CORPORATE STRATEGIESStrategic Management in Action Heather Hignojos Katie Kringele John Stewart
Overview • What is Corporate Strategy • Organizational Growth Strategies • Organizational Stability Strategies • Organizational Renewal Strategies • How Corporate Strategy is Evaluated and Changed
Corporate Strategy • A strategy concerned with the choices of what business to be in and what to do with those businesses • Single –Business Organization • A business in one industry • Coca-Cola • Multiple-Business Organization • A business in more than one industry • PepsiCo
Corporate Strategy Related to Other Strategies • Corporate strategy establishes the overall direction that the organization hopes to go • Functional and Competitive strategies provide the means for making sure the organization gets there • Resources • Distinctive capabilities • Competitive advantages • Core competencies
Corporate Strategic Directions • Moving an organization forward • Strategic managers hope to expand the organization’s activities or operations. • Keeping an organization as is • It’s not growing or falling behind. A stability strategy. • Reversing an organization's decline • An organization has declines in one or more performance areas. They are addressed with a renewal strategy.
Growth Strategy • One that expands the products offered or markets served by an organization or expands its activities or operations either through current business or through new business • Used to meet performance goals • Increase revenues or profits • Increase number of clients • Broaden geographic area of coverage
Growth Strategies
Concentration • An organization concentrates on its primary line of business and looks for ways to meet its growth goals by expanding its core business. • Three concentration options • Product-market exploitation- attempts by the organization to increase sales of its current products in its current markets • Product development- organizations create new products to sell to its current market. • Market development- an organization sells its current products in new markets.
Concentration • An organization looks for ways to grow its core business using different combinations of products and markets. • An advantage of this strategy is an organization becomes very good at what it does. • A disadvantage is the organization is vulnerable to both industry and other external changes.
Vertical Integration • A strategy in which an organization grows by gaining control of its inputs, its outputs, or both. • Backward vertical integration- gains control of its inputs or resources by becoming its own supplier • Forward vertical integration- gains control of its outputs by becoming it own distributor • It is still a single-business organization because it is expanding into industries connected to its primary business.
Horizontal Integration • A strategy in which an organization grows by combining operations with its competitors. • It can be an appropriate strategy as long as (1) it enables the company to meet its growth goals, (2) it can be strategically managed to attain a sustainable competitive advantage, and (3) it satisfies legal and regulatory guidelines
Diversification • Growing by moving into a different industry. • Two types • Related (concentric) is diversifying into a different industry but one that’s related in some way to the current business. • Unrelated (conglomerate) is diversifying into a completely different industry not related to current business • The diversification strategy is hard to use, but you can create a sustainable competitive advantage.
International • A corporate strategy to look for ways to grow by taking advantage of the potential opportunities offered by global markets or by protecting the organization’s core operations from global competitors. • It’s possible for an organization to “go international” as it pursues growth using any of the other strategies
Implementing the Growth Strategies • Options for strategies to grow: • Mergers & Acquisitions • Internal Development • Strategic Partnering
Mergers & Acquisitions • ‘Purchase’ what the company needs to grow • Merger- a legal transaction in which two or more organizations combine operations through an exchange of stock and create a third entity • Organizations are usually about the same size and “friendly” • Acquisition- outright purchase of an organization by another • Usually organizations are different sizes, can either be friendly or hostile • Hostile Takeover- When an organization does not want to be acquired by another
Mergers & Acquisitions • Popularity goes in cycles • Is possible in ANY implementation of a growth strategy • Concentration • Vertical Integration • Horizontal Integration • Diversification • Main feature of a merger or acquisition is that the company is “buying” an expanded product line, markets, activities or operations
Internal Development • When an organization grows by creating and developing new business activities itself • Occurs when decision makers believe they have the necessary resources, distinctive capabilities and core competencies to do it themselves • Managers chose to acquire the needed resources and develop crucial capabilities to meet desired growth goals rather than deal with the hassle of combining two or more organizations • Depends on: • The new industry’s barriers to entry • The relatedness of the new business to the existing one • The speed and development costs associated with each approach • The risks associated with each approach • The stage of the industry cycle
