eMDP: Strategic Management

Module 2

Session 6
Corporate Strategy
(For Entry, Growth, Diversification, Control,
Restructuring & Exit)

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 1

 What Is Scope of Strategy?

Scope of Strategy

Strategy of a Strategy of a
Company or Firm Business Unit

Multiple Businesses Business Operations

Entry, Expansion, Markets, Products,

Diversification, Profits, Growth &
Control & Exit Competition

Scope of the Firm

©2016-2020 P Rameshan

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 2

 Ext. Int. Strat. Strat.
Vision, Mission
Anal. Anal. Direc. Ch/Opt.
Goals, Targets
Strategic Planning

Corporate,
Strat. Plan Formul. Business,
Strategic Plan Direction Operational

Strategy Structure,
Testing Systems,
Organization Processes
Resource Assess.
Financial,
Human,
Other
Org. Adj.

Implement.
Retention, Exit, New
Entry, Collaboration
Monitor.
Businesses, Products,
Markets, Customers
Feedback

Strategic Management Process

©2006-2020 P Rameshan
September 10, 2020 eMDP SM-3 S6: Corporate Strategy 3
 From Corporate to Operations (or Functional) Strategy

Corporate Strategy

Business 1 Business 2
Domestic Foreign Domestic Foreign

Marketing Finance Production R&D HR

Operations

Sales Procurement Production Inventory Maintenance

©2015-2020 P Rameshan

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 4

 Strategic Thin Lines
Corporate Strategy
What business to be in?
How to control the businesses?

How to achieve external growth?

Business Strategy

How to compete in a chosen business?

How to grow the business internally?

Functional Strategy

How to be efficient?
How to give quality & customer service?

How to create new product attributes?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 5

 Firm’s Life Cycle & Corporate Strategy
Disappearance
Start-up

Growth Failure
Revival
(With high/low π)

Lower Size Decline

Diversific Refocus
ation
Restructu
Consolidation
ring

Larger Slowdown Stagnation

Size

Merger, Getting Acquired

or Being Taken-over

©2016-2020 P Rameshan
eMDP SM-3 S6: Corporate Strategy
September 10, 2020 6
 Avenues of Corporate Growth
Growth

Organic Inorganic

Greenfield Franchising Licensing SA JV M&A

Con
New New New New solid
New
atio
Customers Markets Products Stages Industries n

Backward Forward New

Reso
urces
Horizontal Vertical Core Competence
Integration Integration Extension

Related Diversification Greenfield Conglomeration

©2016-2020 P Rameshan Unrelated Industries
September 10, 2020 eMDP SM-3 S6: Corporate Strategy 7
 Avenues of Inorganic Growth
Inorganic Growth

Franchising Licensing SA JV M&A

Consolidation

New Resources

Core/Competence
Extension

Related
Diversification
Greenfield Conglomeration
Unrelated Industries

©2016-2020 P Rameshan
September 10, 2020 eMDP SM-3 S6: Corporate Strategy 8
 Diversification
Diversification

Related Unrelated

Horizontal Vertical Ancillaries Competency

Integration Integration Extensions

Markets Segments Backward Forward Materials Skill Conglomeration

Car to
(Upstream)(Downstream) Rubber Applications
Steel to Iron Steel to Pipes Honda Engine Technology in
Cars, Lawn Mowers,
Customers Products Generators
Urban/ Premium/
Rural Low-end

Local Regional National International

©2017-2020 P Rameshan
eMDP SM-3 S6: Corporate Strategy
September 10, 2020 9
 Levels of Corporate Diversification
Diversification

Low level Very high level

Single business: > 95% from

single business (Jet?)
Unrelated business: < 70%
Dominant business: 70-95%
from single business Moderate to high from dominant business & no
common links among
(Pepsi?)
businesses
(HLL?)
Related constrained: < 70% from
dominant business and all businesses
related (Bajaj?)
Related linked: < 70% from dominant
business and limited linkage among
businesses (L&T?)

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 10

 Reasons for Diversification

Economies of Scale Diversifying Shareholders’

& Scope Portfolio Risks

Economizing on Adding Value Through

Transaction Costs Acquiring Undervalued
Firms

Leveraging on Internal
Scope of Capital Transfer

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 11

 Tests of Corporate Diversification/Inorganic Expansion
Tests of Success

Attractiveness Test Better-off Test

Industries chosen must be Either target unit or

structurally attractive or acquiring unit must gain
capable of being made competitive advantage
attractive from its link with the
Cost of Entry Test
other

Cost of entry must not

capitalize all future profits

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 12

 Business Portfolio Selection:
BCG Matrix
Relative Market Share*
(Cash Generation)
High High Low
25%
Industry Growth Rate

Stars Question Marks

II I
Modest +/- Cash Flow Large Negative Cash Flow
(Cash Use)

10%
Cash Cows Cash Flow
Dogs
III IV
Large Positive Cash Flow Modest +/- Cash Flow

