Coulter Smia6e Im 06

Chapter 6 Corporate Strategies
CHAPTER 6 CORPORATE STRATEGIES

LEARNING OUTCOMES
Use this Learning Outline as you read and study the chapter:
6.1 Define corporate strate!.
6." Disc#ss orani$ationa% ro&t' strateies.
6.( Descri)e t'e orani$ationa% sta)i%it! strate!.
6.* Descri)e orani$ationa% rene&a% strateies.
6.+ Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-.
TE.T OUTLINE
Strategic Management in Action Case #1: Growing Up
Under Armour was a startup in the 1990s by a college student who wanted a better t-shirt to wear under
his football uniform. oday the company has !1." billion in re#enue. heir strategy of getting the shirt
to mar$et was to contact #arious indi#iduals $nown by the founder of the company. %#entually& the
shirt as well as other products was carried by big bo' retailers.
eaching (otes)
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+. LEARNING OUTCOME 6.1
DE/INE CORPORATE STRATEG0
A. What Is Corporate Strategy?
Corporate strate!,that strategy concerned with the choices of what business-es. the
organi/ation is in or wants to be in& and what it wants to do with those businesses.
Single and Multiple-Business Organizations
0istinction between single- and multiple-business organi/ations is important because it
influences the organi/ation1s o#erall strategic direction& what corporate strategy is used and how
that strategy is implemented and managed.
1. Sin%e1)#siness orani$ation,primarily in one industry.
Coca-Cola is a single-business organi/ation because it competes primarily in the be#erage
industry& e#en though it has multiple products& multiple mar$ets and multiple outlets.
2. M#%tip%e1)#siness orani$ation,one that operates in more than one industry.
3epsiCo is a multiple-business organi/ation because its business units include its snac$ food
business -4rito 5ay.& its be#erage business -3epsi& 0iet 3epsi and its other be#erages.& its
Copyright 6 2017 3earson %ducation& +nc. publishing as 3rentice 8all
1
prepared foods business -9ua$er 4oods (orth America. and its international business
-3epsiCo +nternational.. Although these industries are similar in many ways& they are
different industries. 3epsiCo has chosen to follow a corporate strategy in which it operates
in more than one industry,a multiple-business organi/ation.
:. Relating Corporate Strategy to Other Organiational Strategies
1. Corporate strategy establishes the o#erall direction that the organi/ation hopes to go in& the
other organi/ational strategies,functional and competiti#e,pro#ide the means for ma$ing
sure the organi/ation gets there -4igure 6.1..
2. he means for mo#ing the organi/ation are the resources& distincti#e capabilities& core
competencies& and competiti#e ad#antage-s. found in the organi/ation1s functional and
competiti#e strategies.
7. %ach type of strategy -corporate& competiti#e and functional. is important to whether the
organi/ation does what it1s in business to do and whether it achie#es its strategic goals.
a. Corporate strategy can1t be implemented effecti#ely or efficiently without the resources&
capabilities and competencies being de#eloped and used in the competiti#e and
functional strategies.
b. Competiti#e and functional strategies that are implemented must support the o#erall
strategic direction and corporate strategy.
C. What Are the Corporate Strategic !irections?
1. ;o#ing an organi/ation forward growth strategy-ies.
2. <eeping an organi/ation as is stability strategy
7. =e#ersing an organi/ation1s decline renewal strategy
eaching (otes)
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Learnin Re,ie&2 Learnin O#tco3e 6.1
What is corporate strategy?
> Corporate strate! is those strategies concerned with the broad and long-term ?uestions of what
business-es. the organi/ation is in or wants to be in& and what it wants to do with those businesses.
Contrast single-business multiple-business organizations
> A sin%e1)#siness orani$ation is one that operates primarily in one industry. A 3#%tip%e1
)#siness orani$ation is one that operates in more than one industry.
!o" is corporate strategy related to the other organizational strategies?
> Corporate strategy establishes the o#erall direction that the organi/ation hopes to go. he other
organi/ational strategies,functional and competiti#e,pro#ide the means for ma$ing sure the
organi/ation gets there.
2
#escribe each o$ the three corporate strategic directions
> ;o#ing the organi/ation forward
> <eeping the organi/ation as is
> =e#ersing the organi/ation1s decline
++. LEARNING OUTCOME 6."
DISCUSS ORGANI4ATIONAL GRO5TH STRATEGIES
Gro&t' strate! is one that e'pands the products offered or mar$ets ser#ed by an organi/ation or
e'pands its acti#ities or operations either through current or new business-es..
A. he typical growth ob@ecti#es for business organi/ations include)
1. +ncreasing re#enues
2. +ncreasing profits
7. +ncreasing other financialAperformance measures
:. Browth ob@ecti#es for not-for-profit organi/ations include)
1. +ncreasing the number of clients ser#ed or patrons attracted
2. :roadening the geographic area of co#erage
7. +ncreasing the number of programs offered
C. "ypes o# Growth Strategies -4igure 6.2.
1. Concentration
Concentration strate! is a growth strategy in which an organi/ation concentrates on its
primary line of business and loo$s for ways to meet its growth goals by e'panding its core
business. -Chen a single-business organi/ation pursues growth& it1s using the concentration
strategy..
a. Chen attempting to increase sales and profits& an organi/ation might use these three
concentration options -4igure 6.7.)
-1. %roduct-mar&et e'ploitation describes attempts by the organi/ation to increase
sales of its current product-s. in its current mar$et-s. by depending on its
functional -particularly& mar$eting and ad#ertising. and its competiti#e
strategies.
-2. %roduct de(elopment option is where organi/ations create new products to sell
to its current mar$et -customers.. (ew products may include impro#ed or
modified #ersions of e'isting products.
-7. Mar&et de(elopment option describes when an organi/ation sells its current
products in new mar$ets that may be additional geographic areas or other
mar$et segments not currently ser#ed by the organi/ation.
-". %roduct-mar&et di(ersi$ication option: -the fourth option in 4igure 6.7. is
where the organi/ation see$s to e'pand both into new products and new
mar$ets. -At this point& the single-business organi/ation becomes a multiple-
business organi/ation since its now operating in a different industryD it is (E a
concentration strategy by definition..
