Presentation Transcript

1. Tailoring Strategies to Fit Specific Industry and Company Situations
2. Life Cycle Unit Sales Profits
3. Life Cycle Emerging Embryonic Introduction Growth Mature Decline
4. Industry Life Cycle
5. Challenges of Emerging Industries Uncertain market conditions and characteristics Competing/unknown proprietary technologies and varied marketing/service/distribution tactics Lack of complementary products Limited/poor quality and high costs, which deter acceptance Low entry barriers Education of users Innovators vs. Initial adopters vs. Mass-market.
6. Alternatives in Emerging Industry Move fast/early with superior product or technology Track the Dominant Design Build alliances/merge with key suppliers or those that provide complementary products to out position rivals Seek new customer groups, new applications for your product Make it cheap/easy for early adopters to try/buy your product.
7. High Technology Industries Battle over technical standard, format, and dominant design Set by decree, cooperation, public domain, but mostly through consumer choices
8. Benefits for Standards Compatibility Reduce consumer uncertainty Reduce production costs Increase in complementary products – Network effects – which greatly enhances sustainability
9. Challenges of Mature Industries Slow growth fight for market share Sophisticated buyers Costs, prices and service critical Excess capacity and oversupply Innovation and new uses more difficult International competition Falling profitability Consolidation Segmentation.
10. Alternatives in Mature Industries Prune product line Process innovation & cost reductions in value chain Sell more to current buyers Purchase rivals at low prices Go international.
11. Fragmented Industries Low entry barriers Lack of economies of scale High segmentation Local Advantages Diverse preferences
12. Alternatives in Fragmented Industries Formula facilities - Low cost operations - Become the specialized vendor of choice - Focus on a customer type - Focus on a geographic segment -
13. Other Runner-up Strategies Vacant Niche Strategy - Specialists Strategy - Superior Products Strategy - Distinctive Image Strategy - Content Follower –

14. Strategic Management

    Part II: Strategic Actions: Strategy Formulation Chapter 6: Corporate-Level Strategy
15. Beverages Foods Snack Foods Frito-Lay North America Frito-Lay International Quaker North America Pepsi-Cola North America Gatorade/Tropicana North America PepsiCo Beverages International
16. Snack Foods Frito-Lay North America Funyuns Sunchips Cracker Jack Chester’s popcorn Grandma’s cookies Munchos Smartfood Baken-ets fried pork skins Oberto meat snacks Lay’s Ruffles Doritos Santitas Fritos Cheetos Rold Gold
17. Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks
18. Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks
19. Beverages Pepsi-Cola North America Pepsi-Cola Mountain Dew Slice Mug Sierra Mist FruitWorks Lipton Dole Aquafina Frappuccino SoBe AMP
20. Beverages Gatorade/Tropicana North America Gatorade Propel Tropicana Dole juices
21. Beverages PepsiCo Beverages International Loóza juices and nectars Copella juices Frui’Vita juices Tropicana 100 juices
22. Foods 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
23. 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
24. Snack Foods Beverages Foods Corporate Level Strategy 1) What businesses do we want to compete in? 2) How do manage effectively across businesses
25. Where did they go?
26. Corporate-level strategy Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets Expected to help firm earn above-average returns Value ultimately determined by degree to which “the businesses in the portfolio are worth more under the management of the company then they would be under any other ownership Product diversification (PD): primary form of corporate-level strategy
27. 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
28. 4 Conditions of Successful Diversification 1) Growing industries with complementary products and technologies Apple IPhone 2) Leverage existing capabilities which match the KSFs in other arenas Disney Cruise Lines 3) Closely related moves which reduce costs Kroger & Fred Meyer 4) Powerful brand and reputation Margueritaville, NASCAR Café, or Emril’s
29. Levels of Diversification (N=3) 1. Low Levels Single Business Strategy Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business area Dominant Business Diversification Strategy Corporate-level strategy whereby firm generates 70-95% of total sales revenue within a single business area
30. Procter & Gamble’s Diversification Strategy Purpose of diversification: Use expertise and knowledge gained in one business by diversifying into a business where it can be used in a related way Builds synergy: value added by corporate office adds up to more than the value if different businesses in the portfolio were separate and independent Procter & Gamble (P&G) Product mix: beauty products targeting women and baby care products 2005: Acquired Gillette (consumer health care products) focused on masculine market
31. Related Diversification at Disney Entertainment/Production Theme Parks Resorts Entertainment/Broadcasting Retailing Cruise Lines
32. Levels of Diversification (N=3) (Cont’d) 2. Moderate to High Levels Related Constrained Diversification Strategy Less than 70% of revenue comes from the dominant business Direct links (I.e., share products, technology and distribution linkages) between the firm's businesses Related Linked Diversification Strategy (Mixed related and unrelated) Less than 70% of revenue comes from the dominant business Mixed: Linked firms sharing fewer resources and assets among their businesses (compared with related constrained, above), concentrating on the transfer of knowledge and competencies among the businesses
33. Tyco Electronics Tyco Telecommunications Tyco Fire and Security Tyco Safety Products Tyco Healthcare Tyco Plastics Tyco Adhesives Tyco Flow Control Tyco Electrical and Metal Products Tyco Fire and Building Products Tyco Infrastructure Services
34. GE Advanced materials Commercial loans Appliances Insurance Jet engines Electric power generation Medical imaging NBC Universal Chemical Treatment Equipment services and rentals
35. Levels of Diversification (N=3 ) (Cont’d) 3. Very High Levels: Unrelated Less than 70% of revenue comes from dominant business No relationships between businesses
36. Drawbacks for Unrelated Demanding requirements Limited to no opportunities to share advantages
37. Levels and Types of Diversification

