UCAM MBA Programme

TÍTULO
Subtítulo
Strategic Options for Corporates

Nalin Anthony
MBA, M.Sc.(Finance), MCIM,ACMA,LLB
 Hierarchy of Strategies

MBA | Corporate & Business Strategy| Nalin Anthony

 Startegy Hirarchy

Corporate Strategy builds on top of business strategy, which is concerned

with the strategic decision making for an individual business

MBA | Corporate & Business Strategy| Nalin Anthony

 Corporate Strategy
Corporate Strategy takes a portfolio approach to strategic decision
making by looking across all of a group’s businesses to determine how
to create the most value. In order to develop a corporate strategy,
firms must look at how the various business they own fit together, how
they impact each other, and how the parent company is structured in
order to optimize synergy in the areas of,
• Human resource
• Capital
• Processes
• Knowledge
MBA | Corporate & Business Strategy| Nalin Anthony
 Responsibilities of
Corporate Strategy

MBA | Corporate & Business Strategy| Nalin Anthony

 Organizational Design
Organizational design involves ensuring the firm has the
necessary corporate structure .
Factors that the corporate must consider are,
1. The role of the corporate head office
2. Centralized vs decentralized approach
3. Reporting structure (vertical , matrix , cluster etc)
MBA | Corporate & Business Strategy| Nalin Anthony
MBA | Corporate & Business Strategy| Nalin Anthony
 Head office (centralized vs decentralized)
• Determining how much autonomy to give business
units

• Deciding whether decisions are made top-down or

bottom-up

• Influence on the strategy of business units

MBA | Corporate & Business Strategy| Nalin Anthony
 Allocation of Resources
In an effort to maximize the value of the corporate, leaders must
determine how to allocate people and capital to various SBUs to make
the whole is greater than the sum of the parts.

People :Identifying core competencies and ensuring people are well

distributed across the corporate and supply of talent is available to all
businesses
Capital : Allocating capital across businesses so it earns the highest
risk-adjusted return.
MBA | Corporate & Business Strategy| Nalin Anthony
 Strategic Trade-off ( Managing Portfolio Risk)

MBA | Corporate & Business Strategy| Nalin Anthony

 Portfolio Management

MBA | Corporate & Business Strategy| Nalin Anthony

 BCG Matrix
Broad Choices
Stars – Nurture

Cash Cows – Milk

Questions Marks – Invest

Dogs - Divest

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 Strategic Tradeoff

One of the most challenging aspects of corporate strategy is

balancing the tradeoffs between risk and return across the
corporate. It’s important to have a holistic view of all the
businesses combined and ensure that the desired levels are
risk management and return generation are being pursued.

MBA | Corporate & Business Strategy| Nalin Anthony

MBA | Corporate & Business Strategy| Nalin Anthony
 Focus of Corporate Strategies

Corporate Strategies focus on enterprise’s

1. Scale – How large ?

2. Scope – How diversified ?

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 Scope Scale

Competitive How to
Advantage Compete
 Extent of Diversification
Single Multiple
Business Businesses
Firm Firm

Business Definition

MBA | Corporate & Business Strategy| Nalin Anthony

 Diversification
In a diversification strategy, the firm enters a new market with a new
product. There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be
realized between the existing business and the new
product/market.

2. Unrelated diversification: There are no potential synergies to be

realized between the existing business and the new product/market.

MBA | Corporate & Business Strategy| Nalin Anthony

 Why Do Firms Diversify
1. To Grow (revenue, profit , market share )

2. Maximize Existing Resources & Capabilities

3. Combat Competition & Increase Market Power

4. Optimize Industry Life Cycle

5. Utilize Surplus Cash

MBA | Corporate & Business Strategy| Nalin Anthony

 Types of Diversifications
1. Vertical (value Chain) Integration
• Backward Integration
• Forward Integration

2. Horizontal (Related) Diversification

3. Unrelated Diversification
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 Vertical Integration
A vertical integration is when a firm extends its operations within its
value chain.

It means that a vertically integrated company will bring in previously

outsourced operations in-house.

The direction can either be upstream (backward) or downstream

(forward).

This can be achieved either by internally developing an extended

production line or by acquiring vertically.
MBA | Corporate & Business Strategy| Nalin Anthony
 Vertical (value Chain) Integration

Backward Integration
A strategy of moving closer to the sources of raw material by
acquiring resource suppliers or by manufacturing the
components needed for the production of the final product.

Forward Integration
Refers to a strategy of moving closer to the customer or end-user
by acquiring or establishing sale, distribution or after-sales-
service of firm’s products or services
MBA | Corporate & Business Strategy| Nalin Anthony
 Vertical (value Chain) Integration

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 Forward Integration - Case

MBA | Corporate & Business Strategy| Nalin Anthony

 Backward Integration - Case

Netflix was a platform to distribute films and TV shows

created by others. It then decided to make original
content. This strategy has helped boost Netflix’s
continuing success. Netflix streams more original content
reducing their dependency on film studios and their
licensing.

MBA | Corporate & Business Strategy| Nalin Anthony

 Pros & Cons of Vertical Integration
Advantages Disadvantages
• Greater control over costs and • High overhead cost
supply of components
• Avoidance of transactional cost • Transfer pricing dilemma

• Protect proprietary technology • Demand variation could result in

capacity underutilization or
outsourcing

• Capitalize on outstanding • Rapid changes in technology can

technology or service make vulnerable
MBA | Corporate & Business Strategy| Nalin Anthony
 Horizontal integration
Is the process of acquiring or merging with
competitors, leading to industry consolidation.

Is a strategy where a company acquires, mergers

or takes over another company in the same
industry value chain.

MBA | Corporate & Business Strategy| Nalin Anthony

 Car Manufacturing & Oil production, refining
Retailing and distribution

Movie Making Global Pharmaceutical

MBA | Corporate & Business Strategy| Nalin Anthony
 Horizontal Integration may be an
effective strategy when:

• When the industry is growing

• When rivals lack the expertise that the company has already
achieved

• When economies of scale can be achieved

• When the company can manage the operations of the bigger

organisation efficiently, after the integration
MBA | Corporate & Business Strategy| Nalin Anthony
 Pros & Cons of Horizontal Integration

Advantages Disadvantages
• Economies of scale and scope • Possible strict anti-monopoly laws
in many countries
• Increased differentiation • It might become too rigid, become
unfriendly to change
• Increased market power • Cultural incompatibility

• Ability to enter new markets • Management issues in a bigger

company
MBA | Corporate & Business Strategy| Nalin Anthony
 Unrelated Diversification
which occurs when a firm enters an industry that lacks any
important similarities with the firm’s existing / core industry or
industries.
Firms engage in extensive unrelated diversification are refereed
to as conglomerates

The main reason for moving into unrelated businesses is to allow

a firm to continue to grow after it’s core business has matured
or threatened by competitors or declining demand

MBA | Corporate & Business Strategy| Nalin Anthony

MBA | Corporate & Business Strategy| Nalin Anthony
MBA | Corporate & Business Strategy| Nalin Anthony
 Pros & Cons of Unrelated
Diversification
Advantages Disadvantages
• Continue to grow after • Managers often lack technical
core business has matured expertise or detailed
or started to decline knowledge about their fair’s
many businesses
• To reduce cyclical • Growth-Greed syndrome
fluctuations in sales
revenue and cash flows

MBA | Corporate & Business Strategy| Nalin Anthony