Strateic Manae3ent 6T'e G%o)a% Perspecti,e2 $%&a Ro'otics
hese are natural line e'tensions for firms pursuing concentration strategies where they e'pand the
industries they sell their current products to. he ris$ of ha#ing one product and concentrating on one
industry lea#es a company #ulnerable to a slump in an industry.
b. Ad#antage of the concentration strategy is that the organi/ation becomes #ery good
at what it does.
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c. ;ain drawbac$ of the concentration strategy is that the organi/ation is #ulnerable to
industry and other e'ternal changes. =is$ can be minimi/ed by noticing significant
trends and ad@usting the organi/ation1s direction& should that become necessary.
Strateic Manaers in Action 2 (%)son C* Green+ ,a-te. Corporation
%'panding into other industries -i.e.& na#igation on handheld de#ices. will help (a#te? Corporation
sur#i#e the anticipated decrease of na#igation-e?uipped #ehicles to F0 percent of its sales. 0o your
students thin$ C%E Breen made a good decision to #ertically integrateG Can your students suggest other
ways (a#te? Corporation could either bac$wardly or #ertically integrateG
d. Use of concentration strategy isn1t limited to small-si/ed organi/ations. +n fact&
large organi/ations often start off using the concentration strategy and continue to
use it to pursue growth.
2. )ertical *ntegration +,or"ard and Bac&"ard-
7ertica% interation strate! is a strategy in which an organi/ation grows by gaining
control of its inputs -bac$ward.& its outputs -forward.& or both.
a. +n bac&"ard (ertical integration& the organi/ation gains control of its inputs or
resources by becoming its own supplier.
b. +n $or"ard (ertical integration& the organi/ation gains control of its outputs -products or
ser#ices. by becoming its own distributor.
c. he #ertical integration strategy is considered a growth strategy because an
organi/ation1s acti#ities and operations are e'panded.
d. Studies of organi/ations1 #ertical integration strategies ha#e shown mi'ed results in
terms of whether the strategy helped or hurt performance. Some of the problems
associated with #ertical integration include reduced organi/ational fle'ibility as loc$ed
into product-s. and technology& difficulties in integrating #arious operations& and
financial costs of ac?uiring or starting up.
e. Studies ha#e also confirmed some of the ad#antages associated with #ertical integration
include reduced purchasing and selling costs& impro#ed coordination among functions
and capabilities& and protection of proprietary technology to name a few.
f. he benefits of #ertical integration ha#e been shown to slightly outweigh the costs
associated with it.
7. !orizontal *ntegration
Hori$onta% interation strate! is e'panding the organi/ation1s operations through
combining with other organi/ations in the same industry doing the same things it is doing.
8ori/ontal integration is an appropriate corporate growth strategy as long as)
a. +t enables the company to meet its growth goals.
b. +t can be strategically managed to attain a sustainable competiti#e ad#antage.
c. +t satisfies legal and regulatory guidelines.
Strateic Manae3ent ,T'e G%o)a% Perspecti,e2 SA/Miller an) 0osters
+f a company ta$es a HglobalI approach to hori/ontal integration& the company can enhance its
li$elihood of success. he combined businesses ha#e the potential to complement one another well as
the company mo#es forward with the integration.
". #i(ersi$ication
Di,ersification strate! is a corporate growth strategy in which an organi/ation grows by
mo#ing into a different industry. Any mo#e into a different industry automatically ma$es an
organi/ation a multiple-business organi/ation because it1s no longer operating in @ust one
industry.
here are two ma@or types of di#ersification)
"
a. Re%ate- 8concentric9 -i,ersification is di#ersifying into a different industry but one
that1s related to the organi/ation1s current operations. Eften called the search for
strategic Hsynergy&I which is the idea that the performance of the combined operations
will be much greater than the performance of each unit separately -the old idea that
suggests 2 J 2 can e?ual K.. Synergy happens because of the interactions and
interrelatedness of the combined operations and the sharing of resources& capabilities
and distincti#e competencies.
-1. .'amples: Apple Computer had successful di#ersification into music& cell phones&
mo#ies& retail stores and personal computers.
-2. .'ample: Anheuser-:usch1s unsuccessful di#ersification into %agle Snac$s snac$
food industry.
b. Unre%ate- 8con%o3erate9 -i,ersification is di#ersifying into a completely different
industry from the organi/ation1s current operations. his growth strategy in#ol#es the
organi/ation mo#ing into industries in which there is absolutely no strategic fit to be
e'ploited.
-1. Used "hen the organization/s core industry and related industries don/t o$$er
enough gro"th potential
-2. Used "hen specialized resources0 capabilitie0 and core competencies can/t be easily
applied to other industries outside its core business
-7. .'ample: 4ortune :rands) Lim :eam bourbon& ;oen faucets& Aristo$raft and
Schroc$ cabinets& 0e<uyper cordials& itleist golf balls& ;aster 5oc$ padloc$s.
oyota) automobiles& prefabricated houses& ad#ertising& roof gardens and
consulting.
c. =esearch has shown that& for the most part& related di#ersification is superior to
unrelated di#ersification. +f an organi/ation can de#elop and e'ploit the potential
synergies in the resources& capabilities& and core competencies of its di#ersified
operations& then its li$ely to create a sustainable competiti#e ad#antage.
d. *nternational
-1. An organi/ation can Hgo internationalI as it pursues growth using any of the other
corporate growth strategies.
(a) +f an organi/ation chooses to #ertically integrate& then this particular growth
strategy could be implemented globally as well as domestically.
(b) +f a related di#ersification strategy is being implemented& it could in#ol#e
combining the operations of organi/ations in different countries as well as those
in @ust the home mar$et.
/or 0o#r Infor3ation,T'in:in S3a%%2 Sam 1almisano+ I/M
hin$ing small can allow companies to be more nimble and responsi#e to mar$ets more conduci#e to
creati#ity& collaboration and inno#ation. 0o your students thin$ C%E Sam 3almisano selected a
successful strategyG Can your students suggest other ways +:; could growG
Acti,e Learnin Hint
0i#ide class into teams or pairs. 8a#e each team brainstorm ad#antages and disad#antages of one of the
possible growth strategies as shown in 4igure 6.2.