Strategic Partnering • Two or more organizations establish a legitimate partnership by combining their resources, distinctive capabilities, and core competencies for some business purpose • Covers anything from loose partnerships to formal partnerships – umbrella term • 3 Main types: • Joint Venture • Long-term Contracts • Strategic Alliance
Strategic Partnering • Joint Venture- two or more separate organizations for a separate independent organization for strategic purposes • Often used when the partners do not want to or cannot legally join together permanently • Poplar in international growth • GM and Toyota formed New United Motor Manufacturing Company (NUMMC) • Created to introduce a new automobile production system in the US… Still in use today
Strategic Partnering • Long-term Contract- a legal contract between organizations covering a specific business purpose • Typically used between a business and its suppliers • Locks a supplier into a long-term relationship in which both partners understand the importance of developing resources, capabilities and core competencies for a sustainable competitive advantage • Both sides benefit from knowing they will always have the other partners business
Strategic Partnering • Strategic Alliance- two or more organizations share resources, capabilities or competencies to pursue some business purpose • Different from a joint venture because there is no separate entity created, they simply just share the resources they already have • Usually used to encourage product innovation • PepsiCo and Lipton- canned ice tea • Pepsi brought its strong marketing in canned beverages • Lipton brought its recognized tea brand and customer base
When is Stability an Appropriate Strategic Choice? • Stability Strategy- which an organization maintains its current size and activities • When the industry is in a period of rapid upheaval with several forces drastically changing • When the future is highly uncertain • When the industry is facing little or no growth • Allows them time to analyze their strategic options • When the organization has had rapid growth and needs some “down” time • Organization is in a mature stage
Implementing the Stability Strategy • Involves not growing, but also not shrinking • Must maintain a certain level at all times • No new products, programs or adding production capacity • Usually just an opportunity to let an organization rest in between growth periods • More of a short-run strategy • Susceptible to losing its competitive advantage
Renewal Strategies • Businesses periodically fall short of strategic objectives. • Why they’re important: • Designed to reverse any decline in productivity • Designed to get the company functioning as it should be • Designed to re-align goals • Two renewal strategies: • Retrenchment • Turnaround
Retrenchment • The retrenchment strategy is designed to address weaknesses that are leading to performance decline. • Usually designed to achieve strategic goals • Meeting strategic goals usually means making more profit • Goal is to stabilize operations, replenish or revitalize resources and capabilities
Turnaround • This renewal strategy is for companies in severely bad condition. • Only losses being reported • Performance results are significantly low • Company is in danger of collapsing • Managers must conduct a complete overhaul of operations, and strategic planning. • Ex: K-Mart, Delta Airlines, General Motors
Putting the Plan in to Action • Implementing these renewal strategies is a challenge. • This consists of: • Restructuring • Refocuses on the primary business • Proven to be the most beneficial action • Cutting Costs • Bring results back in line with expectations • Eliminates redundancies, and inefficiencies
Evaluating Corporate Strategies • This is a follow up action taken in order to make sure that implemented strategies are working. • Evaluation focuses on four areas: • Corporate goals • Efficiency, effectiveness, and productivity • Benchmarking • Portfolio Analysis
Corporate Goals • Corporate Goals indicate the desired end results or targets that strategic managers have established. • These goals are broader, more comprehensive, and longer-term. • If functional and competitive goals aren’t met, neither are the corporate goals.
Corporate Goals (cont.)
Efficiency, Effectiveness, Productivity • Three very important measures that can be used in evaluating an organization’s corporate strategy. • Efficiency • The ability to minimize resource use in achieving goals • Effectiveness • The organization’s ability to reach it’s goals • Productivity • A measure of how many inputs it took for an output
Benchmarking • Essential in setting goals to compete in an industry. • Used to observe strategic management in relation to competitors, and determine where improvement is needed. • Southwest Airlines: • Studied Indy 500 pit crews to determine how they could get their gate crews to achieve a faster turnaround time at the airline gate
Portfolio Analysis • Usually the final step in the evaluation process. • Used to evaluate all areas of the organization, and determine overall performance. • Three main portfolio analysis approaches: • BCG Matrix • McKinsey-GE Stoplight Matrix • Product-Market Evolution Matrix
BCG Matrix
Take Aways • Corporate strategies and their function. • Strategies for single & multiple organization businesses • Growth, stability, an renewal strategies • Strategies used to impact overall performance • Evaluation and implementation • Techniques used to make sure the company is on track
