chapter6-strategy-formulation.ppt

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1、Chapter6 Strategy Formulation:Corporate StrategyCorporate strategylDirectional strategy:the firms overall orientation growth,stability,or retrenchment.lPortfolio strategy:the industries or markets in which the firm compete through its products and business units.lParenting strategy:the manner in whi

2、ch management coordinates activities and transfer resources and cultivates capabilities among product lines and business units.Directional strategylGrowth strategyVertical integrationHorizontal integrationdiversificationlStabilityPauseNo ChangeProfitlRetrenchmentTurnaroundCaptive companyDivestliquid

3、ationVertical growthlVertical growth:taking over a function previously provided by a supplier or by a distributor.Backward vertical integrationForward vertical integrationlOutsourcing:the use of long-term contracts to reduce internal administrative costs,has become more popular as large corporation

4、have worked to reduce costs and become more competitive by becoming less vertically integrated.Exploring for crude oil Drilling for crude oil Pumping crude oil Shipping crude oil Buying crude oil Refining crude oilSelling to final customers Selling to distributorsShipping to distributorsWhy Vertical

5、 Integration?lThe belief that the focal firm can create synergy by integrating the adjacent stages in the value chain.Cost reductionRevenue enhancementAvoid perfect competitionlmarkets and integrated hierarchies are alternative forms in which economic exchange can take place(R.Coase,1937)lIntegratio

6、n makes sense when the focal firm can capture more value than a market exchange providesWhy Vertical Integration?lTransaction cost economicsAsset specificityBounded rationalityOpportunismuncertaintyThree Value ConsiderationsLeverageCapabilitiesExploitFlexibilityManageOpportunism firm capabilitiesmay

7、 be sourcesof competitiveadvantage inother businesses if not,then dontintegrate exchange opportunismmay be checkedby internalizing internalizing mustbe less costly thanopportunism internalizing isusually lessflexible flexibility is prized whenuncertainty ishighHorizontal growthlHorizontal integratio

8、n:the degree to which a firm operates in multiple locations at the same point in the industrys value chain.lHorizontal growth may be range from full to partial ownership to long-term contracts.lA popular method of horizontal growth is to expand internationally into other countries.lGoing internation

9、al is positively associated with firm profitability.International entry modelExportingllicensing:especially useful strategy if the trademark or brand name is well known.lFranchising:using franchisers name and operating system.lJoint venture:it enables a firm to enter a country that restricts foreign

10、 ownership.Fewer asset and lower riskInternational entry modeInternational entry modelAcquisition:a relatively quick way to move into another country is to purchase another firm already operating in that area.If acquired firm with complementary product lines and a good distribution network.lGreenfie

11、ld development:choose to build its own manufacturing plant and distribution system.GreenfieldAcquisitionAdvantagesDisadvantages-Quick execution to preempt competitors-Acquire valuable strategic assets in a deal-Avoid the retaliation from incumbent firms-The evaluation problem-The integration problem

12、-No evaluation&integration problem-Build a company as you like.-Efficient sharing of knowledge-Slow to establish (long lead time)-Uncertainty associated with future revenue and profit prospectsInternational entry modelProduction sharing:combine the higher labor skill and technology available in the

13、developed countries with the lower-cost labor available in developing countries.lTurnkey operation:construction of operating facilities in exchange for a fee.lManagement contracts:assist local management in operating the firm for a specific fee and period of time.lBOT:complete turnkey operation,oper

14、ate the facility for a fixed period time,turn the facility over the government at little or no cost.Cost(Capital at Risk)ControlExportingLicensingFranchisingStrategic AllianceGreenfield InvestmentLowHighHighAcquisitionVerticallyIntegratedNot Vertically IntegratedSomewhatVerticallyIntegratedInternati

15、onal entry modeDiversification strategylIf a companys current product lines do not have much growth potential,management may choose to diversify.IntegrationDiversificationCustomerDistributionFocal FirmSupplierRaw MaterialsForwardBackwardCurrentBusinessesNoLinksManyLinksUnrelatedRelatedOtherBusinesse

16、sOtherBusinessesDiversification strategylRelated Diversificationrelated-constrained:all businesses related on most dimensions.related-linked:some businesses related on some dimensionsSearch for synergylUnrelated Diversificationbusinesses are not relatedLack of industry attractivenessLack of outstand

17、ing abilities to transfer related productsDiversification strategyBusiness XBusiness YBusiness ZValueEconomiesOfScopeFocal FirmBusiness XBusiness YBusiness ZValue+Why diversificationlTransferring competencies among existing businesseslLeveraging competencies to create new businesseslSharing resource

18、s to realize economies of scopelUsing product bundlinglManaging rivalry by using diversification as a means in one or more industriesWhy diversificationlTransferring competencies among existing businesses.taking a distinctive competency developed in one industry and implanting it in an EXISTING busi

19、ness unit in another industryPhilip Morris acquire Millers brewing industryWhy diversificationlLeveraging competencies to create new businessestaking a distinctive competency developed by a business in one industry and using it to create a NEW business unit in a different industryTend to use R&D com

20、petencies to create new business opportunities in diverse areasMicrosoft create MSN and XboxWhy diversificationlSharing resources to realize economies of scopeEconomies of scope arise when business units are able to effectively pool,share,and utilize expensive resources or capabilitiesEconomies of s

21、cope are possible only when there are significant commonalities between one or more value-chain functions.Why diversificationWhy diversificationlUsing product bundlingAllows customers to reduce their number of suppliers for convenience and cost savings.Increased value of orders gives customers incre

22、ased commitment and bargaining power with suppliers.Why diversificationlManaging rivalry by using diversification as a means in one or more industriesCompanies can manage rivalry by signaling that competitive attacks in one industry will be met by retaliatory attacks in the aggressors home industry.