Mou may want to assign specific subtopics to a team -e.g.& one team could do related di(ersi$ication&
another& unrelated di(ersi$ication0 etc..
eaching (otes)
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0. Implementing Growth Strategies
he mechanisms for implementing the three broad options of corporate growth strategies are)
1. Mergers-1c2uisitions
A merger or ac?uisition could be used by an organi/ation when implementing any of the
growth strategies. An organi/ation can implement growth strategies by HpurchasingI what it
needs to e'pand its operations.
a. Merer is a legal transaction in which two or more organi/ations combine operations
through an e'change of stoc$& and create a third entity. ;ergers usually ta$e place
between organi/ations that are similar in si/e and are usually Hfriendly.I
b. Ac;#isition is an outright purchase of an organi/ation by another. he purchased
organi/ation is absorbed by the purchasing organi/ation. Ac?uisitions usually are
between organi/ations of une?ual si/es and can be friendly or hostile.
c. Hosti%e Ta:eo,er is a hostile ac?uisition where the organi/ation being ac?uired doesn1t
want to be ac?uired. +n fact& the target of a ta$eo#er often will ta$e steps to pre#ent the
ac?uisition.
=esearch has shown that the popularity of mergers and ac?uisitions as a strategic growth
mechanism seems to go in cycles.
Strateic Manae3ent in Action,General 2lectric
Beneral %lectric chose ac?uisition as its path to growth in part because the airport security mar$et was
changing rapidly and the go#ernment was going to be the ma@or purchaser of hardware de#eloped to
screen passengers. his meant that for B% to enter the mar$et it did not ha#e years to do the research
needed to de#elop products in-house. Chere B% could add #alue was in the ability to ?uic$ly supply the
mar$et by e'panding production and a certain comfort-le#el that they would be around as a supplier in
years to come.
2. *nternal #e(elopment
Interna% -e,e%op3ent is where the organi/ation grows by creating and de#eloping new
business acti#ities itself.
=esearch has shown that the choice between internal de#elopment and mergers-ac?uisitions
depends on)
a. he new industry1s barriers to entry
b. he relatedness of the new business to the e'isting one
c. he speed and de#elopment costs associated with each approach
d. he ris$s associated with each approach
e. he stage of the industry life cycle
-hese factors are summari/ed in able 6.1.
7. Strategic %artnering
Strateic partnerin is when two or more organi/ations establish a legitimate relationship
-partnership. by combining their resources& distincti#e capabilities& and core competencies
for some business purpose.
a. hese cooperati#e arrangements can be used to implement any of the growth strategies)
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-1. Nertical integration,strategically partner with one of its suppliers or distributors
-2. 8ori/ontal integration,de#elop a strategic relationship with one of its competitors
-7. =elated di#ersification,de#elop a strategic relationship in a related industry
b. =ather than buying or internally de#eloping to e'pand its operations& decision ma$ers
might choose to de#elop one of the three main types of strategic partnerships)
-1. <oint ,ent#re
(a) wo or more separate organi/ations form a separate independent organi/ation
for strategic purposes.
(b) he strategic partners typically own e?ual shares of the new @oint #enture in
this cooperati#e arrangement.
(c) Eften used when the partners do not want to or cannot legally @oin together
permanently.
(d) +n international growth strategies it can minimi/e the financial and political-
legal constraints that accompany mergers-ac?uisitions and internal
de#elopment.
(e) .'amples: Beneral ;otors and oyota1s @oint #enture as (ew United ;otor
;anufacturing CompanyD 51Ereal SA and (estle SA1s @oint #enture as
5aboratoires +nneo#.
-2. Lon1ter3 contract
(a) 5egal contract between organi/ations co#ering a specific business purpose.
(b) ypically it1s between an organi/ation and its suppliers.
(c) Eften #iewed as a new #ariation of #ertical integration without the organi/ation
buying the supplier or internally de#eloping its own supply source.
(d) Ergani/ation benefits by ha#ing an assured source of supplies that meets its
cost and ?uality e'pectations.
(e) Supplier benefits by ha#ing an assured outlet for its products.
(f) 3artners in a long-term contract often find that it1s in their best interests to share
resources& capabilities and core competencies so both can capture potential
benefits.
(g) .'amples: 3i'ar and 0isney
/or 0o#r Infor3ation=5'! A%%iances Ma:e Sense
8a#e student groups compare alliances with ac?uisitions. his discussion may help them further
understand when one method may be preferred o#er the other. Consider that many alliances are
de#eloped to address short-term problems and that once the problems are o#ercome and both
organi/ations ha#e learned& there may be no need to continue the relationship. his situation may
lead to many alliances but in a constantly changing pattern.
-7. Strateic A%%iance
(a) wo or more organi/ations share resources& capabilities& or competencies to
pursue some business purpose.
(b) Sounds similar to a @oint #enture& but there1s no separate entity formed.
(c) +ntent of strategic partnerships is to gain the benefits of growth while
minimi/ing the drawbac$s of buying or internally de#eloping.
(d) Strategic alliances are often pursued to)
(1) %ncourage product inno#ation
(2) :ring stability to cyclical businesses
(3) %'pand product line offerings
(4) Cement relationships with suppliers& distributors& or competitors
F
(e) %ach partner in the strategic alliance can reap the benefits of e'panded
operations by contributing to the alliance its uni?ue resources& capabilities& or
competencies.
(f) .'amples: 3epsiCo and 5iptonD 8onda ;otor and Beneral %lectric
eaching (otes)
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Learnin Re,ie&2 Learnin O#tco3e 6."
#e$ine gro"th strategy
> Gro&t' strate! is one that in#ol#es the attainment of specific growth ob@ecti#es by increasing
the le#el of an organi/ation1s operations.
#escribe the (arious corporate gro"th strategies and ho" the corporate gro"th strategies can be
implemented
> he #arious corporate growth strategies are concentration& #ertical integration -bac$ward and
forward.& hori/ontal integration& di#ersification and international.
> Concentration strate! is a growth strategy where the organi/ation concentrates on its primary
line of business and loo$s for ways to meet its growth ob@ecti#es through increasing its le#el of
operations in this primary business.
> Chen attempting to increase sales and profits an organi/ation might use these three
concentration options) product-mar$et e'ploitation& product de#elopment& and mar$et
de#elopment.
