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Chapter 6

Chapter 6. Supplementing the Chosen Competitive Strategy. Cooperative Strategies. Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration. Advantages of Alliances. Gain access to new global markets

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Chapter 6

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  1. Chapter 6 Supplementing the Chosen Competitive Strategy

  2. Cooperative Strategies • Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration.

  3. Advantages of Alliances • Gain access to new global markets • Gain knowledge about unfamiliar markets or cultures • Gain access or master new technologies • Gain access to complementary resources

  4. Keys to Alliance Success • Picking the right partner • Sensitivity to cultural differences • Must be win-win • Mutual commitment • Swift decision making structures • Managing the learning process • Maintaining flexibility

  5. Vertical Integration Operating in more than one stage of the industry value chain • partial/taper or full integration • forward or backward • Benefits • can not be held hostage – reduces buyer/supplier power • greater control over operations • access to new business/technologies • reduce procurement and sales efforts Risks • increased overhead, capital and administrative costs • loss of flexibility • different competencies may be requires • unbalanced capacities and increased risk • reaction of competitors

  6. Vertical Integration • Will add value when: • Enhance critical activities that lower costs or increase differentiation • Benefits exceed the costs • Enhances competitive capabilities

  7. Outsourcing • Farming out specific activities to others, allowing the firm to focus on more critical activities and core competencies

  8. Keys to Outsourcing • Others can do it better and cheaper • Not a core competency • Reduces the companies risk to technology changes • Improves the company’s innovation • Streamlines operations and increases flexibility • Assemble diverse expertise

  9. Mergers and Acquisitions Reasons of Acquisitions Cost Efficiencies Geographic Expansion Product/Market Extensions Increased Speed Lower Risk New Technologies Invest in New Industry or Create Convergence

  10. 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

  11. Mergers and Acquisitions Results Poor Performance Who Wins? Acquired Firm Shareholders

  12. 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%

  13. 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

  14. Offensive Strategies • Relentless focus on advantages • Element of surprise • Apply resources where rivals have limitations • Swift and decisive actions to break the status quo

  15. Offensive Options • Equal or better product at a lower price • First mover or next generation • Continuous product innovation • Adopting and improving on a rivals idea • Attacking rival’s high margin segments • Attacking rival’s weaknesses • Tapping uncontested markets • Guerrilla warfare tactics • Pre-emptive strikes – tying up distribution, location, suppliers, or

  16. Alternatives to Vertical Integration • Competitive bidding • Long term contracts or strategic alliances • Hostage taking • Credible commitments • Maintaining market discipline

  17. Snack Foods Beverages Foods Frito-Lay North America Frito-Lay International Quaker North America Pepsi-Cola North America Gatorade/Tropicana North America PepsiCo Beverages International

  18. 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

  19. 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

  20. 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

  21. Beverages Pepsi-Cola North America Pepsi-Cola Mountain Dew Slice Mug Sierra Mist FruitWorks Lipton Dole Aquafina Frappuccino SoBe AMP

  22. Beverages Gatorade/Tropicana North America Gatorade Propel Tropicana Dole juices

  23. Beverages PepsiCo Beverages International Loóza juices and nectars Copella juices Frui’Vita juices Tropicana 100 juices

  24. 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

  25. 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

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

  27. Where did they go?

  28. Crafting 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

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

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

  31. Who Makes a Geo? Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse. Geo Prizm = Toyota Corolla Geo Tracker = Suzuki Sidekick Geo Metro = Suzuki Esteem or Swift w/hatchback No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

  32. How to Diversify? 3) Merger & Acquisition - acquisition of assets and capabilities of another company • high tech & technology intensive • access to products • consolidation • access to segments

  33. Alternative 10 point option • In lieu of making a donation, you may write a 5 page, double spaced paper on how a specific company proactively pursues corporate responsible activities.

  34. Extra Credit – 10 points • Girls’ and Boys’ Town, the original Father Flanagan's Boys' Home, is a leader in the treatment and care of abused, abandoned and neglected girls and boys. Throughout its 86-year history, the nonprofit, nonsectarian organization has provided these children with a safe, caring, loving environment where they gain confidence to get better and learn skills to become productive citizens.

  35. Extra Credit – 10 points Bring one of the items listed below: New/gently used backpacks or suitcases Socks - 5 pairs Shampoo and Conditioner – 3 pints New/gently used sporting equipment Refill bottle of 409/All purpose cleaner Laundry detergent

  36. Extra Credit Drop off BA1 Building - Room 307 Times:Wednesday 3/30 4:00 pm – 6:30 pm Thursday 3/31 8:30 am – 9:30 am 11:30 am – 8:00 pm Friday 4/1 8:30 am – 11:00 am Monday 4/4 1:00 pm – 6:00 pm Tuesday 4/5 8:30 am – 9:00 am 2:30 pm – 5:00 pm Wednesday 4/6 4:00 pm – 6:30 pm Thursday 4/7 8:30 am – 9:30 am 11:30 am – 8:00 pm

  37. 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

  38. Levels of Diversification Single Business Unit - vast majority of sales comes from a single business Less ambiguity Ear to the ground re: industry and competition Eggs in one basket

  39. Related Diversification at Disney Entertainment/Production Theme Parks Resorts Entertainment/Broadcasting Retailing Cruise Lines

  40. Levels of Diversification (cont.) Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizonal relationships across businesses Advantages of related diversification include: • Leveraging Core Competencies • Sharing Activities • Market Power • Vertical Integration - integration of preceding or successive productive processes - Shaw Industries buying a fiber company or floor covering retailer.

  41. 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

  42. Tyco Limits itself to businesses that can be held strictly accountable for a few key financial measures Mature, stable, low-tech industries which face certain environments and little R&D investments

  43. 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

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