STRATEGIC Session 9

MANAGEMENT November 18, 2024

Corporate Strategy
DSR5100–065-A24
 Learning Objectives (Session 9)
Corporate Strategy

• Explain key issues that corporate strategy addresses

• Apply the directional strategies of growth, stability, and retrenchment to
the organizational environment in which they work best
• Apply portfolio analysis to guide decisions in companies with multiple
products and businesses
• Develop a parenting strategy for a multiple-business corporation

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 Strategic business units (SBUs)
A strategic business unit (SBU) supplies goods or services for a
distinct domain of activity.
• A small business has just one SBU.
• A large diversified corporation is made up of multiple businesses (SBUs).
• SBUs can be called ‘divisions’ or ‘profit centres’
• SBUs can be identified by:
• Market based criteria (similar customers, channels and competitors).
• Capability based criteria (similar strategic capabilities).

To make it easier companies

created SBU, Each SBU, Has a different budget,
 The purpose of SBUs
• To decentralise initiative to smaller units within the corporation
so SBUs can pursue their own distinct strategy.
• To allow large corporations to vary their business strategies
according to the different needs of external markets.
• To encourage accountability – each SBU can be held responsible
for its own costs, revenues and profits.
 Corporate Strategy
• Corporate strategy
• the choice of direction of the firm as a whole and the management of its
business or product portfolio and concerns
• Directional strategy
• the firm’s overall orientation toward growth, stability, or retrenchment
• Portfolio analysis
• industries or markets in which the firm competes through its products and
business unites
• Parenting strategy
• the manner in which management coordinates activities, transfers
resources, and cultivates capabilities among product lines and business
units
Corporate strategy directions
IMPORTANTTTT

PENETRATION:Apple hire more sales people,

Reduce prices, discounts, ways to attract people

NEW: Try to sell your product in a new market, can be

within the same contry or another.

Conglomerate:
 Diversification

• Diversification involves increasing the range of products or

markets served by an organisation.
• Related diversification involves diversifying into products or
services with relationships to the existing business.
• Conglomerate (unrelated) diversification involves diversifying
into products or services with no relationships to the existing
businesses.
 Market penetration

Market penetration refers to a strategy of increasing share of

current markets with the current product range.
This strategy:
strategic capabilities; builds on established
scope is unchanged; means the organisation’s
 increased power; leads to greater market share and with buyers and
suppliers;
 economies of scale; and provides greater and experience curve benefits.
Corporate Directional Strategies
 Directional Strategy
• Growth strategies
• expand the company’s activities
• Stability strategies
• make no change to the company’s current activities
• Retrenchment strategies
• reduce the company’s level of activities
• Merger
• a transaction involving two or more corporations in which
both companies exchange stock in order to create one
new corporation
• Acquisition
• purchase of another company
 Concentration Strategies
IMPORTANT FOR THE EXAMMMM
• Vertical growth
• achieved by taking over a function previously provided by a supplier or
distributor
• Vertical integration
• the degree to which a firm operates vertically in multiple locations on an
industry’s value chain from extracting raw materials to manufacturing to
retailing
• Backward integration
• assuming a function previously provided by a supplier
• Forward integration
• assuming a function previously provided by a distributor
 THIS SUMMARY IS WHAT PROFFESOR WANTS IN THE EXAM

Diversification and integration

car manufacturer example

Downstream Expansion: Focuses on gaining

control over processes that occur after production,
such as distribution or sales.

Backward:You produce
components of the card
(AIRBUS IS DOING THAT)
Horizontal integration is a business strategy where a company
expands its operations at the same level of the value chain. This means acquiring or developing ownership
This typically involves acquiring or merging with other companies over suppliers or producers of raw materials or
in the same industry that produce similar goods or services. components needed for its products
 Concentration Strategies
• Full integration When you adquire other companies,what is the level of integration
• a firm internally makes 100% of its key suppliers and completely controls its distributors
• Taper integration
• a firm internally produces less than half of its own requirements and buys the rest from outside
suppliers
• Quasi-integration
• a company does not make any of its key supplies but purchases most of its requirements from outside
suppliers that are under its partial control
• Long-term contracts
• agreements between two firms to provide agreed-upon goods and services to each other for a specific
time
• Horizontal growth
• expansion of operations into other geographic locations and/or increasing the range of products and
services offered to current markets
• Horizontal integration
• the degree to which a firm operates in multiple geographic locations at the same point in an industry’s
value chain
 Diversification Strategies
• Concentric (related) diversification
• growth into a related industry when a firm has a strong competitive
position, but industry attractiveness is low
• Conglomerate (unrelated) diversification
• diversifying into an industry unrelated to its current one
• management realizes that the current industry is unattractive
• firm lacks outstanding abilities or skills that it could easily transfer to
related products or services in other industries
 Stability Strategies
• Pause/proceed with caution strategy
• an opportunity to rest before continuing a growth or
retrenchment strategy
• No-change strategy some companies for example automobile companies decides not to change
• decision to do nothing new—a choice to continue current
operations and policies for the foreseeable future.
• Profit strategy
• decision to do nothing new in a worsening situation but
instead to act as though the company’s problems are only
temporary
• Retrenchment strategies Retrenchment Strategies EXAMEN QUESTION

• used when the firm has a weak competitive position in some or all of its product lines from poor performance
• Turnaround strategy
• emphasizes the improvement of operational efficiency when the corporation’s problems are pervasive but not critical
• Contraction
• effort to quickly “stop the bleeding” across the board but in size and costs
• Consolidation
• stabilization of the new leaner corporation
• Captive company strategy
• company gives up independence in exchange for security
• Sell-out strategy
• management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the
company to another firm
• Divestment
• sale of a division with low growth potential
• Bankruptcy
• company gives up management of the firm to the courts in return for some settlement of the corporation’s obligations
• Liquidation Sell your assets
• management terminates the firm
 Portfolio Analysis
• Portfolio analysis
• management views its product lines and business units as a
series of investments from which it expects a profitable
return
 BCG Growth-Share Matrix

EXAMPLE: CHOCOLATE BAR that is healthy option for people

 BCG Growth-Share Matrix
• Question marks
QUIZ QUESTION STUDY THISSSSS

• new products with the potential for success but need a lot of cash for
development
• Stars
• market leaders that are typically at or nearing the peak of their product life
cycle and can generate enough cash to maintain their high share of the market
and usually contribute to the company’s profits
• Cash cows
• products that bring in far more money than is needed to maintain their market
share
• Dogs
• products with low market share and do not have the potential to bring in much
cash
 Corporate Parenting
QUIZ QUESTION

• Corporate parenting
• views a corporation in terms of resources and capabilities that can be
used to build business unit value as well as generate synergies across
business units
• Generates corporate strategy by focusing on the core competencies of
the parent corporation and the value created from the relationship
between the parent and its businesses.

SPACE X: COMPANY FROM ELON MASK THAT SEND ROCKETS

Horizontal Strategy & Multipoint Competition

• Horizontal strategy
• cuts across business unit boundaries to build synergy across business
units and to improve competitive position in one of more business
units
• Multipoint competition
• large multi-business corporations compete against other large multi-
business firms in a number of markets
 What have we learned?
• Explain key issues that corporate strategy addresses
• Apply the directional strategies of growth, stability, and
retrenchment to the organizational environment in which they
work best
• Apply portfolio analysis to guide decisions in companies with
multiple products and businesses
• Develop a parenting strategy for a multiple-business
corporation
Q&A

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