> he ad#antage of the concentration strategy is that the organi/ation becomes #ery good at what
it does. he main drawbac$ of the concentration strategy is that the organi/ation is #ulnerable
to industry and other e'ternal en#ironmental shifts.
> A single-business organi/ation pursuing growth uses the concentration strategy.
> 7ertica% interation strate! is an organi/ation1s attempt to gain control of its inputs -bac$ward.
its outputs -forward.& or both.
> he #ertical integration strategy is considered a growth strategy because the organi/ation1s
operations are e'panded.
> Hori$onta% interation strate! is e'panding the organi/ation1s operations through
combining with other organi/ations in the same industry doing the same things it is,that is& it
in#ol#es combining operations with competitors.
> 8ori/ontal integration is an appropriate corporate growth strategy as long as)
-1. +t enables the company to meet its growth ob@ecti#es
-2. +t can be strategically managed to attain a sustainable competiti#e ad#antage
-7. +t satisfies legal and regulatory guidelines
> Di,ersification strate! is a corporate growth strategy in which an organi/ation e'pands its
operations by mo#ing into a different industry.
> he two ma@or types of di#ersification are)
- Re%ate- 8concentric9 -i,ersification is di#ersifying into a different industry& but one that1s
related in some way to the organi/ation1s current operations.
- Unre%ate- 8con%o3erate9 -i,ersification is di#ersifying into a completely different industry
from the organi/ation1s current operations.
O
> Internationa% strate! - is when an organi/ation chooses to #ertically integrate& then this
particular growth strategy could be implemented globally as well as domestically. +f a related
di#ersification strategy is being implemented& it could in#ol#e combining the operations of
organi/ations in different countries as well as those in @ust the home mar$et.
> A 3erer is a legal transaction in which two or more organi/ations combine operations through
an e'change of stoc$& but only one organi/ation or entity will actually remain.
> An ac;#isition is an outright purchase of an organi/ation by another. he purchased
organi/ation is completely absorbed by the purchasing organi/ation.
> A ta:eo,er is a hostile ac?uisition where the organi/ation being ac?uired doesn1t want to be
ac?uired. +n fact& the target of a ta$eo#er often will ta$e steps to pre#ent the ac?uisition.
> Interna% -e,e%op3ent is when the organi/ation chooses to e'pand its operations by starting a
new business from the ground up.
> =esearch has shown that the choice between internal de#elopment and mergers or ac?uisitions
depends on)
-1. he new industryPs barriers to entry.
-2. he relatedness of the new business to the e'isting one.
-7. he speed and de#elopment costs associated with each approach.
-". he ris$s associated with each approach.
-K. he stage of the industry life cycle.
> Strateic partnerin is a situation when two or more organi/ations establish a legitimate
relationship -partnership. by combining their resources& distincti#e capabilities& and core
competencies for some business purpose.
> A >oint ,ent#re is when two or more separate organi/ations form a separate independent
organi/ation for strategic purposes.
> A %on1ter3 contract is a long-term legal contract between organi/ations co#ering a specific
business purpose.
> A strateic a%%iance is when two or more organi/ations share resources& capabilities& or
competencies to pursue some business purpose.
+++. LEARNING OUTCOME 6.(
DESCRI?E THE ORGANI4ATIONAL STA?ILIT0 STRATEG0
Sta)i%it! strate! is one in which an organi/ation maintains its current si/e and current le#el of
business operations.
A. When Is Sta'ility an Appropriate Strategic Choice?
1. +f the industry is in a period of rapid uphea#al with se#eral $ey industry and general
e'ternal forces drastically changing& ma$ing the future highly uncertain.
2. +f the industry is facing slow or no growth opportunities.
7. +f it has @ust completed a fren/ied period of growth and needs to ha#e some Hdown timeI for
its resources and capabilities to build up strength again.
". +f a large firm in a large industry is in the maturity stage of the industry life cycle. +n this
situation& if profits and other performance results are satisfactory and if strategic decision
ma$ers are relati#ely ris$ a#erse& they may choose to Hstay as they areI rather than pursuing
growth.
K. +f small business owners feel that their business is successful enough @ust as it is and that it
ade?uately meets their personal goals.
6. he stability strategy typically should be a short-run strategy.
:. Implementing the Sta'ility Strategy
1. 0uring stability the organi/ation does not e'pand the le#el of its operations. +t won1t put
new products on the mar$et& de#elop new programs& or add production capacity.
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2. Ergani/ational resources& capabilities& and core competencies can change during periods of
stability,they @ust don1t e'pand.
7. Ergani/ations often use the period of stability to assess operations and acti#ities& and
strengthen and reinforce those that need bolstering or re#itali/ing.
". Stability gi#es the organi/ation an opportunity to Hta$e a breatherI and to prepare itself for
the pursuit of growth and the strategic challenges associated with that particular corporate
strategy.
K. Ence an organi/ation strengthens its resources& capabilities and core competencies& it1s
ready to grow once again.
6. Stability probably should be a short-run strategy.
Learnin Re,ie&2 Learnin O#tco3e 6.(
What is a stability strategy?
> Sta)i%it! strate! is one in which the organi/ation maintains its current si/e and current le#el of
business operations.
Why might an organization choose a stability strategy?
> +ndustry is in a period of rapid uphea#al with se#eral $ey industry and general e'ternal forces
drastically changing& ma$ing the future highly uncertain.
> +ndustry is facing slow or no growth opportunities.
> Ergani/ation has @ust completed a fren/ied period of growth and needs to ha#e some Hdown timeI
for its resources and capabilities to build up strength again.
> 5arge firms in a large industry that1s in the maturity stage of the industry life cycle
> ;any small business owners may follow a stability strategy indefinitely.
#escribe ho" a stability strategy is implemented
> 3rimarily implementation in#ol#es not e'panding the le#el of the organi/ation1s operations.
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+N. LEARNING OUTCOME 6.* DESCRI?E ORGANI4ATIONAL RENE5AL STRATEGIES
Rene&a% strateies are used to re#erse organi/ational decline and put the organi/ation bac$ on a
more appropriate path to successfully achie#ing its strategic goals.
A. What 3ea)s to 1er#ormance !eclines?
he main reason behind corporate decline is poor management. Ergani/ational performance is
li$ely to suffer when inept or incompetent strategic managers don1t strategically manage all
aspects of the organi/ation.