Low
10 1.0/1.5 0.1
* Company’s Share/Largest Competitor’s Share

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 13

 IE Matrix of Strategic Decisions
IFE Matrix Total Weighted Scores (Level of strength)
Strong Average Weak
3.0-4.0 2.0-2.99 1.0-1.99
4.0 3.0 2.0 1.0

High
3.0-4.0 I II III
3.0 Grow & Build Grow & Build Hold & Maintain
EFE
Matrix Medium
Total 2.0-2.99 IV V VI
Weighted Grow & Build Hold & Maintain Harvest or Divest
Scores 2.0
(Level of
responsiven Low
ess) 1.0-1.99 VII VIII IX
Hold & Maintain Harvest or Divest Harvest or Divest
1.0

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 14

 Requirements of Effective Acquisitions
Effective Acquisitions

Choice of Adaptation
friendly skills
acquisitions
Flexibility
Careful
(organizationa
selection of
l culture,
targets
operations etc)

Continued
Careful negotiation of
innovation &
the terms/price of
investment in
acquisition
R&D
Availability of Maintenance of
sufficient slack lower debts after
funds acquisition

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 15

 Why Strategic Alliances?

Slow cycle market Fast cycle market

Standard cycle market

Market access New market entry

Establish market franchise Speedier new product entry
Market leadership
Sharing heavy R&D costs
Reducing uncertainty
Market power
Access to resources
Overcoming trade barriers
Pooling capital resources

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 16

 Case

Welcome Aboard
(But Don’t Change a Thing)

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 17

 Discussion Question

How does the case describe Lakeland Wonders’

(LW) strategic dilemma?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 18

 Features of Proposal

Cost

New segments

Growth

Speed of plan implementation

Future security of business

Board targets

Better margins

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 19

 Other Concerns

How to get cooperation of SVP?

How to make Board agree?

How to overcome resistance to change?

How to win Bull’s Eye order?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 20

 Pros & Cons

Targeted growth

Diversification into viable segments

Better margins

Future security

Against tradition

Compromise on premium image

Labour resistance

Operational issues

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 21

 Consequences of Proposed Change

Shifting from past upscale market focus

Changing the branding punch line

Possibility of worker layoff

Threatening of old executives’ positions

Threatening of old suppliers’ business

Competition to existing mid-scale producers

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 22

 Provoking Question

Was Cheryl’s proposal implying a corporate

strategic shift for Lakeland Wonders?

If yes, how?

If no, why?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 23

 Corporate Strategic Shift

CEO’s New Strategy Objective: Faster business growth

New Corporate
Philosophy: Non- Growth target; business trends
premium Business

New Corporate Policy:

Outsourcing; Sourcing Viability of new segments
Outside USA

Corporate Strategy Requires owner/corporate board

Shift approval

©2018-2020 P Rameshan
September 10, 2020 eMDP SM-3 S6: Corporate Strategy 24
 Case Questions

Was a Corporate Strategic Shift Necessary for Lakeland Wonders?

Yes No

Vision & approach of a new CEO Others do not feel it necessary

Growth needs & goals Upscale position of Lakeland

Emergence of offshore manufacture Likely loss of focus

Bull’s-Eye opportunity Upcoming union negotiation

Only mid non-electronic toy segment

left for double-digit growth

Cheryl’s successful ideas & past

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 25

 Provoking Question

Can LW enter non-premium segments successfully?

Or, can LW survive without such extension?

If yes, why?

If no, why?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 26

 Non-premium Segments

Vision of the company

Family tradition

Management structure

State of business

Attractiveness of proposal

Future

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 27

 Provoking Question

Can LW do outsourcing successfully?

Or, can LW survive without outsourcing?

If yes, why?

If no, why?

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 28

 Outsourcing

Vision of the company

Overseas issues

Management difficulties

Operational issues

Attractiveness of proposal

Future

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 29

 Issues

Mark Dawson

Wally Swenson IV

Outsourcing

Labour union

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 30

 Cheryl’s Strategic Predicament
High-growth Goals Need for New Business Avenues

Business-trend Potential Opportunities

Forecasts

Financial Viability Need for New Execution Approaches

New Strategic
Middle Segment; Outsourcing
Approaches

Corporate Approval

SVP Resistance Promoter

Reservations
Board Uncertainties

Cheryl’s Dilemma

Does She Have an Alternative?

©2018-2020 P Rameshan
September 10, 2020 eMDP SM-3 S6: Corporate Strategy 31
 Did Cheryl Have an Alternative?

Cheryl could dilute her plan to accommodate Mark’s &

Swenson’s reservations*
Or, if the stalemate continues, Cheryl could resign as CEO

Alternatively,

Cheryl could challenge Mark Dawson to develop an

alternative proposal for the target growth within Lakeland’s
traditional preferences, subject to following caveats:

If he does it, Cheryl should espouse it as her plan

If he fails, Mark should accept her plan; in this

case, Swenson had little scope to object to it

* A separate division for mid-segment brand; premium products produced

only in USA; mid-segment products produced only abroad

September 10, 2020 eMDP SM-3 S6: Corporate Strategy 32