Post on 15-Mar-2016
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Corporate Level Strategy and Long Term Profitability
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Concentrating on a Single IndustryConcentrating on a Single Industry
The acquisition of additional business activities at the same level of the value chain is referred to as horizontal integration. This form of expansion contrasts with vertical integration by which the firm expands into upstream or downstream activities. Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services.
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Advantages of Horizontal IntegrationAdvantages of Horizontal Integration
Economies of scale - achieved by selling more of the same product, for example, by geographic expansion.
Economies of scope - achieved by sharing resources common to different products. Commonly referred to as "synergies."
Increased market power (over suppliers and downstream channel members)
Reduction in the cost of international trade by operating factories in foreign markets.
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Disadvantages of Horizontal Disadvantages of Horizontal IntegrationIntegration
Horizontal integration by acquisition of a competitor will increase a firm's market share. However, if the industry concentration increases significantly then anti-trust issues may arise.
Aside from legal issues, another concern is whether the anticipated economic gains will materialize.
Finally, even when the potential benefits of horizontal integration exist, they do not materialize spontaneously.
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BCG Growth-Share Matrix
The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share".
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Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability.
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BCG Growth-Share MatrixBCG Growth-Share Matrix
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StarsStars
High Market Share / High Market Growth
The company is well-established, and growth is exciting! There should be some strong opportunities here, and you should work hard to realize them.
For example, Apple Computer has a large share in the rapidly growing market for portable digital music players.
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CowsCows
High Market Share / Low Market GrowthThe company is well-established so it's easier to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing, and your opportunities are limited.
Example: Microsoft Softwares
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Question MarksQuestion Marks
Low Market Share / High Market GrowthThese are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there.
Hewlett-Packard’s small share of the digital camera market, behind industry leader Canon. However, this is a rapidly growing market.
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DogsDogs
In these areas, the company’s market presence is weak, so it's going to take a lot of hard work to get noticed. The company won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit. And because market growth is low, it's going to take a lot of hard work to improve the situation.
Example is RC Cola
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Business Strategy Choices to Business Strategy Choices to Complement the Company’s Complement the Company’s Competitive ApproachCompetitive Approach
Strategy considerations in rounding out the company’s overall business strategy includeWhether to enter into strategic alliances or
partnershipsWhether to pursue mergers or acquisitionsWhether to integrate backward or forward
into more stages of the industry value chain
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Business Strategy Choices to Business Strategy Choices to Complement the Company’s Complement the Company’s Competitive ApproachCompetitive Approach
Whether to outsource certain value chain activities
Whether and when to initiate offensive strategies to improve the company’s market position
Whether and when to employ defensive strategies to protect the company’s market position
Choosing when to undertake strategic moves—whether to be a first-mover, fast follower or a late-mover
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Strategic Alliances and Strategic Alliances and Collaborative PartnershipsCollaborative Partnerships
Strategic Alliance - formal collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes
Strategically relevant collaboration joint contribution of resourcesshared riskshared controlmutual dependence
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Merger and Acquisition StrategiesMerger and Acquisition Strategies
An attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunitiesMerger -- the combining of two or more
companies into a single entity, with the newly created company often taking on a new name
Acquisition -- is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired
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Vertical Integration: Operating Vertical Integration: Operating Across More Industry Value Chain Across More Industry Value Chain SegmentsSegments
Extend a firm’s competitive scope within the same industry Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
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Crude oil deposits
Drilling and extracting crude
Transporting it around the world
Refining it into petroleum products such as petrol/gasoline
Distributing to company-owned retail stations
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Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Boundaries of the Businessthe Boundaries of the Business
Outsourcing is a consideration whenActivity can be performed better or
more cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
It improves firm’s ability to innovateFirm can concentrate on core value chain
activities and leverage its resource strengths
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Strategic Options to Improve a Strategic Options to Improve a Company’s Market Position—The Company’s Market Position—The Use of Strategic OffensivesUse of Strategic Offensives
Strategic offensives are called for when a company
Spots opportunities to gain profitable market share at the expense of rivals or
Has no choice but to try to whittle away at a strong rival’s competitive advantage
The best offensives use resource strengths to attack rivals where they are weak
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Choosing the Basis for Competitive Choosing the Basis for Competitive Attack Attack
Primary offensive strategy options Attack the competitive weaknesses of rivals Offer a lower price for an equally good or
better product Pursue continuous product innovation Leapfrog competitors by being the first to
market with next generation technology or products
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Choosing the Basis for Competitive Choosing the Basis for Competitive AttackAttack
Adopt and improve on good ideas of other companies
Attack market segments where a key rival make big profits
Maneuver around competitors to capture unoccupied or less contested market territory
Using hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals
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Choosing the Basis for Competitive Choosing the Basis for Competitive AttackAttack
Capture a rare opportunity or secure an industry’s limited resources Secure the best distributors in a particular
geographic region or country Secure the most favorable retail locations Tie up the most reliable, high-quality
suppliers via exclusive partnerships, long-term contracts, or even acquisition
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Blue Ocean Strategy—A Special Blue Ocean Strategy—A Special Kind of Offensive Kind of Offensive
Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand Cirque du Soleil has attracted 10 million
people annually to its shows by “reinventing the circus” - its audience typically doesn’t attend circus events
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Strategic Options to Protect a Strategic Options to Protect a Company’s Market Position—The Company’s Market Position—The Use of Defensive StrategiesUse of Defensive Strategies Defensive strategies help fortify a competitive
position Lower the risk of being attacked Weaken the impact of any attack that occurs Influence challengers to aim their efforts at
other rivals Good defensive strategies help protect
competitive advantage but rarely are the basis for creating it
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Timing A Company’s Strategic Timing A Company’s Strategic MovesMoves
When to make a strategic move is often as crucial as what move to make:
First-mover advantages arise when Pioneering helps build a firm’s image and reputation
with buyers Early commitments produce an absolute cost
advantage over rivals First-time customers remain strongly loyal in making
repeat purchases Constitutes a preemptive strike, making imitation
extra hard or unlikely
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Late-Mover Advantages and First-Late-Mover Advantages and First-Mover DisadvantagesMover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
When pioneering leadership is more costly than imitation
When innovators’ products are primitive, not living up to buyer expectations
When the demand side of the market is skeptical about the benefits of new technology/product of a first-mover
When rapid technological change allows followers to leapfrog pioneers