1. Causes of corporate decline -4igure 6.K.)
a. Uncontrollable or too high costs to be competiti#e
b. (ew competitors
c. Unpredicted shifts in consumer demand
d. Slow or no response to significant e'ternal or internal changes
e. E#ere'pansion or too rapid growth
f. +nade?uate financial controls
2. +ndicators of potential performance decline -from able 6.2.)
a. %'cess number of personnel
b. Unnecessary and cumbersome administrati#e procedures
c. 4ear of conflict or ta$ing ris$
d. olerating wor$ incompetence at any le#el or in any area
e. 5ac$ of clear #ision& mission& or goals
f. +neffecti#e or poor communication within and between #arious units
:. Renewal Strategies
1. 3etrenchment
Retrenc'3ent strate! is a common short-run strategy designed to address organi/ational
wea$nesses that are leading to performance declines.
a. Usual situation in retrenchment is that the organi/ation hasn1t been able to meet it
strategic goals.
b. he strategic managers must stabili/e operations& replenish or re#itali/e organi/ational
resources and capabilities and prepare to compete once again.
2. 4urnaround
T#rnaro#n- strate! is an organi/ational renewal strategy that1s designed for situations
where the organi/ation1s performance problems are more serious.
a. Ergani/ation has to be Hturned aroundI or its #ery sur#i#al may be in @eopardy.
b. .'amples: Apple& Chrysler& Cray& 0elta Airlines& Beneral ;otors& +ntuit& <mart&
;otorola& ;itsubishi& Sears
eaching (otes)
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11
C. Implementing Renewal Strategies
1. Cost Cutting
a. he organi/ation1s strategic managers cut costs to re#itali/e the organi/ation1s
performance -retrenchment. or sa#e the organi/ation -turnaround..
b. Cost cutting can be)
-1. Across-the-board cuts -implemented in all areas of the organi/ation.
-2. Selecti#e cuts -implemented in selected areas.
c. Strategic decision ma$ers e#aluate to see if there are redundancies& inefficiencies& or
wastes in wor$ tas$s and acti#ities that could be eliminated or used more efficiently.
d. +f additional cuts are needed to $eep performance from declining further& strategic
managers may ha#e to loo$ at reducing and eliminating entire departments& units& or
di#isions.
2. 3estructuring
=estructuring operations in#ol#es refocusing on the organi/ation1s primary business-es.
through)
a. Di,est3ent is the process of selling off one or more business units to someone else
where it will continue as an ongoing business.
b. Spin1off typically in#ol#es setting up the business unit as a separate& independent
business by distributing its shares of stoc$.
c. Li;#i-ation is shutting down a business completelyD strategic action of last resort.
Strateic Manae3ent 6 T'e G%o)a% Perspecti,e2 Siemens AG an) 1eter 3oscher
Siemens1 new C%E& 3eter 5oscher& has cleaned house significantly at the world1s largest electronics and
industrial engineering company. 8e sold off business units of the firm& replaced almost the entire
e'ecuti#e team& and fired about half the middle managers.
d. Do&nsi$in is an organi/ational restructuring in which indi#iduals are laid off from
their @obs.
e. ?an:r#ptc! is the failure of a business and in#ol#es dissol#ing -Chapter F. or
reorgani/ing -Chapter 11. the business under the protection of ban$ruptcy legislation.
f. =esearch has shown organi/ational refocusing to be the most beneficial form of
restructuring an organi/ation can do. QCan impro#e stoc$holder wealth if done for
strategic purposes.
Acti,e Learnin Hint
As$ student teams to research businesses that are in decline. 8a#e the student groups search for news
stories about companies in ban$ruptcy& reorgani/ation& downsi/ing& li?uidation& failure and other terms
used in the chapter. 8a#e each team describe how an organi/ation dealt with decline. Chat actions did
the company ta$eG 8ow does the team thin$ that would help the organi/ation1s sur#i#alG
eaching (otes)
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12
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Learnin Re,ie&2 Learnin O#tco3e 6.*
#escribe the causes o$ corporate decline
> 3ossible Causes of Corporate 0ecline -from 4igure 6.K.)
- E#ere'pansion or too rapid growth
- +nade?uate financial controls
- Uncontrollable costs or too high costs
- (ew competitors
- Unpredicted shifts in consumer demand
- Slow or no response to significant e'ternal or internal changes
#escribe the t"o organizational rene"al strategies
> he retrenc'3ent strate! is a common short-run strategy designed to address organi/ational
wea$nesses that are leading to performance declines.
> he t#rnaro#n- strate! is an organi/ational renewal strategy that1s designed for situations
where the organi/ation1s performance problems are more serious.
What t"o strategic actions are used in implementing the rene"al strategies?
> he two actions are cutting costs and restructuring.
#escribe organizational restructuring actions
> A strategic action that an organi/ation ta$es to implement a retrenchment or turnaround strategy is
restructuring its operations by refocusing on its primary business-es. as it sells off& spins off&
li?uidates& reengineers& or downsi/es.
Why are most organizational rene"al strategies used in combination?
> +t1s often necessary for the organi/ation to use some combination of these renewal strategies as it
struggles to regain or de#elop a sustainable competiti#e ad#antage. ;ost organi/ations faced with
the need to retrench or to do some serious restructuring -needed for a turnaround. will loo$ at a
coordinated long-run program of strategic actions.
N. LEARNING OUTCOME 6.+ DISCUSS HO5 CORPORATE STRATEG0 IS E7ALUATED
AND CHANGED.
%NA5UA+(B A(0 C8A(B+(B CE=3E=A% S=A%BM
A. 2-al%ating Corporate Strategies
Cithout e#aluation& strategic managers wouldn1t ha#e a clue about whether the implemented
strategies,at any le#el of the organi/ation,were wor$ing. =eflects the interactions and
interdependence among the #arious strategies.
