Corporate Lavel Strategy

Western International University

Corporate Level Strategy

Amit Sharma

Sarosh Wazir

Dheeraj Chhikara

Manik Diengdoh

Rahul Mukherjee

MGT 625 – Strategic Management

September 5, 2009

Strategic Management

Strategic management is the set of managerial decisions and actions that determines the long run performance of the corporate. It involves environmental scanning, strategy formulation, strategy implementation & evaluation and control.

Strategic Management Process

Mission Objective Environmental Scanning

Internal External

Strategic Choice

Strategy Implementation

Corporate Level Management

Business Level Management

Functional Level Management

Evaluation & Control

Levels of Strategic Management

Corporate Level Strategies Head Office

Business Level Strategies

Function Level Strategies

Division A Division B

Marketing Finance

Human Resource

Operations

Marketing Finance

Human Resource

Operations

CEO, Board of Directors & Corporate Staff

Divisional Managers & Staff

Functional Managers

Corporate Level Strategies

Concentrated Growth

Acquisitions

Vertical Integration Backward Integration

Forward Integration

Full Integration

Taper Integration

Horizontal Integration

Strategic Alliance

Diversification Concentric Diversification

Conglomerate Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

Companies adopt a long-term perspective while formulating a corporate-level strategy.

Corporate Level Strategy is used for:

1. Businesses or industries that the company should compete in

2. Value creation activities that the company should perform in those businesses

3. Methods to enter or leave businesses or industries in order to maximize its long-run profitability

Concentrated Growth

It is the strategy in which the firm directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology and taking advantage of economies of scale.

IBM Case StudyIssue

The company’s semiconductor unit, which had bet on a strategy of manufacturing all kinds of chips for all 400 customers, had lost $ 1.2 billion over the previous 18 months. In spite of spending billions of upgrade its chip plant they were getting thrashed by Asian rivals that were manufacturing at much higher volumes and offering bargain-basement prices.

Strategy formulation

On July 15, 2003, 70 experts headed by Chief Executive Samuel J. Palmisano gathered in a conference to formulate the strategy.

Key outcome

The chip and computer unites would be combined

Instead of manufacturing all kinds of chips for 400 customers, It would focus primarily on one family of chips (Power microprocessors).

It would produce some chips for itself and the remaining for other key partner like Nintendo, Apple G5 computers, Cisco Systems networking gear.

It would recruit co-investors to help fund advances in the chip manufacturing technology.

Results

IBM gained share in high-end servers.

IBM became processer supplier for next generation game consoles to companies like Sony, Microsoft & Nintendo & controls 100 % market share.

Conditions Favoring a Concentrated Growth Strategy

Firm’s industry is resistant to major technological advancements

Firm’s industry is resistant to major technological advancements

Firm’s targeted markets are not product saturatedFirm’s targeted markets are not product saturated

Firm’s markets are sufficiently distinctive to dissuade competitors in adjacent markets from entering firm’s segment

Firm’s markets are sufficiently distinctive to dissuade competitors in adjacent markets from entering firm’s segment

Firm’s inputs are stable in price and quantity and available in amounts and at times needed

Firm’s inputs are stable in price and quantity and available in amounts and at times needed

Firm’s industry is stableFirm’s industry is stable

Firm’s competitive advantages are based on efficient production or distribution channels

Firm’s competitive advantages are based on efficient production or distribution channels

Success of market generalistsSuccess of market generalists

Acquisitions

It is an agreement between two firms where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio business

Reasons for Acquisitions

Increased Market Share

Overcome Barriers to Entry

Lower Cost and Risk of New Product Development

Diversification

Reshaping its competitive Scope

Problems with Acquisitions

Integration Difficulties

Inadequate evaluation of worth

Cash Crunch

Overly Diversified

Too Large to manage

Vertical Integration

Vertical Integration is a strategy for increasing or decreasing operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products.

Types of Vertical Integration

Backward Vertical Integration

Forward Vertical Integration

Full Integration

Taper Integration

Final Assembly

In-house Distributers

In-house Component Parts Manufacturing

Raw Material

Out-side Distributers

Out-side Supplier

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Advantages

Lowered cost structure or better differentiation.

Enhances & protects product quality

Results in improved scheduling

Disadvantages

Increased Cost Structure

Fast-changing Technology

Unpredictable Demand

Weak business model

Horizontal IntegrationIt is process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope.

