AGENDA Week 3

• Hypercompetition• Current Situation• Break• Intel• Practice Individual Case

– Hershey

Current Situation

What is current mission statement?

Purposes of Mission Statement

• Communication Tool – External– Internal

• Decision-Making Tool– Long-term Objectives– Corporate Strategies– Business Objectives & Strategies– Functional Strategies & Strategies– Operating Decisions

What are current long termobjectives?

• Specific results - more than one year.

• Challenging, measurable, reasonable, clear.

• Established for overall corporation and each business/division.

Quantitative (“Hard”)AreasProfitability Net profit margin; ROI;

ROE Productivity

Lower costs (% of sales CGS, S&A)Activity ratios

GrowthIncreases in sales, assets, net income

Competitive PositionMarket Share

Shareholder WealthEPS; Dividends; Shareholder Value

Qualitative Areas (“Soft” )

• Employee Relations• Social Responsibility• Reputation• Technological Leadership

What are the current Corporate Strategies?

The overall managerial game plan Specifies:

• Organization’s orientation toward growth

• Industries or markets in which it will compete.

• Multi-business corporations it also involves decisions regarding position of that business in the organization.

Existing Market New Market

ExistingProduct

New Product

MarketPenetration

ProductDevelopment

Market Development

DiversificationRelatedUnrelated

Alternatives for Growth

Alternatives for Growth

Expansioninto existingBusinesses

Diversificationinto new Businesses

Changesof product,marketgeographicalscope

VerticalIntegrationexpanding the Value Chain

Related

Unrelated

Expansion into existing businesses

Changesof product,marketgeographicalscope

VerticalIntegrationexpanding the Value Chain

Existing products and markets•Market Penetration

Existing products into new markets•Expansion of uses and applications•Market Development

New Products into existing markets•Product Development•Expanding the breadth of product lines

Forward: Getting closer to customers

Backward: Getting closer to suppliers

Diversification into new businesses

Related

Unrelated

Product TechnologyProcess TechnologyProcurementBasic raw materialsProcesses or fabricated materialsFabricated componentsAssembled productsTestingDistributionMarketing and salesRetailingService

Bases for relatedness

Federal Gov’t looks atStandard IndustrialClassification (SIC)

Rationales for Diversification

• Economies of Scope– Electronic calculators and digital

watches

• Financial Synergies• Economizing on Transaction Costs• Managerial or Behavioral

Financial Synergies

• Diversification is need for adequate and stable cash flow

• Use profits from one business to subsidize another

• Underlies BCG Matrix

• Smooth cash flows and prop up expanding or troubled businesses– Investors can smooth out (PM & Kraft)– Other sources of expansion funds

Economizing on Transactions Costs

• Multiproduct firm is efficient choice when coordination between independent firms is complicated by transaction costs, and

• When the self-interested behavior of independent firms jeopardizes the value of investments, integration is option– similar with vertical integration

Managerial/Behavioral Reasons

• Maintaining or enhancing the position of executives making diversification decisions.

• Efficient for managers, but not for shareholders.– Divergence between management action and

shareholder interests.

• Pursuit of growth– easier to acquire new sales than internal

develop

• To avoid getting fired– reducing the risk of poor performance

• The persistence of diversification despite– vigorous antitrust enforcement – evidence of poor performance– suggest that managerial rationales

help explain diversification activity.

• If managers do entrench themselves at shareholder expense,– Shareholders must be more vigorous– Use outsiders– Revise compensation

Modes of Expansion

• Internal development• Acquiring

– Horizontal Integration

• Collaborative arrangements– Strategic Alliances– Joint Ventures– Licensing

Other Types of Corporate Strategies

Repositioning Strategies

• Retrenchment– Assets and/or costs

• Divestiture• Spin-offs

Termination Strategies

• Liquidation• Merger• Being acquired

Market Segment and Product Group

Analysis

•What markets do we currently serve with what product group?•What is the contribution to sales,

– operating income; net profit, etc.?

HUDSON FOODSMarket Segments:

Retail

Food Service

Club Store

International

Other

•Group of Consumers served

•Geographical Location

HUDSON FOODS

PRODUCTS

Hudson Foods - Product GroupsChicken Turkey Portioned Luncheon BeefOther

Entrees Meats

Chicken Turkey Portioned Luncheon Beef OtherEntrees Meats

Retail

Food Service

Club Store

Int’l

Other