1. Corporate 5oals -from 4igure 6.6.) hese ob@ecti#es become the standards against which
actual performance is measured.
a. ;a'imi/ing stoc$holder wealth
b. +ncreasing mar$et share
c. Strong global presence
d. +ncreasing producti#ity
e. 3ositi#e reputation-image
f. Strong customer satisfaction
g. 8igh product ?uality
h. +ncreasing re#enues
i. +ncreasing earnings
17
T'e Gre! 4one ,5a%1Mart
3ublic display is good for e#aluating whether the organi/ation is doing an acceptable thing& not
necessarily an effecti#e thing. Ergani/ations can decide what they choose to sell and consumers can
decide where to buy. +f customers are offended& the company1s will lose their customers. =efusing to sell
contro#ersial products is a good strategy if the products will offend or hurt people. A company can also
ma$e them a#ailable but restricted from easy #iew so that customers who are offended $now the
company is trying to minimi/e the damage done by these products and the company pro#ides the
products for those customers who truly want the products.
2. .$$iciency0 .$$ecti(eness and %roducti(ity Measures
a. Efficienc! is an organi/ation1s ability to minimi/e resource use in achie#ing
organi/ational ob@ecti#es.
b. Effecti,eness is an organi/ation1s ability to reach its goals.
c. Pro-#cti,it! is a specific measure of how many inputs it too$ to produce outputD
typically used in the production-operations area. ;easured by ta$ing the o#erall output
of goods and ser#ices produced& di#ided by the inputs needed to generate that output.
7. Benchmar&ing
?enc'3ar:in is the search for the best practices inside or outside an organi/ation.
:enchmar$ing is from other leading organi/ations -competitors or noncompetitors. that are
belie#ed to ha#e contributed to their superior performance.
". %ort$olio 1nalysis
Analysis is done with two-dimensional matrices that summari/e internal and e'ternal
factors. he three main ones are)
a. /CG Matri4 -also $nown as the growth-share matri'. is a simple& four-cell matri'
created by the :oston Consulting Broup as a way to determine whether a business unit
was a cash producer or user.
-1. 6-a'is is a measure of the business unit1s relati#e mar$et share& that is& relati#e to
the mar$et leader. ;ar$et share is a pro'y for the business unit1s internal strengths
and wea$nesses.
-2. =elati#e mar$et share is defined as the ratio of a business unit1s mar$et share
compared to the mar$et share held by the largest ri#al in the industry.
-7. 7-a'is is a measure of the industry growth rate -industry growth rate is a pro'y for
the e'ternal opportunities and threats facing the business unit..
-". Circles represent an organi/ation1s #arious business units. he si/e of the circle
corresponds to the si/e of the business unit& using some measure such as business
unit proportion of total corporate re#enues.
-K. Classification of business units)
(a) #og
(1) Lo& relati#e mar$et share and %o& industry growth rate.
(2) Effers few growth prospects and may re?uire significant in#estments @ust to
maintain its position.
(3) Strategy recommendation is to e'it industry by di#esting or li?uidating.
(4) !ar(esting: +f the business unit is profitable gradually letting the business
unit decline in a controlled and calculated fashion& using e'cess cash flows
to support other& more desirable business units.
(b) 8uestion Mar&
(1) Lo& relati#e mar$et share and 'i' industry growth rate.
(2) 5ow in competiti#e strengths& but in an industry where there1s a lot of
potential.
(3) =ecommendation for a business unit e#aluated as a ?uestion mar$ is that
those with the wea$est or most uncertain long-term potential should be
di#ested.
1"
(c) Star
(1) Hi' relati#e mar$et share and 'i' industry growth rate.
(2) he leading business units in an organi/ation1s portfolio.
(3) ;ay ta$e significant cash resources to maintain mar$et leadership position
or little cash if in an industry where competiti#e ri#alry isn1t high.
(4) Strategic recommendation is to maintain its strong positions while ta$ing
ad#antage of the significant growth opportunities in the industry.
(d) Cash Co"
(1) Hi' relati#e mar$et share but %o& industry growth rate.
(2) Cash flows generated from cash cows should be used to support ?uestion
mar$s with potential and to support stars.
-6. he simplicity of the :CB matri' is both its biggest ad#antage and its biggest
drawbac$.
b. Mc$insey5G2 Stoplight Matri4 is a nine-cell matri' that pro#ides a more
comprehensi#e analysis of a business unit1s internal and e'ternal factors and was
de#eloped by ;c<insey and Company for Beneral %lectric -4igure 6.F..
-1. 6-a'is is defined as business strength-competiti#e position.
-2. Analysis includes the internal resources and capabilities that are belie#ed by
strategic managers to be important for success in this business.
-7. he e#aluation scale in this analysis ranges from 1 -#ery wea$. to K -#ery strong..
-". 7-a'is is defined as industry attracti#eness& which pro#ides a much broader analysis
than the :CB1s industry growth rate. +ndustry attracti#eness might include such
factors as a#erage industry profitability& number of competitors& ethical standards&
technological stability of the mar$et& mar$et growth rate& etc.
-K. he measurement scale ranges from 1 -#ery unattracti#e. to K -#ery attracti#e. to
e#aluate the industry a business unit is in.
-6. Circles represent an organi/ation1s #arious business units. he si/e of the circle
corresponds to the relati#e si/e of the industry. he shaded wedge corresponds to
the mar$et share held by the organi/ation1s business unit.
-F. %#aluation of the cells in the matri')
(a) -=ed R Stop. he three cells in the lower right-hand corner are losers -wea$
competiti#e position-low industry attracti#enessD wea$ competiti#e position-
medium industry attracti#enessD and a#erage competiti#e position-low industry
attracti#eness..
(b) -Breen R Bo. he three cells in the upper left-hand corner are "inners -strong
competiti#e position-high industry attracti#enessD strong competiti#e position-
medium industry attracti#enessD and a#erage competiti#e position-high industry
attracti#eness..
(c) -Mellow R Caution. he three cells along the diagonal in the matri' are2
(1) ?uestion mar$s -wea$ competiti#e position-high industry attracti#eness.
(2) a#erage businesses -a#erage competiti#e position-medium industry
attracti#eness.
(3) profit producers -strong competiti#e position-low industry attracti#eness..
-O. he ;c<insey matri' o#ercame the problem of simplistic analysis that plagued the
:CB matri' tool.
-9. 0rawbac$s
(a) +ts main drawbac$ is the sub@ecti#ity of the analysis.
(b) 3erformance analysis is static -also shared by the :CB matri'..
c. 1ro)%ct5Mar&et 2-ol%tion Matri4 is a 1K-cell matri' and was de#eloped by C.C.
8ofer.
-1. 7-a'is is product life cycle.
