Chapter 9 Corporate Strategy: Shaping the Portfolio

1. Chapter 9 Corporate Strategy: Shaping the Portfolio Katy Lovett, CJ Baker, and Matt Snowden Strategy: A View from the Top

2. What is your strategy? • GE’s key values- leaders, global business integration, skillful acquisitions (rather than specific businesses) • Focus on actions that shape the corporate portfolio of businesses

3. Economies of Scale • Cost per unit decreases as scale of activity increases • Economics of learning increase as more efficient process are found

4. Economies of Scope • Unit cost of an activity falls because the asset is shared with some other activity (ex. Frito Lay with chips + dips) • Horizontal scope- GE appliances • Geographical scope- McDonalds • Vertical scope- IBM

5. What is “core”? • Define it • Invest in it continuously • Ex. GE vs Colgate

6. Growth Strategies • SWOT analysis • Price-valued? Dell/Wal-mart • Performance value? Intel/Genetech

7. Growth Strategies • Organic or internal growth-Wal-Mart/Dell • Growth through acquisition-GE • Growth through alliance-based initiatives- Amazon.com

8. Concentrated Growth Strategies • Increase the number of users of the product • Increasing product usage by developing new applications • Increase the frequency of products use • 4 conditions as listed in book

9. Vertical Integration • 4 reasons to enter • Market is too risky • Another company has more market power • Barriers to entry and Price discrimination • When companies forward-integrate

10. Vertical Integration • Are highly integrated businesses more or less profitable? • Likely to be profitable? • Benefits and risks?

11. Diversification • Why would you? • Forms of Relatedness • Categories of Relatedness

12. Diversification • Core competency? • What assets are needed? • Can we catch them? • Player or Winner? • Can we learn by diversifying?

13. Mergers and Acquisitions • Successful acquisitions are usually part of a well-developed strategy. • Requires patience • Disciplined strategic analysis • Can add value in only a few ways • Objectivity is essential • Strategies should be formulated before acquisition

14. Cooperative Strategies • Types • Joint Ventures, Strategic Alliances, etc… • Benefits • Risk Sharing • Funding Limitations • Market Access • Technology Access

15. Strategic Logic of Alliances • Alliances are chosen based on the different needs during the product lifecycle. • Example: • Microsoft vs. Dell

16. Four Alliance Models • Two important questions: • 1. What role does the alliance play in the company’s corporate strategy? • 2. How is the alliance leadership structured? • Alliance determined by the answers: • 1. Franchise – Easily replicable alliances • 2. Portfolio – “Hub and Spoke” • 3. Cooperative – No single partner dominates • 4. Constellation – Aggressive and complex

17. Boston Consulting Group • Expertise Alliances • New-Business Alliances • Cooperative Alliances • M&A-Like Alliances • The type of Alliance is categorized according to who takes part and the scope of the alliance.

18. Growth and Strategic Risk • “Strategic risk can be measured in terms of far a growth initiative takes a company away from the established strengths of its core business.” • FIVE dimensions of distance • Shared Customers • Shared Costs • Shared Channels • Shared Competitors • Shared Capabilities/Technologies

19. Disinvestments • Sell-Offs – The parent corporation sells a business unit or company to another corporate portfolio. • Spin-Offs – An undesirable business unit is carved out or sold. Afterward it becomes it’s own company. • Liquidations – The business is more valuable as parts on eBay than as part of your strategy.