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Competitive Advantage To Corporate Strategy
Competitive Advantage To Corporate Strategy
Corporate Strategy
2 levels of strategies for any company
Business Strategy
Corporate Strategy 2 Questions answered by Corporate Strategy
Market values after mergers.short term!!! Main Objective --- to create shareholders value
Corporate Strategy
Premises Competition occurs at the business unit level Diversification inevitably adds to costs & constraints Shareholders can diversify themselves Essential Tests The Attractiveness Test The Cost of Entry test The Better-off test
Out of 33 major companies, >60% divested
Dont rush into fast-growing industries Mistook early growth for long term potential Example: Video Games, Personal Computers, Robotics
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Attractiveness Test
Evaluation based on relative attractiveness
Measures Weighting Co. A Mkt size Growth Rate Intensity (comp) Resource reqs Strategic fit Opps / threats Social, political Degree of risk Industry profitability 0.10 0.15 0.30 0.10 0.15 0.05 0.05 0.05 0.05 1.0 6.0 1.0 2.0 3.0 6.0 1.0 1.0 1.0 7.0 Ind. Rating Co. B 2.0 8.0 9.0 5.0 8.0 6.0 4.0 4.0 5.0 Co. C 5 5 5 5 5 5 5 5 5 Ind. Attract. Co. A 0.6 0.15 0.6 0.3 0.9 0.05 0.05 0.05 0.35 3.05 Co. B 0.2 1.2 2.7 0.5 1.2 0.3 0.2 0.2 0.25 6.75 Co. C 0.5 0.75 1.5 0.5 0.75 0.25 0.25 0.25 0.25 5.00
Better-Off Test
Corporation should bring in competitive advantage to the new unit or vice versa If the benefit is one-time, it is best to sell the unit once got the benefitsas does not add value to shareholders Example: Baxter Travenol and American Hospitality Supply
Portfolio Management
Acquire sound, attractive companies with competent mangers who stay Companies acquired needs to be autonomous and should be compensated based on its results Requires good but undervalued companies
But, the success of this is a Past Thing. More complex nature of portfolio, difficult to manage Gulf & Western Sara Lee
Restructuring
Underdeveloped, sick, or threatened organizations or industries on the threshold of significant change Parent intervenes frequently changing the management team, shifting strategy, or infusing the company with new technology Business is sold when parent is no longer adding value
Some Restructuring companies Hanson Trust KKR
When well implemented, it passes all 3 tests Major Pitfall Companies find it difficult to divest once restructured
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Transferring Skills
Knowledge about how to perform activities is transferred among the units Characterized by units with similar buyers, channels, value activities and/or the same strategic concept
Example A toiletries business unit, can give the marketing skills, positioning concepts, promotion techniques to a cough syrup business unit
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Sharing Activities
Leads to lowering costs or raising differentiation Must involve activities that are significant to competitive advantage and costs outweighed by benefits Business unit collaboration is encouraged and reinforced Example
Uses common physical distribution system and sales force in both paper towels and disposable diapers
Shared Procurement and distribution system for food serves in all Marriott units Fully Integrated Real Estate unit
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Action Program
Identify Interrelationships Among Units Select Core Business Facilitate Interrelationships Diversify Via Shared Activities Diversify Via Transfer of Skills Diversify Via Restructuring Pay Dividends Instead
Create a Corporate theme A way to ensure that corporation will create shareholder value
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Thank you