-2. 6-a'is -internal analysis of the business unit. is the competiti#e position.
1K
-7. Circles represent an organi/ation1s #arious business units.
(a) he circle si/e corresponds to the relati#e si/e of the industry.
(b) he shaded wedge corresponds to the mar$et share of that business unit.
(c) :usiness units are placed on the matri' according to their indi#idual e#aluation
on competiti#e position and stage in the product life cycle.
-". Ence all business units are plotted on the matri'& strategic managers ha#e an
indicator of the range of business units in #arious stages of the product life cycle.
-K. 0rawbac$s
(a) 8ofer1s product-mar$et e#olution matri' suffers from the same sub@ecti#ity
biases that the ;c<insey matri' does.
(b) +n addition& there are many products that don1t fit nicely and neatly into the
industry life cycle& so this particular e#aluation tool also has drawbac$s that
limit its usefulness.
d. As an e#aluation tool& the portfolio matrices
-1. 3ro#ide a way to assess the performance of the organi/ation1s business units
-2. Should be used with caution or at least in con@unction with other strategy e#aluation
measures
:. Changing Corporate Strategies
1. Changes are needed if the e#aluation shows that the corporate strategies aren1t ha#ing these
intended results)
a. Browth ob@ecti#es aren1t being attained.
b. Ergani/ational stability is causing the organi/ation to fall behind.
c. Ergani/ational renewal efforts aren1t wor$ing.
2. 3ossible strategies to change)
a. 4unctional
b. Competiti#e
c. Corporate direction
-1. %'ample) ;icrosoft
eaching (otes)
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Learnin Re,ie&2 Learnin O#tco3e 6.+
Why is it important to e(aluate corporate strategies?
> %#aluation is an important part of the entire strategic management process. Cithout e#aluation&
strategic managers wouldn1t ha#e a clue as to whether or not the implemented strategies,at any
le#el of the organi/ation,were wor$ing.
What are the $our "ays to e(aluate corporate strategies?
> he four main e#aluation techni?ues are) -1. corporate ob@ecti#esD -2. efficiency& effecti#eness&
and producti#ity measuresD -7. benchmar$ingD and -". portfolio analysis.
#escribe each o$ the port$olio analysis matrices including ho" it/s used0 the cells in the matri' and
its ad(antages and dra"bac&s
16
> ?CG 8ro&t'1s'are9 3atri@ is a four-cell matri' created as a way to determine whether a
business unit was a cash producer or a cash user. he simplicity of the :CB matri' is both its
biggest ad#antage and its biggest drawbac$.
> McAinse!1GE stop%i't 3atri@ is a nine-cell matri' that pro#ides a more comprehensi#e
analysis of a business unit1s internal and e'ternal factors. he ;c<insey matri' o#ercame the
problem of simplistic analysis that plagued the :CB matri' tool. 8owe#er& its main drawbac$ is
the sub@ecti#ity of the analysis.
> Pro-#ct1Mar:et e,o%#tion 3atri@ is a 1K-cell matri' that is based on the product life cycle. he
product-mar$et e#olution matri' suffers from the same sub@ecti#ity biases that the ;c<insey
matri' does. +n addition& there are many products that don1t fit nicely and neatly into the industry
life cycle& so this particular e#aluation tool also has drawbac$s that limit its usefulness.
Why might an organization/s corporate strategy need to be changed?
> +f the e#aluation shows that the corporate strategies aren1t ha#ing the intended results,growth
ob@ecti#es aren1t being attained& organi/ational stability is instead causing the organi/ation to fall
behind& or if organi/ational renewal efforts aren1t wor$ing,then some changes are needed.
!o" might an organization/s corporate strategy be changed?
> Strategic managers might loo$ at changing the functional and competiti#e strategies that ha#e
been implemented. Er they might decide that more drastic action is needed and the corporate
direction should be changed. +f so& changes might also be necessary in the way the corporate
strategy is being implemented.
1F
BUESTIONSC
"62 /O""OM 3I,2
Learnin O#tco3e 6.12 E@p%ain corporate strate!.
Corporate strategy is a strategy that1s concerned with the choices of what business-es.
to be in and what to do with those businesses. Ene thing we need to $now is whether
the organi/ation is a single-business organization -in primarily one industry. or a
multiple-business organization -in more than one industry..
he corporate strategy establishes the o#erall direction the organi/ation hopes to go
while the other organi/ational strategies -functional and competiti#e. pro#ide the means
for getting there. %ach type of strategy is important to whether the organi/ation does
what it1s in business to do and whether it achie#es its goals.
he three corporate strategic directions include mo#ing an organi/ation forward
-growth strategy.& $eeping an organi/ation where it is -stability strategy.& and re#ersing
an organi/ation1s decline -renewal strategy..
Learnin O#tco3e 6."2 Disc#ss orani$ationa% ro&t' strateies.
A gro"th strategy is one that e'pands the products offered or mar$ets ser#ed by an
organi/ation or e'pands its acti#ities or operations either through current business-es. or
through new business-es.. here are fi#e different ways for an organi/ation to grow.
Concentration is a growth strategy in which an organi/ation concentrates on its primary
line of business and loo$s for ways to meet its growth goals by e'panding its core
business. hree concentration options include) -1. productSmar$et e'ploitation& which
is selling more current products to current mar$etsD -2. product de#elopment& which is
selling new products to current mar$etsD and -7. mar$et de#elopment& which is selling
current products to new mar$ets. he ad#antage of concentration is that this is the
organi/ation1s primary business and it $nows it well. he main drawbac$ is the
#ulnerability to industry and other e'ternal changes.
he (ertical integration strategy is one in which an organi/ation grows by gaining
control of its inputs -bac$ward.& its outputs -forward.& or both. he benefits of #ertical
integration seem to slightly outweigh the costs.
