Wheelen/Hunger

1
Chapter 6

• Strategy Formulation
• Corporate Strategy
• PowerPoint Slides
• Anthony F. Chelte
• Western New England College

2
Corporate Strategy

• Three Key Issues
• Firms directional strategy
• Firms portfolio strategy
• Firms parenting strategy

3
Corporate Directional Strategies
4
Corporate Strategy

• Directional Strategy
• Orientation toward growth
• Expand, cut back, status quo?
• Concentrate within current industry, diversify
  into other industries?
• Growth and expansion through internal development
  or acquisitions, mergers, or strategic
  alliances?

5
Corporate Strategy

• Directional Strategy
• Three Grand Strategies
• Growth strategies
• Stability strategies
• Retrenchment strategies

6
Corporate Strategy

• Growth Strategies
• Most widely pursued strategies
• External mechanisms
• Mergers
• Transaction involving two or more firms in which
  stock is exchanged but only one firm survives.
• Acquisition
• Purchase of a firm that is absorbed as an
  operating subsidiary of the acquiring firm.
• Strategic Alliance
• Partnership of two or more firms to achieve
  strategically significant objectives that are
  mutually beneficial.

7
Corporate Strategy

• 2 Basic Growth Strategies
• Concentration
• Current product line in one industry
• Diversification
• Into other product lines in other industries

8
Corporate Strategy

• Basic Concentration Strategies
• Vertical growth
• Horizontal growth

9
Corporate Strategy

• Concentration
• Vertical growth
• Vertical integration
• Full integration
• Taper integration
• Quasi-integration
• Backward integration
• Forward integration

10
Corporate Strategy

• Concentration
• Horizontal Growth
• Horizontal integration

11
Corporate Strategy

• Basic Diversification Strategies
• Concentric Diversification
• Conglomerate Diversification

12
Corporate Strategy

• Diversification
• Concentric
• Growth into related industry
• Search for synergies

13
Corporate Strategy

• Diversification
• Conglomerate
• Growth into unrelated industry
• Concern with financial considerations

14
Corporate Strategy
Exporting Licensing Franchising Joint
Ventures Acquisitions Green-Field
Development Production Sharing Turnkey
Operations BOT Concept Management Contracts
International Entry Options
15
Corporate Strategy

• Stability Strategies
• Pause/proceed with caution
• No change
• Profit strategies

16
Corporate Strategy

• Retrenchment Strategies
• Turnaround
• Captive Company Strategy
• Selling out
• Bankruptcy
• Liquidation

17
Corporate Strategy

• Portfolio Analysis
• How much of our time and money should we spend on
  our best products to ensure that they continue to
  be successful?
• How much of our time and money should we spend
  developing new costly products, most of which
  will never be successful?

18
Corporate Strategy

• Portfolio Analysis
• BCG (Boston Consulting Group) Matrix
• Product life cycle and funding decisions
• Question marks
• Stars
• Cash cows
• Dogs

19
BCG Matrix
20
GE Business Screen

• Long-term industry attractiveness
• Business strength/competitive position

21
General Electrics Business Screen
Source Adapted from Strategic Management in GE,
Corporate Planning and Development, General
Electric Corporation. Used by permission of
General Electric Company.
22
International Portfolio Analysis

• 2 Factors
• Countrys attractiveness
• Market size, rate of growth, regulation
• Competitive strength
• Market share, product fit, contribution margin,
  market support

23
Portfolio Matrix for Plotting Products by Country
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Corporate Strategy

• Portfolio Analysis
• Advantages
• Top management evaluates each of firms
  businesses individually
• Use of externally-oriented data to supplement
  management judgment
• Raises issue of cash flow availability
• Facilitates communication

25
Corporate Strategy

• Portfolio Analysis
• Disadvantages
• Difficult to define product/market segments
• Standard strategies can miss opportunities
• Illusion of scientific rigor
• Value-laden terms

26
Corporate Strategy

• Corporate Parenting
• Views the corporation in terms of resources and
  capabilities that can be used to build business
  unit value as well as generate synergies across
  business units.

27
Corporate Strategy

• Corporate Parenting
• Strategic factors
• Those elements of a company that determine its
  strategic success or failure
• Performance improvement
• Analyze fit

28
Corporate Strategy

• Corporate Parenting
• Parenting-Fit Matrix
• Summarizes the various judgments regarding
  corporate/business unit fit for the corporation
  as a whole.

29
Corporate Strategy

• Corporate Parenting
• Parenting-Fit Matrix
• 2 Dimensions
• Positive contributions parent can make
• Negative effects parent can have

30
Parenting-Fit Matrix
Low

Heartland
Ballast
Edge of

MISFIT between critical success factors
and parenting characteristics
Heartland
Alien

Territory
Value Trap
High
Low
High
FIT between parenting opportunities

and parenting characteristics
31
Corporate Strategy

• Horizontal Strategy
• Corporate strategy that cuts across business unit
  boundaries to build synergy across business units
  to improve the competitive position of one or
  more business units.