Amity Business School

Amity Business School

MBA Class of 2010, Semester II

BESA

1
Corporate Strategy Amity Business School

• is primarily about the choice of direction

for the firm as a whole (small one-product
company and a large multi business company)

• isalso about managing various product

lines and business units for maximum
value (large multi business company)
Corporate Strategy Amity Business School

3 Key Issues –

The firm’s overall orientation toward growth,

stability or retrenchment (directional strategy)

The industries or markets in which the firm

competes through its products and BU (portfolio
strategy)

The manner in which management coordinates

activities, transfer resources, and cultivates
capabilities among product lines and BUs
(parenting strategy)
Corporate Directional StrategyAmity Business School

Orientation toward growth

 Expansion, contraction, status quo

 Concentration or diversification

Internal development or acquisitions,

mergers, or alliances
Corporate Directional StrategyAmity Business School

3 Grand Strategies
Corporate Directional StrategyAmity Business School

1. Growth Strategies --
A corporation can grow internally by expanding
its operation both globally and domestically, or
it can grow externally
Corporate Directional StrategyAmity Business School

1. Growth Strategies --
 External mechanisms:

 Mergers (Allied Corporation+ Signal Companies=

Allied Signal)
 Acquisitions (Procter & Gamble acquisition of
Richardson-Vicks knowing for Oil of Olay and
Vidal Sassoon brands)
 Strategic alliances
Corporate Directional StrategyAmity Business School

1. Growth Strategies --
 Main advantages:
 May mask flaws in a company
 Provide a big cushion for turnaround in case a
strategic error is made
 Give more bargaining power
 Offer more opportunities for advancement,
promotion, and interesting jobs

 2 Basic forms:
 Concentration
 Diversification
 Basic Concentration Strategies
Amity Business School

 Vertical Growth --
 Vertical integration
 Full integration (100% suppliers +controls

distributors)
 Taper integration (<50% supplies; use own and

external distribution channels)

 Quasi-integration (buy/sell from outside

suppliers/distributors that under its partial control)

 Long-term contract
 Backward integration
 Forward integration

 Is a logical strategy for a corporation or BU with a strong

competitive position in a highly attractive industry
Basic Concentration Strategies
Amity Business School

 Horizontal Growth / Concentration --

by expanding the firm’s products into other
geographic locations and/or by increasing
the range of products and services offered
to current markets.

 Horizontal integration
 Full to partial ownership
 Long-term contracts
Corporate Directional StrategyAmity Business School

Basic Diversification Strategies –

 Concentric Diversification – when a firm has a
strong competitive position but industry
attractiveness is low
 Growth into related industry
 Search for synergies

 Conglomerate diversification – when industry

is unattractive and a firm lacks outstanding
abilities and skills
 Growth into unrelated industry
 Concern with financial considerations
Corporate Directional StrategyAmity Business School

Growth into areas related to a company’s

current product lines is generally more
successful than is growth in completely
areas.

From successful growth projects:

 80 % vertical growth
 50% horizontal growth
 35% concentric diversification
 28% conglomerate diversification
 Corporate Directional StrategyAmity Business School
International Entry Options --

 Exporting
 Licensing
 Franchising
 Joint Ventures
 Acquisitions
 Green-Field Development
 Production Sharing
 Turnkey Operation
 BOT Concept (Build, Operate, Transfer)
 Management Contracts
Corporate Directional StrategyAmity Business School

2. Stability Strategies --

 Pause/proceed with caution (timeout

before continuing growth or retrenchment)

 No change (to do nothing new)

 Profit strategies (to support profits by

reducing investments and short-term
expenditures)
 Corporate Directional Strategy
Amity Business School

3. Retrenchment Strategies --
 Turnaround
 Captive Company Strategy
 Selling out
 Divestment
 Bankruptcy
 Liquidation
 Corporate Strategy Amity Business School

Portfolio Analysis --

 Resource commitment on best

products to ensure continued success

 Resource commitment on new costly

products high risk
BSG Matrix Amity Business School
 BSG Matrix Amity Business School