Manufacturing Car (3 lakhs – 1 lakhs)



In-house Distributers

In-house Component Parts Manufacturing

Raw material

1. Lowers the cost structure

Creates increasing economies of scale Reduces the duplication of resources between two companies

2. Increases product differentiation

Product bundling – broader range at single combined price Total solution – saving customers time and money Cross-selling – leveraging established customer relationships

3. Replicates the business model

In new market segments within same industry

4. Reduces industry rivalry

Eliminate excess capacity in an industry Easier to implement tacit price coordination among rivals

5. Increases bargaining power

Increased market power over suppliers and buyers Gain greater control

Advantages

Disadvantages

Implementing a horizontal integration is not an easy task

Problems associated with merging very different company cultures

High management turnover in the acquired company when the acquisition is a hostile one

Tendency of managers to overestimate the benefits to be had in the merger

Tendency of managers to underestimate the problems involved in merging their operations

The merger may be blocked if merger is perceived to:

Create a dominant competitor

Create too much industry consolidation

Have the potential for future abuse of market power

Strategic Alliance

Strategic Outsourcing allows one or more of a company’s value-chain activities or functions to be performed by independent specialized companies that focus all their skills and knowledge on just one kind of activity.

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Regional Center

Regional Center

Factory

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Distributer

Factory

FedEx Shared Facility



FedEx Center

Advantages

Reducing the cost structure The specialist company cost is less than what it would cost to perform the activity internally.

Enhanced differentiation The quality of the activity performed by the specialist is greater than if the activity were performed by

the company.

Focus on the core business Distractions are removed.

The company can focus attention and resources on activities important for value creation and competitive advantage.

Disadvantages

Holdup – company becomes too dependent on specialist provider

Loss of information – company loses important customer contact or competitive information

Diversification

It is a strategy adopted by the firms to acquire new firms to expand its product base and to maximize its revenue. There are two types of diversifications Concentric Diversification & Conglomerate Diversification

Motivating factors for Diversification

Increase the firm’s stock value

Increase the growth rate of the firm

Better utilization of firm’s resources

Improve the stability of the firm

Balance or fill out the product line

Diversify the product line

Acquired the needed reasons

Concentric Diversification

As per this strategy firm are acquired or new ventures are made that are related to the acquiring firm in terms of technology, market or products. Hence the acquired business possess a high degree of compatibility with the firms current business.

Conglomerate Diversification

As per this strategy firm are acquired which are not related to the acquiring firm in terms of technology, market or products. The firms engage in this kind of activity as they take this as the most promising investment opportunity.

Turnaround

This strategy involves a concerted effort over a period of time to fortify a firm’s distinctive competencies and returning it to profitability.

Major Steps in Turnaround process

Change in Management

Cost Reduction

Asset Reduction

Declining sales or margins

Imminent bankruptcy

Low

High

Cost reduction

Asset reduction

Efficiency maintenance

Entrepreneurial reconfiguration

Sta

bilit

y

Recovery

Internal factors

External factors

Turnaround situation Turnaround responseCause Severity Retrenchment phase Recovery

phase

(operating)

(strategic)

A Model of the Turnaround Process

Divestiture

This strategy involves the sale of a firm or a major component of a firm.

Reasons for Divestiture Hurdles in Divestiture

Partial mismatched between acquired firm & parent firm

Corporate financial needs

Government antitrust actions

Finding a buyer who is willing to pay a premium above the value of a going concern’s fixed assets

Liquidation

As per this strategy the firm sells its parts at tangible asset value and not as a going concern.

What's for the business?

It minimizes the losses of all the stakeholders.

It gives the business a scope to gain greatest possible return and cash conversation so that it can relinquish its market share.

Bankruptcy

It is a strategy through which the business agrees to a complete distribution of their assets to creditors, most of whom receive a small part of what they are owed.

Outcome of bankruptcy

The business closes its doors

Investors loose their money

Employees loose their jobs

Manager’s loose their credibility

Which Strategy to adopt?

Rapid Market Growth

Slow Market Growth

Weak Competitive position

Strong Competitive position

Concentrated Growth



Reformulation of concentric growth


Divestiture

Liquidation

Turnaround or Retrenchment


Conglomeratic Diversification

Divestiture

Liquidation


Conglomeratic Diversification

Joint Venture

Model of grand strategy clusters

Group Contribution

Dheeraj Chhikara

Sarosh WazirRahul Mukherjee

Manik Diengdoh

Introduction to Strategic Management

Introduction to Corporate Level Strategy

Model of grand strategy clusters

Concentrated Growth

Acquisitions



Strategic Alliance

Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

?Thank You