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Chapters 9 - 10

Chapters 9 - 10. Corporate Level Strategy. How are we going to compete and gain a competitive advantage in each of our businesses?. Foods. Business Level Strategies. Quaker North America. Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs

JasminFlorian
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Chapters 9 - 10

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  1. Chapters 9 - 10 Corporate Level Strategy

  2. How are we going to compete and gain a competitive advantage in each of our businesses? Foods Business Level Strategies Quaker North America Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal

  3. Snack Foods Beverages Foods Corporate Level Strategy 1) What businesses do we want to compete in? 2) How do manage effectively across businesses

  4. Goals of Corporate Strategy Moves to enter new businesses Boosting combined performance of the businesses Capturing synergies and turning them into competitive advantages Establishing investment priorities and steering resources into business units

  5. 4 Corporate Level Strategies • 1) Vertical Integration • 2) Strategic Outsourcing • 3) Horizontal Integration • 4) Diversification – two or more different businesses with distinct operations

  6. 1) Vertical Integration • Forward or backwards • Full integration • Taper integration • Benefits • Build barriers to entry • Facilitates investment in specialized assets • Protecting product quality • Improved scheduling • Risks • Costs • Rapid technological changes • Demand predictability

  7. Alternatives to Vertical Integration • Competitive bidding • Long term contracts or strategic alliances Form of Relationship Markets & Competitive Bidding Hybrid & Contracts/Alliances Vertical Integration

  8. 2) Outsourcing • Cost reduction and differentiation • Hold-ups, scheduling and hallowing out

  9. 3) Horizontal Integration • Acquiring or merging with industry competitors • Reduce cost and economies of scale • Increasing value through wider product line or product bundling • Manage industry rivalry • Decrease buyer and supplier power

  10. 4) How to Diversify? 1) Internal Development - corporate entrepreneurship or internal venturing • able to appropriate a larger portion of wealth • avoids complexities of multiple partners • time consuming and requires diversity of organizational capabilities

  11. 4) How to Diversify? 2) Strategic Alliances and Joint Ventures • entering a new market via the combination of complementary resources - do more together • cost reduction & sharing • development/diffusion of technology Problems • appropriate partners - skills and compatibility • trust and commitment • communication

  12. 4) How to Diversify? 3) Mergers & Acquisition

  13. Acquisitions Reasons of Acquisitions Increase Market Power Overcome Entry Barriers Increased Speed Lower Risk Avoid Competition Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation Results Poor Performance Who Wins? Acquired Firm Shareholders

  14. Failures of Acquisitions 30 - 40% average acquisition premium Acquiring firm’s value drops 4% in the 3 months following acquisitions 30 - 50% of acquisitions are later divested Acquirers underperform S&P by 14%, peers by 4% 3 month performance before and after • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns

  15. Why, then, do executives acquire? Often, for personal reasons Firm size and executive compensation are related When do executives loss their jobs? • 1) Acquired - larger firms harder to acquire • 2) Performing poorly - employment risk is reduced as returns are less volatile

  16. Levels of Diversification Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizontal relationships across businesses - synergies Advantages of related diversification include: • Leveraging Core Competencies • Sharing Activities • Market Power

  17. Levels of Diversification (cont.) Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses Conglomerate Diversification - no relatedness between businesses

  18. When/Why to Diversify? To create shareholder value Porter’s Three Point Test 1) Attractiveness Test 2) Cost of Entry Test 3) Better off Test Should pass all 3

  19. Portfolio analysis • BCG Growth-Share Matrix • question marks, dogs, cash cows, stars • GE- Nine Cell Matrix

  20. Boston Consulting Group Matrix Relative Market Share Question Marks Stars Growth Rate Cash Cows Dogs

  21. BCG Matrix for PepsiCo - Early 1990s Relative Market Share High Taco Bell Growth Rate Pizza Hut 10% Frito Lay Low Soft Drinks KFC Low High 1.0

  22. BCG Matrix for PepsiCo - Early 1990s Relative Market Share Pizza Hut Taco Bell High Growth Rate Frito Lay 5% KFC Soft Drinks Low Low High .75

  23. GE 9 Cell Matrix Competitive Strengths High Low High Invest Grow Hold Attractiveness Harvest Divest Low

  24. GE 9 Cell Matrix for Pepsico Competitive Strengths High Low High Snack Foods Attractiveness Soft Drinks Low

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