 Stars are high market share/high growth businesses. The

preferred strategy is growth.
 Question marks are low market share/high growth
businesses. The preferred strategies are growth for
promising question marks and restructuring or divestiture
for the other question marks.
 Cash cows are high market share/low growth
businesses. The preferred strategy is stability or modest
growth.
 Dogs are low market share/low growth businesses. The
preferred strategy is retrenchment by divestiture.
 BSG Matrix Amity Business School

Limitations:

 Too simplistic
 The link between market share and profitability is
questionable
 Growth rate is only one aspect of industry
attractiveness
 Product lines or business units are considered in
relation to the one market leader
 Market share is only one aspect of overall
competitive position
GE/McKinsey Matrix Amity Business School

C
Winners Winners
A Question
High B Marks

D
Industry Attractiveness

Winners
E Average
Businesses
Medium F
Losers

H
Losers
G
Low
Profit
Producers Losers

Strong Average Weak

Business Strength/Competitive Position
GE/McKinsey Matrix Amity Business School

 Business strengths reflect market share,

technological advantage, product quality, operating
costs, and price competitiveness.
 Industry attractiveness reflects market size and
growth, capital requirements and competitive intensity.
 Both business strength and industry
attractiveness are categories as low, medium, and
high.
 Combining the business strength and industry
attractiveness variables yields a nine-cell matrix that
identifies business units as “winners,” “question
marks,” “average businesses,” “profit producers,” or
“losers.”
 GE/McKinsey Matrix Amity Business School

Limitations:

 It can get quite complicated and cumbersome

 The numerical estimates of industry attractiveness
and business strength/competitive position give the
appearance of objectivity, but they are in reality
subjective judgments
 It cannot effectively depict the positions or business
units in developing industries
Portfolio Analysis Amity Business School

Advantages of portfolio analysis:

 It encourages top management to evaluate each of

the businesses individually and set objectives and
allocate resources for each.
 It stimulates the use of externally oriented data to
supplement management’s judgment.
 It raises the issue of cash flow availability for use in
expansion and growth.
 Its graphic depiction facilitates communication.
 Portfolio Analysis Amity Business School

Limitations of portfolio analysis:

 It is not easy to define product/market segments.

 It suggests the use of standard strategies that can
miss opportunities or be impractical.
 It provides an illusion of scientific rigor when in
reality positions are based on subjective judgments.
 It is not always clear what makes an industry
attractive or where a product is in its life cycle.
 Corporate Strategy Amity Business School

Corporate Parenting Strategy --

 Strategic factors

 Performance improvement

 Analyze fit
 Corporate Parenting Amity Business School

Value creation only occurs under three conditions:

 the parent sees an opportunity for a business to improve

performance and a role for the parent in helping to grasp
the opportunity
 the parent has the skills, resources and other
characteristics needed to fulfill the required role
 the parent has sufficient understanding of the business
and sufficient discipline to avoid other value-destroying
interventions.
 Corporate Parenting Amity Business School

According to Campbell, Good and Alexander the

developing a corporate parenting strategy includes
3 steps:

 To examine each BU in terms of its strategic factors.

 To examine each BU in terms of areas in which
performance can be improved.
 To analyze how well the parent corporation fits with
the BU.
Corporate Parenting Amity Business School

 Heartland business has opportunity for

improvement by the parent and priority for all
corporate activities
 Edge-of Heartland business has some parenting
characteristics fit the business, but others do not
 Ballast businesses fit very comfortably with the
parent corporation but contain very few opportunities
to be improved by the parent
 Alien territory businesses have little opportunity to
be improved by the corporate parent
 Value trap businesses fit well with parenting
opportunities, but misfit with parent’s understanding
of the unit’s strategic factors
 Parenting-Fit Matrix Amity Business School

Low
MISFIT between critical success factors
Heartlan
and parenting characteristics
d
Ballast

Edge
of
Heartlan
d

Alien
Territory

Value Trap
High
Low High
FIT between parenting opportunities
and parenting characteristics