© Prentice-Hall 2005 7-1 7 Strategic Management in Action Mary Coulter Corporate Strategies.

© Prentice-Hall 2005 7-1

7Strategic Management in Action

Mary Coulter

Corporate Strategies


Learning Outline

A brief overview of corporate strategy Define corporate strategy. Explain a single-business organization and multiple-

business organization. Discuss how corporate strategy is related to the other

organizational strategies. Organizational growth

Define growth strategy. Describe the various growth strategies. Explain how growth strategies can be implemented.


Learning Outline (contd.)

Organizational stability Define stability strategy. Describe when stability is an appropriate strategic

choice. Explain how a stability strategy is implemented.

Organizational renewal Describe the two renewal strategies. Explain how renewal strategies can be implemented.


Learning Outline (contd.)

Evaluating and changing corporate strategy Describe the four approaches to corporate strategy

evaluation. Discuss the three portfolio analysis techniques. Explain what’s involved with changing corporate

strategy.


What is Corporate Strategy?

Those strategies concerned with the broad and long-term questions of what business(es) the organization is in and what it wants to do with those businesses


Single and Multiple-Business Organizations

Single-business organizationOperates primarily in one industry

Multiple-business organizationOperates in more than one industry


Growth Strategy

Involves the attainment of specific growth objectives by increasing the level of an organization’s operations

Typical growth objectives for businesses Increases in sales revenues Profits Other performance measures

Growth objectives for not-for-profits Increasing clients served or patrons attracted Broadening the geographic area Increasing programs offered


Figure 7.2 Possible Growth Strategies

OrganizationalGrowth

Concentration

Vertical Integration• Backward• Forward

Horizontal Integration

Diversification• Related• Unrelated

International


Concentration Strategy

Organization concentrates on its primary line of business and looks for ways to meet its growth objectives through increasing its level of operation in this primary business


Figure 7.3 Concentration Options

Customers

Current

New

Current New

Product-MarketExploitation

ProductDevelopment

MarketDevelopment

Product/MarketDiversification*

Product(s)

* not a concentration option


Vertical Integration Strategy

An organization’s attempt to gain control of

Its inputs (backwards)

Its outputs (forwards)

Or both


Table 7.1

Major Benefits and Costs of Vertical Integration

BenefitsBenefits CostsCosts

• Reduced purchasing and selling costs

• Improved coordination among functions and capabilities

• Protected proprietary technology

•Reduced flexibility as organization is locked into product(s) and technology

•Difficulties in integrating various operations

• Financial costs of acquiring or starting up


Horizontal Integration Strategy

Combining operations with competitors

Horizontal integration is appropriate when it Enables the company to meet its growth

objectives Can be strategically managed Satisfies legal and regulatory guidelines


Diversification

Organization expands its operations by moving into a different industry

Related (concentric) diversification

Unrelated (conglomerate) diversification


Figure 7.4 Types of Related Diversification

RelatedDiversification

OperationalSkills-Capabilities

DistributionChannels

CustomerUse

SimilarTechnology

ProductSimilarities


International Strategy

Organization can pursue international growth while pursuing other corporate growth strategies

International growth issuesAdvantages and drawbacksGeneral approachWays to enter a foreign market


Figure 7.5 Approaches to International Expansion

Global Integrationof Operations

High

Low

Local MarketResponsiveness

Low High

MultidomesticApproach

GlobalApproach

TransnationalApproach


Ways to Enter a Foreign Market

Exporting

Importing

Licensing

Franchising

Direct investment


Implementing Growth Strategies

Mergers-Acquisitions Mergers Acquisitions Takeover

Internal development – starting a new business from scratch

Strategic Partnering Joint venture Long-term contract Strategic alliance


Organizational Stability

Stability strategy – the organization maintains its current size and current level of business operations

When is stability an appropriate strategic choice?

Implementing the stability strategy


Organizational Renewal

Renewal strategies – used to reverse organizational decline and put the organization back on a more appropriate path to successfully achieving its strategic goals

Organizational decline – main reason for decline is poor management


Figure 7.6 Possible Causes of Corporate Decline

PoorManagement

UncontrollableCosts or TooHigh Costs

NewCompetitors

UnpredictedShifts in Consumer

Demand

Slow or No Responseto Significant External

or Internal Changes

Over expansionor Too Rapid

Growth

InadequateFinancialControls


Techniques for Evaluating Corporate Strategy

Corporate objectives or goals

Efficiency, effectiveness, and productivity measures

Benchmarking

Portfolio analysis


Figure 7.7 Types of Corporate Goals

CorporateGoals

MaximizedStockholder

Wealth

IncreasedMarketShare

StrongGlobal

Presence

IncreasedProductivity

PositiveReputation-

Image

StrongCustomer

Satisfaction

HighProductQuality

IncreasedRevenues

IncreasedEarnings


Evaluating Corporate Strategies

EfficiencyMinimize use of resources in achieving

objectives

EffectivenessAbility to complete or reach goals

Productivity MeasuresHow many inputs it takes to produce outputs

BenchmarkingSearch for best practices contributing to

performance


Figure 7.8 BCG Matrix

Industry Growth Rate(in constant sales dollars)

High(faster thanthe economyas a whole)

Low(slower thanthe economyas a whole)

Relative MarketShare Position

High (above 1.0) Low (below 1.0)1.0Stars Question Marks

Cash Cows Dogs


Figure 7.9 McKinsey-GE Stoplight Matrix

Indu

stry

(Pro

duct

-Mar

ket)

Attr

activ

enes

s

Business Strength-Competitive Position

Strong Average Weak(5) (3) (1)

High (5)

Medium(3)

Low (1)

Winners

Winners Winners

ProfitProducers

AverageBusiness

Questionmarks

Losers Losers

Losers


Figure 7.10 Product-Market Evolution Matrix

Strong Average Weak

The Business Unit’s Competitive Position

Industry’sStagein the

EvolutionaryLife Cycle

Development

Growth

Decline

CompetitiveShakeout

Maturity

Saturation

A

BC

D

E

F

G

H


When to Change Corporate Strategies?

When evaluation shows Growth objectives aren’t being attained Organizational stability causes organization

to fall behind Organizational renewal efforts aren’t

workingPossible strategies to change

Functional Competitive Corporate direction


Chapter Seven

Questions

© Prentice-Hall 2005 7-1 7 Strategic Management in Action Mary Coulter Corporate Strategies.

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