Chapter 6: Grand Strategies

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Chapter 6 Grand Strategies

• By Daniel Adkins

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The Man, The Myth, The Legend
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Why diversify?

• Increase the firms stock value
• Increase the growth rate of the firm
• Diversify the product line
• When the life cycle of current products have
  peaked
• Increase efficiency and profitability, especially
  if there is synergy between the acquiring firm
  and the acquired firm

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The two types of Diversification

• Concentric Diversification
• Involves the acquisition of businesses that are
  related in the acquiring firm in terms of
  technology, markets, or products.
• Conglomerate Diversification
• Unlike Concentric Diversification, Conglomerate
  Diversification gives little concern to creating
  product-market synergy, but seeks financial
  synergy.

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Turnaround

• The Turnaround Strategy should be used when a
  firm is getting declining profits from production
  inefficiencies or by competitive breakthroughs.
• This Strategy is used to help the firm fix their
  problems of being inefficient and turnaround
  their company into becoming stable and profitable
  again.

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The two types of Retrenchment used in the
Turnaround Strategy

• Cost reduction
• Asset reduction

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A Model of the Turnaround Process
This model is listed on the top of page 213 in
our Textbook Formulation, Implementation, and
Control of Competitive Strategy.
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Divestiture Strategy

• This Strategy involves the sale of a firm or a
  major component of a firm.

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The Sara Lee Brand
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The Bankruptcy Strategy

• Liquidation (Chapter 7)
• Owners and managers are admitting failure. By
  liquidating the assets of the company, the
  creditors are paid a fraction of what they have
  claim to.
• Reorganization (Chapter 11)
• Creditors agree to freeze their claims to the
  company. The company is allowed to reorganize in
  efforts of becoming profitable and then paying
  back the creditors the amount owed to them.

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7/11 Chapter 7 and Chapter 11 Bankruptcy
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Corporate Combinations

• Joint Ventures
• When working by yourself is not feasible, or not
  as efficient as working together with someone
  else.
• The companies (children) operate together to
  benefit the co-owners (parents).
• Pros New opportunities for both companies
  involved and the risks can be shared by both
  companies
• Cons There is less control and administration
  over operations

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Strategic Alliances

• This strategy is different from Joint Ventures
  because the companies do not take an equity
  position in one another.
• Each company will try to steal skills and
  expertise from each other.
• Outsourcing.

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Reasons to Outsource
This model is listed on the bottom of page 220 in
our Textbook Formulation, Implementation, and
Control of Competitive Strategy.
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Consortia, Keiretsus, and Chaebols

• A consortia is a large interlocking relationship
  between businesses of an industry.
• Japan calls this a keiretsus and South Korea
  calls this a chaebol.

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Summary and Conclusion

• All the main topics in the chapter are required
  to establish solid objectives and great long-term
  strategies.
• The next chapter will show us how these
  strategies are selected and which types of firms
  to create.
• In Conclusion, we appreciate you not falling
  asleep on us. Thank You.