Professional Documents
Culture Documents
7 Corporate+Strategy
7 Corporate+Strategy
7 Corporate+Strategy
Strategies in Action
In Alices Adventure in Wonderland, Alice asks the Cheshire cat, Would you tell me please, which way I ought to go from here? That depends a good deal on where you want to go to, says the cat.
Corporate Strategy
Strategies in Action
Corporate Strategy
Corporate Strategy
Vision Mission Objectives External audit Internal audit Past successful strategies
Corporate Strategy
Corporate Strategy
Types of Strategies
1. Forward Integration
2. Backward Integration
3. Horizontal Integration
Corporate Strategy
Integration Strategies
When a company expands its business functions into areas that are at different points of the same production path Gain Control Over --
Distributors
Suppliers
Competitors
Corporate Strategy
Integration Strategies
Forward Integration Strategies Gain Control Over -Distributors
Retailers
Corporate Strategy
Guidelines -Current distributors expensive or unreliable Availability of quality distributors limited Firm competes in industry expected to grow markedly Firm has both capital & HR to manage new business of distribution
Integration Strategies
Backward Integration Strategies
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Integration Strategies Backward Integration Strategies Guidelines -Current suppliers expensive or unreliable # of suppliers is small; # competitors is large High growth in industry sector Firm has both capital & HR to manage new business Stable prices are important Current suppliers have high profit margins
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Integration Strategies
Horizontal Integration Strategies
Used as a growth strategy, eg. M&A, takeover.
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Integration Strategies Horizontal Integration Strategies Guidelines -Gain monopolistic characteristics w/o federal government challenge Competes in growing industry
Types of Strategies
4. Market Penetration
(B)
Intensive Strategies
5. Market Development
6. Product Development
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Intensive Strategies
Intensive Efforts -Improve competitive position with existing products
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Intensive Strategies
Market Penetration Strategies
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Intensive Strategies
Market Development Strategies
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Intensive Strategies
Market Development Strategies Guidelines -New channels of distribution reliable, inexpensive, good quality Firm is successful at what it does Untapped/unsaturated markets Excess production capacity
Intensive Strategies Product Development Strategies Increased Sales -Improving present products/services
Developing new products/services
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Types of Strategies
7. Concentric Diversification
(C)
Diversification Strategies
8. Conglomerate Diversification
9. Horizontal Diversification
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Diversification Strategies
The diversification strategies include:
internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies.
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Diversification Strategies
Concentric Diversification Strategies
A related diversification strategy
The addition of new & related products/services which have technological/commercial synergy with current products/services, and which will appeal to new customer groups. The objective is to benefit from synergy effects due to the complementarities of activities, thus expand the firms market by attracting new groups of buyers.
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Diversification Strategies
Concentric Diversification Strategies Guidelines -Compete in no/slow growth industry New & related products enhances sales of current products New & related products offered at competitive prices Current productsdecline stage of product life cycle Strong management team
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Diversification Strategies
Conglomerate Diversification Strategies
An unrelated diversification strategy
Marketing of new & unrelated products/services that have no technological/commercial synergies with current products, but which may appeal to new groups of customers. The strategy has little relationship with the firms current business. Therefore, the reasons of adopting the strategy: - to improve the profitability of the company, - to get a better reception in markets as the company gets bigger.
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Diversification Strategies
Conglomerate Diversification Strategies
Guidelines -Declining annual sales & profits Capital & managerial ability to compete in new industry Financial synergy between acquired and acquiring firms
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Diversification Strategies
Horizontal Diversification Strategies
An unrelated diversification strategy Addition of new & unrelated products/services that are technologically/commercially unrelated to current products, but which may appeal to current customers.
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Types of Strategies
10. Retrenchment
(D)
Defensive Strategies
11. Divestiture
12. Liquidation
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Defensive Strategies
Retrenchment Strategies
Sometimes called Turnaround or Reorganizational strategy
Regrouping -Cost & asset reduction to reverse declining sales & profit, thus strategists work with limited resources.
Bankruptcy- an effective retrenchment strategy to avoid major debt obligations.
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Defensive Strategies
Divestiture Strategies
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Guidelines -Retrenchment failed to attain improvements Division needs more resources than are available
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Defensive Strategies
Liquidation Strategies Guidelines -Retrenchment & divestiture failed
Only alternative is bankruptcy Minimize stockholder loss by selling firms assets
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Strategic Examples
Forward Integration
Doll maker & mail order firm, Pleasant Co., opened a retail store in Manhattan
Backward Integration
Horizontal Integration
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Strategic Examples
Market Penetration
SABMiller Plc spent $500 million in 2003 on marketing its Miller brands of beer
Market Development
Product Development
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Strategic Examples
Concentric Diversification
Conglomerate Diversification
Microsoft launched its first personal computers that double as entertainment centers
The video-rental firm Blockbuster may acquire the DVD and music direct-marketing firm Columbia House
Horizontal Diversification
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Strategic Examples
Retrenchment
America West Airlines closing its hub at Columbus, Ohio and laying off 390 employees
ConocoPhillips recently sold its Circle K convenience store chain to Alimentation Couche-Tard, a Canadian firm
Divestiture
Liquidation
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A strategic management tool used to determine what type of corporate strategy a company should undertake
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SPACE Matrix
Conservative FS
+6 +5 +4 +3 +2 +1
Aggressive
CA
-6 -5 -4 -3 -2 -1 -1 -2 -3 -4 +1 +2 +3 +4 +5 +6
IS
Defensive
Corporate Strategy
-5 -6
Competitive ES
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SPACE Dimensions
Financial Strength ROI Leverage Liquidity Working capital Total Industry Strength Growth potential Profit potential Technological know-how Total
Corporate Strategy
SPACE Dimensions
Environmental Stability Competitive pressure Price elasticity Ratings -4.0 -5.0
-4.0
-13.0
Market share
Product Quality Product life cycle
-2.0
-5.0 -2.0
Total
Corporate Strategy
-9.0
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SPACE Matrix
Steps required to develop a SPACE Matrix are as follows:
1. Select a set of variables to define the financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS). 2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. Assign a numerical value ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. On the FS and CA axes, make comparisons to competitors. On the IS and ES axes, make comparisons to other industries.
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SPACE Matrix
Steps required to develop a SPACE Matrix are as follows:
3. Compute an average score for FS, CA, IS and ES by summing the values given to variables of each dimension and then by dividing by the number of variables included in the perspective dimensions. 4. Mark the average scores for FS, IS, ES, and CA on the appropriate X&Y axis in the SPACE Matrix.
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on y.
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SPACE Matrix
Steps required to develop a SPACE Matrix are as follows:
6. Draw a directional vector form the origin of the space Matrix through the new intersection point. The vector reveals the type of strategies recommended for the organization: a) Aggressive,
b) Competitive. c) Defensive, and d) Conservative.
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SPACE Matrix
Suggested strategies
Aggressive strategies : Mkt. penetration, mkt. development, product development, backward/forward/horizontal integration, conglomerate/concentric/horizontal diversification. Conservative strategies: Mkt. penetration, mkt. development, product development, & concentric diversification. Defensive strategies: Retrenchment, divestiture, & liquidation. Competitive strategies: Backward/forward/horizontal integration, mkt. penetration, mkt. development, product development,
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Corporate Strategy