38. Strategic Management: Concepts and Cases

    Part II: Strategic Actions: Strategy Formulation Chapter 7: Acquisition and Restructuring Strategies
39. Cross-Border Acquisitions: Increased Trend Number of cross-border deals continues to increase in all corners of the world Acquisitions by emerging-country firms occurring in developed countries, especially in the U.S., UK and Europe Developed economies have more open policies allowing emerging-country economies to make inroads, especially in more mature businesses including steel, aluminum and cement; or basic services such as management of airports and railroads, or infrastructure management, such as toll roads
40. Introduction: Popularity of M&A Strategies Popular strategy among U.S. firms for many years Can be used because of uncertainty in the competitive landscape Increase market power because of competitive threat Spread risk due to uncertain environment Shift core business into different markets Due to industry or regularity changes Intent: increase firm’s strategic competitiveness and value – the reality, however, is returns are close to zero
41. Introduction: Merger vs. Acquisition vs. Takeover(Cont’d) Merger Two firms agree to integrate their operations on a relatively co-equal basis Acquisition One firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. Takeover Special type of acquisition strategy wherein the target firm did not solicit the acquiring firm's bid Hostile Takeover: Unfriendly takeover that is unexpected and undesired by the target firm
42. Mergers and Acquisitions Reasons of Acquisitions Market Power Overcome Entry Barriers Increased Speed Lower Risk New Technologies/Capabilities Diversify Gain Competitive Advantages
43. Mergers and Acquisitions Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation Inadequate evaluation
44. Mergers and Acquisitions Results Poor Performance Who Wins? Acquired Firm Shareholders
45. Monday October 27th WSJ Bank of American – Boston Fleet Financial BoA down $8.29, or 10%, BFF rose 23% Anthem – WellPoint Health Networks Anthem down 8.2%, WellPoint up 8.8% United Health – MidAtlantic Med Services UH down 4.9%, MAMS up 9.7%
46. 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
47. The Curvilinear Relationship between Diversification and Performance
48. 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
49. Effective Acquisitions Complementary assets or resources Friendly acquisitions facilitate integration of firms Effective due-diligence process (assessment of target firm by acquirer, such as books, culture, etc.) Financial slack Low debt position High debt can… Increase the likelihood of bankruptcy Lead to a downgrade in the firm’s credit rating Preclude needed investment in activities that contribute to the firm’s long-term success Innovation Flexibility and adaptability
50. 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