1、1Corporate Level StrategyDr Ita ODonovanLecture Six2Key Considerations We are looking at the issue of corporate strategy from the perspective of what is the multi-business scope of the organisation. What is the optimal number of businesses for the firm Should we stay in this business How should our

2、businesses be managed How is the corporation going to operate as a whole3The sources of superior profitability RATE OFRETURNABOVE THE COST OF CAPITALHow do we make Money?INDUSTRY ATTRACTIVENESSWhich industries should we be in?CORPORATESTRATEGYCOMPETITIVEADVANTAGEHow should we compete?BUSINESS STRATE

3、GY4Strategies Diversification two broad types: Related diversification is development beyond the present product and market, but still within the broad confines of the industry. For Example Unilever is a diversified corporation, but virtually all its interests are in the consumer goods industry. (a)

4、 Backward integration refers to inputs into the current business further back in the value system e.g. Raw materials, machinery, labour (b) Forward integration refers to activities which are concerned with the companys outputs e.g. Transport, distribution, repairs, and servicing. These are further f

5、orward in the value system (c) Horizontal integration refers to activities which are competitive with or directly complementary to a companys present activities Unrelated diversification refers to activity development beyond the present industry into products/markets, which at face value, may bear n

6、o clear relationship with present products/markets. 5Related developments; related and unrelated diversification6Some Reasons for related DiversificationPossible advantagesExamples /Comments1. Control of suppliesQuantityQualityPriceTea Processors own plantations to secure continuity of Supply. Compo

7、nents for motor cars may need to be manufactured by the companyPrinting facility can be cheaper in -house2. Control of marketsUK shoe manufacturers own retail outlets to gain guaranteed distribution3. Access of informationManufacturers are involved in machinery development companies to keep abreast

8、of development4. Cost savingsFully integrated steel plants save cost on reheating and transportBuilding on: ExpertiseTechnologyAccountancy Firms moving into tax advice or corporate recovery Transfer to similar technical requirements in another field6. Spreading RiskAvoid overreliance on one product/

9、market, but build on related experience7. Resource UtilisationUnder-utilised manufacturer acquires company with compatible products to fill capacity7Some reasons for unrelated diversificationPossible AdvantagesExamples/CommentsNeed to use excess cash or safeguard profitsBuying a tax loss situation2.

10、 Personal values or objectives of powerful figuresPersonal image locally or nationally may be a strong motiveExploiting underutilised resourcesFarmers use fields for camp sites, festivalsCompanies hire their conferences facilities4. Escape from present businessA companys products may be in decline a

11、nd unrelated diversification is the only escape5.Spreading riskSome companies believe it is good sense to have all their eggs in one basket.6. Even out cyclical effects in a given sectorToy manufacturers make a subcontract for plastic mould products for industry.7. Benefits from synergistic effectsP

12、ositive cash flow from one business used to funding requirements of another8Strategies for DevelopmentWithdrawal: this option needs to be considered by organisations when complete or partial withdrawal needs to be considered.Assets can change over time, may need to dispose, acquire others etc.Entrep

13、reneur may have achieved goals wishes to move on acquire different things.Consolidation:In growing market, company expands with market to maintain share of marketIn mature market more difficult challenges, tendency is for emphasis on cost, quality of product or service. Competitors are all seeking t

14、o consolidate there positions9Strategies continuedConsolidationIn declining markets; need to consider significant changes e.g. Buying up the order books of those leaving the market, distributors may need to find new suppliers. New internal agreements to main competitive edge.During a transition form

15、 a mature to a declining market, they might consider harvesting i.e. gaining maximum pay off from strong position.e.g. Licensing of technology, or distribution rights, or leasing facilities.Difficult decision whether to remain in market where there is product decline but chance of recovery10Strategi

16、es Continued Market Penetration: how easy this is depends on nature of the market and position of competitors. In general easier in growing markets, than static markets or mature markets. Product development: a firm might think consolidation is not sufficient in itself. No special strategy for this

17、but the following factors in firms have been shown to have influenced their success. They are more market focused in selecting opportunities for product development and in tailoring them to market needs They concentrated on developing products which built on their core competences and skills The com

18、municated the new products well within the firm thus avoiding disruptions to the new developments They used cross-disciplinary teams, as well as skills and views form outside the firm, including suppliers and customers.11Strategies Continued Market Development: in the case of market development the

19、organisation maintains the security of its present products while venturing into new market areas. These may include New market segments; exploiting new uses of the product or new geographical areas Option of product development and market development together or separately Export drive Outsourcing

20、to other countries for costs of labour, transport supplies.12Portfolio Analysis Market Power and Market Share are important concepts for a strategic business unit to consider. Relative market share means the amount of market share a firm has relative to it competitors There is an established relatio

21、nship between market power and performance in commercial organisations. Useful to break down market share by segments and to examine market share within those segments What is important is to see which market segments are important from corporate/profit point of view. Segment may be more competitive

22、 or growing more or bigger13Growth Share Matrix Market Share COMPETITIVE POSITION High Low Strong Average Weak High High Market Stars ?s Industry Growth Attractiveness Low Cash Dogs MED Cows Low The original Boston ConsultingGroup matrix (BCG)14Growth Share Matrix continued A star is an SBU which ha

23、s a high market share in a growth market. The firm may be spending heavily to gain that share , but experience curve benefits should mean that costs are reducing over time and at faster rate than competitors The question mark is an SBU with high grow but does not have a high market share. Firm could

24、 be spending heavily but not reducing costs and not making inroads on competition The Cash Cow has a high market share in a mature market. Low growth market conditions stable,need to spend is less. High relative market share means SBU able to maintain unit cost levels below competitors. Dogs have lo

25、w share in static or declining markets, worst of all combinations, may drain cash and use disproportionate amount of time and resources.15Market attractiveness and business strengthIndicators of SBU StrengthIndicators of market attractivenessMarket shareMarket sizeSales forceMarket growth rateMarket

26、ingCyclicalityCustomer serviceCompetitive structureR & DBarriers to entryManufacturingIndustry profitabilityDistributionTechnologyFinancial resourcesInflationImageRegulationWorkforce availabilityBreadth of product lineSocial IssuesQuality/reliabilityEnvironmental issuesManagerial CompetencePolitical issuesLegal issues16Issues to co