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Corporate Strategy Example

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Corporate Strategy Example

  1. 1. Example: What corporate strategies are in use? (1) <ul><li>Dell acquires Apple. </li></ul><ul><ul><li>Horizontal Intergration. Dell and Apple both make personal computers. If that’s what you see, they are in the same industry and so this is horizontal integration like United Airlines acquiring American. </li></ul></ul><ul><ul><li>Related Diversification. Dell makes PCs, Apple makes an operating system for PCs. From that perspective, this is related diversification where the synergy is likely using Dell’s marketing prowess to leverage Apple’s operating system technology. </li></ul></ul><ul><ul><li>Obviously, from a business point of view this is a fairly silly scenario, as are many of the scenarios. That’s not the point, eh? </li></ul></ul><ul><li>Dell acquires Intel. </li></ul><ul><ul><li>Backwards vertical integration. Intel is a key supplier to Dell, of microprocessors. </li></ul></ul>B
  2. 2. Example: What corporate strategies are in use? (2) <ul><li>Microsoft acquires Prentice-Hall. </li></ul><ul><ul><li>Unrelated diversification. Microsoft is in high-technology, Prentice-Hall is in publishing (they publish our textbook). There is no clear “relatedness” here. </li></ul></ul><ul><ul><li>If this was an essay question, you might craft a plausible relatedness up and get credit. But these aren’t test questions, they are to make you think! </li></ul></ul><ul><li>Microsoft acquires Apple. </li></ul><ul><ul><li>Horizontal Integration or related diversification. Microsoft primarily does operating systems (Windows) and applications (Excel). Apple does primarily operating systems (Mac OS) and PCs (Macintosh). So they are in the same industry (operating systems) which means horizontal integration, and in related industries (PCs, PC applications) which means related diversification. </li></ul></ul>B
  3. 3. Example: What corporate strategies are in use? (3) <ul><li>Intel acquires Dell. </li></ul><ul><ul><li>Forward vertical integration. Dell is one of Intel’s main customers. </li></ul></ul><ul><li>Microsoft dominates the PC operating system business. </li></ul><ul><ul><li>Concentration strategy – build on your existing strengths. </li></ul></ul><ul><li>Gateway (PC company) closes 35 retail stores to restore profitability. </li></ul><ul><ul><li>Retrenchment. </li></ul></ul><ul><li>Intel discontinues selling PC’s to avoid competing with customers. </li></ul><ul><ul><li>Exit. This actually happened and represents “strategic” exit (Intel was financially strong) rather than exit under duress. </li></ul></ul>B
  4. 4. Example: What corporate strategies are in use? (4) <ul><li>Procter & Gamble sells Tide detergent in Italy </li></ul><ul><ul><li>Global product strategy – sell the same product everywhere. But maybe, Tide is not really Tide everywhere – there are changes made to the formula but the brand is the same. That leans toward a multidomestic strategy. </li></ul></ul><ul><li>Procter & Gamble sells Joy dishwashing liquid virtually worldwide and Salvo dishwashing liquid in Latin America. </li></ul><ul><ul><li>Joy alone is a Global strategy. But if combined with Salvo, the company is adjusting its strategy to conform to local preferences, and that means the overall corporate strategy looks multidomestic. </li></ul></ul>B
  5. 5. Corporate-Level Strategies <ul><li>Corporate strategies are dynamic </li></ul><ul><ul><li>Corporations enter and exit businesses simultaneously </li></ul></ul><ul><ul><li>Growth: Make the corporation larger. Grow each business. Enter more businesses and markets than you are exit. </li></ul></ul><ul><ul><li>Stability: Essentially sticking with the current businesses </li></ul></ul><ul><ul><li>Retrenchment: Make the corporation smaller. Prune unprofitable parts of each business. Exit more businesses than you are entering. </li></ul></ul><ul><li>Big Question: Why should there be corporate-level strategies at all? Why shouldn’t the businesses compete on their own? </li></ul><ul><ul><li>There must be a core competency that can be translated into competitive advantage within the different businesses </li></ul></ul>
  6. 6. Corporate-Level Growth Strategies <ul><li>Concentration (focus on existing businesses): </li></ul><ul><ul><li>Grow existing business units, often by entering new markets </li></ul></ul><ul><li>Integration </li></ul><ul><ul><li>Vertical or horizontal </li></ul></ul><ul><ul><li>Can be organic (own unit) or acquisition </li></ul></ul><ul><li>Diversification </li></ul><ul><ul><li>Related or unrelated </li></ul></ul><ul><ul><li>Explicitly about acquisition </li></ul></ul><ul><li>International Expansion: </li></ul><ul><ul><li>Existing business units enter new markets </li></ul></ul><ul><ul><li>Can be organic (own unit) or acquisition </li></ul></ul>
  7. 7. Growth through diversification <ul><li>Diversification is explicitly about acquiring or merging with other corporations or business units. </li></ul><ul><li>Related diversification - grow by merging with or acquiring firms in different, but related, industries </li></ul><ul><ul><li>Goal: “strategic fit” that allows synergy </li></ul></ul><ul><ul><li>Synergy: When two units produce additional value through operating together rather than separately. </li></ul></ul><ul><li>Unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries </li></ul><ul><ul><li>Goal: ? reduce cyclicality </li></ul></ul><ul><ul><li>On average less successful than related diversification </li></ul></ul>
  8. 8. Corporate Tinkertoys: Diversification and Integration around the airline industry American Airlines United Airlines National Rent-a-Car Boeing . Related Diversification Chrysler Unrelated Diversification Airline Industry
  9. 9. Vertical Integration <ul><li>Vertical Integration </li></ul><ul><ul><li>A strategy that allows an organization to create value by producing its own inputs or distributing its own products. </li></ul></ul><ul><ul><li>Backward vertical integration </li></ul></ul><ul><ul><ul><li>occurs when a firm seeks to reduce its input costs by producing its own inputs (generics). </li></ul></ul></ul><ul><ul><li>Forward vertical integration </li></ul></ul><ul><ul><ul><li>occurs when a firm performs functions its customers did, itself – for example, distributes its outputs or products to lower distribution costs and ensure quality service to customers (Compaq vs. Dell). </li></ul></ul></ul>
  10. 10. Airline Industry Example: Diversification and Integration American Airlines United Airlines National Rent-a-Car Boeing . Horizontal Integration Chrysler Vertical Integration Backward Vertical Integration Forward Airline Industry
  11. 11. International Expansion: To customize or not to customize? <ul><li>Global product strategy: Same product, same marketing approach everywhere. </li></ul><ul><ul><li>Standardization provides for lower production cost. </li></ul></ul><ul><ul><li>Ignores national differences that local competitors can address to their advantage. </li></ul></ul><ul><li>Multidomestic product strategy: Customize products, marketing in each national market </li></ul><ul><ul><li>Helps gain local market share. </li></ul></ul><ul><ul><li>Raises production costs. </li></ul></ul><ul><li>Which one?: how much do national environments differ? </li></ul>Multinational / Ethnocentric Transnational / Polycentric
  12. 12. Retrenchment and Exit <ul><li>Retrenchment – action to address weaknesses that are leading to performance declines, to: </li></ul><ul><ul><li>stabilize operations (shutting retail stores) </li></ul></ul><ul><ul><li>revitalize organizational resources and capabilities </li></ul></ul><ul><ul><li>prepare to compete effectively once again </li></ul></ul><ul><li>Exit – shutting down or selling the business </li></ul><ul><ul><li>Often difficult for managers (e.g., steel, flag carriers) </li></ul></ul>BX