Western International University Corporate Level Strategy Amit Sharma Sarosh Wazir Dheeraj Chhikara Manik Diengdoh Rahul Mukherjee MGT 625 – Strategic Management September 5, 2009
Jan 20, 2015
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)
Manufacturing Car (3 lakhs – 10 lakhs)
Manufacturing Car (25 lakhs – 10 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 Shared Facility
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
Vertical Integration
Concentric Diversification
Reformulation of concentric growth
Horizontal Integration
Divestiture
Liquidation
Turnaround or Retrenchment
Concentric Diversification
Conglomeratic Diversification
Divestiture
Liquidation
Concentric Diversification
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
Vertical Integration
Horizontal Integration
Strategic Alliance
Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
?Thank You