Chapter 9 Corporate Strategy

1. Chapter 9Corporate Strategy 0

2. Related Diversification • HORIZONTAL INTEGRATION • When businesses sharing similar activities are brought together, three • relationships among business are important to creating competitive • advantage: tangible interrelationships, intangible relationships, and • competitor relationships. • Tangible relationships arise from the ability to share activities in the • value chain because of common customers, channels, technology, • and other factors. • Intangible relationships arise from the ability to transfer know-how among • separate value chains. • Competitive relationships arise from the actual or potential competition • with competitors that spill over into others of the corporation’s businesses.

3. Related Diversification • VERTICAL INTEGRATION • Vertical integration is the term applied when a corporation diversifies • by extending the activities included in its value chain. • Shermag Inc., headquartered in Sherbrooke, Quebec, designs, • produces, markets, and distributes high-quality residential furniture. • The company is a vertically integrated manufacturer and importer with • its own cutting rights, sawmill, veneer facility, manufacturing operations, • and global sourcing division.

4. Related Diversification • UNRELATED DIVERSIFICATION • A corporation with two or more businesses engaged in • entirely unrelated industries is called a conglomerate. • Capturing benefits when holding such businesses in the • corporate portfolio is very difficult. • Building competitive advantage rests on the capabilities • and skills of corporate managers.

5. Strategies for Entering Attractive New Businesses • FOCUS ON A NICHE • The generic positions for strategy in Chapter 5 were low-cost leadership, • differentiation, focus cost leadership, and focus differentiation. • An entry that is focused involves pursuing a niche in the market and • appears less threatening to the incumbents because it seems to have • modest goals. • Consequently, it attracts little attention and is not likely to provoke • retaliatory behaviour.

6. Strategies for Entering Attractive New Businesses • USING A REVOLUTIONARY STRATEGY • This affords some protection from competition because such a strategy • breaks with the convention of the way business is done by the • incumbents. • When it is very different, incumbents are predisposed to think such a • strategy is inferior, unwise, or risky. • Only after such a strategy proves successful will incumbents rally • to try to protect their ground, but by then they are often too late.

7. Strategies for Entering Attractive New Businesses • LEVERAGING EXISTING RESOURCES • The business can take its existing capabilities and pursue businesses • that build on these capabilities. • This can be encouraged by a corporate venture unit, a distinct • organization unit controlled by the parent company that is responsible • for investing in business opportunities that are new to the corporation. • Such units may engage in a variety of forms of investment, from • making small investments in independent start-ups, to incubating • internal business ideas, to spinning out businesses.

8. Strategies for Entering Attractive New Businesses • COMBINATION STRATEGIES • Several entry strategies have elements of two or more of the strategies. • For instance, Skype combined its reconfigured value chain strategy with • a niche strategy; it specifically targeted price-sensitive customers • who would tolerate inferior quality.

9. Competitive Advantage and Corporate Strategy Resources Implementation Arenas Organi-zationalstructure Systems/ Processes People/ Rewards Specialized General

10. Competitive Advantage and Corporate Strategy • ARENAS • Theoretically, a company can compete in any combination of discrete • business arenas. • In practice, companies rarely enter arenas randomly but rather • select those that are logically connected to the arenas in which • they already participate.

11. Competitive Advantage and Corporate Strategy • RESOURCES • We saw in Chapter 3 that resources and capabilities are tangible or • intangible, and their usefulness in creating a competitive advantage • depends on five factors: • 1. how valuable they are • 2. whether they’re rare in the industry • 3. whether they’re costly to imitate • 4. the availability of substitutes • 5. whether the company has complementary capabilities to exploit them

12. Competitive Advantage and Corporate Strategy • Specialized Resources • Specialized resources have a narrow range of applicability. • Knowledge about fibre optics, for example, is fairly specialized, whereas • managerial know-how and skill are more general in nature. • General Resources • General resources can be exploited across a wide range of activities. • Many companies have created significant shareholder value by • leveraging expertise in efficient manufacturing and mass-marketing • techniques across different businesses engaged in a variety of industries.

13. Corporate Strategy in Stable and Dynamic Contexts • CORPORATE STRATEGY IN STABLE CONTEXTS • Many ideas of the relationship between diversification and corporate • strategy are based on analyses of companies operating in relatively stable • contexts. • Historically, a company may have diversified into a high-growth industry • because growth prospects in its current industry were unattractive. • CORPORATE STRATEGY IN DYNAMIC CONTEXTS • The same factors described in Chapter 6 that create the need for a • dynamic strategy also apply to corporate strategy: competitive interaction, • industry evolution, and technological change. • The evolution of the Corel Corporation shows how the corporation needs • to be flexible when dealing in a dynamic context.