23、Xbox vs.PlayStationP&G vs.UnilevellManagers often consider diversification when their company is generating free cash flow with resources in excess of those needed to maintain competitive advantageDisadvantages and limits of diversificationlChanging Industry and Firm-Specific ConditionsFuture succes

24、s of this strategy is hard to predict.Over time,changing situations may require businesses to be divested.lDiversification for the Wrong ReasonsDiversifying to pool risksResearch suggests that corporate diversification is not an effective way to pool risks.Diversification is that the new industries

25、will rescue it.lBureaucratic costNumber of businessCooridination among businessCoordination Among Related Business UnitsStability strategylPause strategy:an opportunity to rest before continuing a growth or retrenchment strategy.Appropriate after rapid growth in an industry that face an uncertainty

26、future.Dell computer in early 1990s.lNo change strategy:do nothing new-a choice to continue current operations and policies for the foreseeable future.Lack of significant change in a corporations situation.Stability strategylProfit strategy:do nothing new in a worsening situation,but instead to act

27、as though the companies problems are only temporary.Artificially support profits by reducing investment and short-term discretionary expenditure.Blaming hostile environmentNot announcing poor positionLead to a serious deterioration in companys competitive positionRetrenchment strategylTurn around st

28、rategy:appropriate when a corporations problem are pervasive but not yet critical.Contraction:across the board cutback in size and costsConsolidation:implementation of a program to stabilize the leaner corporation.Reduce unnecessary overhead and to justify the costs of functional activities.lCaptive

29、 company:becoming another companys sole supplier or distributor in exchange for a long-term commitment from that company.The company gives up independence in exchange for security.Retrenchment strategylDivestment strategyWeak competitive positionUnable to pull itself up by its bootstrapsCan not be a

30、 captive companyObtain a good price for its shareholderslBankruptcy or liquidation strategyGive up management of the firm to the courts in return for some settlement of the corporations obligations.Liquidation is piecemeal sale of all of the firms assets.Portfolio analysislIn portfolio analysis,top

31、management views its product lines and business units as a series of investments from which it expects a profitable return.lTheoretical baseExperience curveProduct life cyclelBCG matrix provides a framework for senior management in allocating resources across business units in a diversified firm byB

32、alancing cash flows among business units,andBalancing stages in the product life-cycle(PLC)BCG Product Portfolio Matrix Dimensionslhorizontal axis is the relative market shareDefined as its market share in the industry divided by that of largest other competitor.lIn vertical axis,10%line represents

33、high growth ratesStrategic Perspectives of Products in Different QuadrantslFour different strategic perspectivesInvestmentEarningsCash-flowStrategy ImplicationsQuestion Marks(Problem Children)lInvestmentheavy initial capacity expenditures and high R&D costslEarningsnegative to lowlCash-flownegative(

34、net cash user)lStrategy ImplicationsIf possible to dominate segment,go after share.If not,redefine the business or withdrawStarslInvestmentcontinue to invest for capacity expansionlEarningsLow to high earningslCash-flowNegative(net cash user)lStrategy ImplicationsContinue to increase market shareeve

35、n at the expense of short-term earningsCash CowslInvestmentCapacity maintenancelEarningsHigh lCash-flowPositive(net cash contributor)lStrategy ImplicationsMaintain market share and cost leadership until further investment becomes marginalDogslInvestmentGradually reduce capacitylEarningsHigh to lowlC

36、ash-flowPositive(net cash contributor)if deliberately reducing capacitylStrategy ImplicationsPlan an orderly withdrawal to maximize cash flowThree Paths to SuccessHighLowHigh Low Industry Growth RateRelative Market ShareThree Paths to SuccesslContinuously generate cash cows and use the cash throw-up

37、 by the cash cows to invest in the question marks that are not self-sustaininglStars need a lot of reinvestments and as the market matures,stars will degenerate into cash cows and the process will be repeated.lAs for dogs,segment the markets and nurse the dogs to health or manage for cashCritics of

38、BCG matrixlGrowth rate is only one aspect of an industrys attractivenesslThe framework assumes that business unit is independent of the others.lToo much emphasize market sharelThe link market share and profitability is not strong.GE business screen(McKinsey matrix)lThe GE matrix generalizes the axes

39、industry growth-industry attractivenessRelative market share-business unit strengthlNine cells vs.four cellslIndustry attractivenessMarket growth rateMarket sizeDemand variabilityIndustry profitabilityIndustry rivalryGlobal opportunityMacro-environment factorsGE business screen(McKinsey matrix)lBusi

40、ness unit strengthMarket shareGrowth in market shareBrand equityDistribution channel accessProduction capacityProfit margins relative to competitorslBusiness unit strength=factor value1 X factor weighting1 factor valuen X factor weightingnGE business screen(McKinsey matrix)Business strengthIndustry

41、attractivenessHighHighMediumMediumLowLowInvest/GrowSelectivity/earningsHarvest/DivestProtect PositionInvest to BuildBuild selectivelyBuild selectivelySelectively manage for earningsLimited expansion or harvestProtect&refocusDivestManage for earningsCorporate parentinglCorporate parenting:in terms of

42、 resources and capabilities,build business unit value and generate synergies across business units.lGood fit between the parents skill and resources and the needs and opportunities of the business units,then create value.Corporate parentinglDevelop corporate parenting strategyExamine each business u

43、nit in terms of its strategic factors.Examine each business unit in terms of areas in which performance can be improved.Analyze how well the parent corporation fits with business unit.lParent opportunitiesPerception opportunitiesEvaluation opportunitiesMotivation opportunitiesImplementation opportunitiesParents strategy petitive strategylHorizontal strategylMultipoint strategy:compete with each other not only one business unit,but also in a number of business units.