness.
In this analysis, top management views its product lines and
Portfolio Analysis business units as a series of investments from which it expects
a profitable return.
It is the simplest way to portray a corporation's portfolio of invest-
Growth-Share Matrix
ments.
Question Marks These are sometimes called "problem children" or "wildcats".
These are new products with the potential for success, but they
Question Marks
need a lot of cash for development.
These are market leaders that are typically at the peak of their
product life cycle and are able to generate enough cash to main-
Stars
tain their high share of the market and usually contribute to the
company's profits.
These typically bring in far more money than is needed to maintain
Cash Cows
the company's market share.
These have low market share and do not have the potential
Dogs (because they are in an unattractive industry) to bring in much
cash.
It views a corporation in terms of resources and capabilities that
Corporate Parenting can be used to build business unit value as well as generate
synergies across business units.
An organizational unit that embodies a set of capabilities that
has been explicitly recognized by the firm as an important source
Center of Excellence
of value creation, with the intention that these capabilities be
leveraged by and/or disseminated to other parts of the firm.
A corporate strategy that cuts across business unit boundaries to
Horizontal Strategy build synergy across business units and to improve the competi-
tive position of one or more business units.
In this competition, large multi-business corporations compete
Multipoint Competition
against other large multi-business firms in a number of markets.

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