!orizontal integration is a strategy in which an organi/ation grows by combining
operations with competitors. +t can be a good growth strategy as long as it enables the
company to meet its growth goals& it can be strategically managed& and it satisfies legal
and regulatory guidelines.
he di(ersi$ication strategy is a strategy in which an organi/ation grows by mo#ing into
a different industry. 3elated +concentric- di(ersi$ication is di#ersifying into a different
industry that1s related in some way to the organi/ation1s current business. Unrelated
+conglomerate- di(ersi$ication is di#ersifying into a completely different industry not
related to the organi/ation1s current business.
he final type of growth strategy is international in which an organi/ation grows by
ta$ing ad#antage of potential opportunities in global mar$ets or protecting its core
operations from global competitors.
he growth strategies can be implemented in three ways) -1. merger -legal transaction
in which two or more organi/ations combine operations through an e'change of stoc$
and create a third entity. or ac2uisition -outright purchase of an organi/ation by anotherD
if the organi/ation being ac?uired doesn1t want to be ac?uired& it1s referred to as a
hostile ta&eo(er.D -2. internal de(elopment -organi/ation grows by creating and
1O
de#eloping new business acti#ities itself.D and -7. strategic partnering -where two or
more organi/ations establish a legitimate relationship S partnership S by combining
their resources& distincti#e capabilities& and core competencies for some business
purpose.. ypes of strategic partnerships include) 9oint (enture -two or more
organi/ations form a separate independent organi/ation for business purposes.& long-
term contract -a legal contract between organi/ations co#ering a specific business
purpose.& or strategic alliance -two or more organi/ations share resources& capabilities&
or competencies to pursue some business purpose but no separate entity is formed..
Learnin O#tco3e 6.(2 Descri)e t'e orani$ationa% sta)i%it! strate!.
A stability strategy is one in which an organi/ation maintains its current si/e and
acti#ities. +n most instances& it should be a short-run strategy.
imes when the stability strategy is appropriate include) industry is in period of rapid
change& industry is facing slow or no growth opportunities& organi/ation has @ust
e'perienced rapid growth& organi/ation is large and in an industry that1s in the maturity
stage of industry life cycle& or organi/ation is a small business whose owners are
satisfied with staying as is.
Stability strategy is implemented by not growing& but also by not allowing organi/ation
to decline.
Learnin O#tco3e 6.*2 Descri)e orani$ationa% rene&a% strateies.
3ene"al strategies are used when an organi/ation1s situation is declining and strategic
managers want to re#erse the decline and put the organi/ation bac$ on a more
appropriate path to achie#ing its goals.
he main cause of performance declines can be traced to poor management although
things li$e inade?uate financial controls& uncontrollable or too high costs& new
competitors& unpredicted shifts in consumer demand& slow or no response to significant
e'ternal or internal changes& and o#ere'pansion or too rapid growth also contribute.
here are two main renewal strategies) -1. retrenchment -a short-run strategy designed
to address organi/ational wea$nesses that are leading to performance declines. and -2.
turnaround -a strategy that1s designed for situations in which organi/ation1s
performance problems are more serious..
hese renewal strategies are implemented by cutting costs and restructuring. he
amount and e'tent of these are determined by whether it1s a retrenchment or turnaround.
=estructuring actions include) -1. di(estment -selling a business to another organi/ation
where it will continue as an ongoing business.& -2. spin:o$$ -setting up a business unit as
a separate business by distributing its shares of stoc$.& -7. li2uidation -shutting down a
business completely.& -". do"nsizing -indi#iduals are laid off from their @obs.& and -K.
ban&ruptcy -failure of a business in which it1s dissol#ed or reorgani/ed under the
protection of ban$ruptcy legislation.
Learnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-.
here are four main techni?ues for e#aluating corporate strategy) -1. corporate goals
-were organi/ation1s goals achie#edG.D -2. measuring e$$iciency -organi/ation1s ability to
minimi/e resource use in achie#ing goals.& e$$ecti(eness -organi/ation1s ability to reach
its goals.& and producti(ity -specific measure of how many inputs it too$ to produce
outputs.D -7. benchmar&ing -search for best practices inside or outside an organi/ation.D
and -". portfolio analysis& which is used to assess an organi/ation1s portfolio of
businesses.
hree main portfolio analysis techni?ues include the :CB matri'& the ;c<insey-B%
stoplight matri'& and the product-mar$et e#olution matri'.
19
+f the e#aluation of corporate strategy shows it1s not wor$ing& strategic managers might
first change the functional and competiti#e strategies or they might ta$e more drastic
action and change the corporate direction.
S#estions for #sin 0OU as Strateic Decision Ma:er2 ?#i%-in 0o#r S:i%%s e@ercises
1. ypically in Lanuary or 4ebruary of each year& news articles will appear in ,ortune maga/ine that
identify and discuss the pre#ious year1s corporate mergers and ac?uisitions. Mou may wish to re#iew
the a#ailability of this or other resources on the sub@ect before assigning this ?uestion to your
students. DLearnin O#tco3e 6."2 Disc#ss orani$ationa% ro&t' strateiesE Co#rse
Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entationE AACS?2
Ref%ecti,e t'in:in s:i%%sF
". his is an e'cellent opportunity to introduce students to some of the a#ailable online research
sources a#ailable for in#estor& industry and corporate research. he U.S. go#ernment is also a source
-www.sec.go#& www.ftc.go#& and www.dol.go#& etc...
- Mou may wish to gi#e your students an additional e'ercise by ha#ing them locate other sources of
business research information on the +nternet. DLearnin O#tco3e 6."2 Disc#ss
orani$ationa% ro&t' strateiesE Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices
for strate! i3p%e3entationE AACS?2 Use of infor3ation tec'no%o!G Ref%ecti,e
t'in:in s:i%%sF
(. =apid compounding growth is often e'perienced in the early stages of growth for many companies.
his is an e'cellent opportunity to re#iew the Hcorporate life cycle.I DLearnin O#tco3e 6."2
Disc#ss orani$ationa% ro&t' strateiesE Co#rse Le,e% O)>ecti,es2 Disc#ss )est
practices for strate! i3p%e3entationE AACS?2 Ref%ecti,e t'in:in s:i%%sF
*. his e'ercise would best be assigned to a group. Additionally& you may ha#e your students present
both sides of this issue in an in-class debate. DLearnin O#tco3e 6.12 Define corporate
strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!
i3p%e3entationE AACS?2 Ref%ecti,e t'in:in s:i%%sF
+. his is a good topic for class discussion before introducing Hta$eo#erI acti#ities. DLearnin
O#tco3e 6.12 Define corporate strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss )est
6. his could be tac$led by groups of students as in-class e'ercise. DLearnin O#tco3e 6."2
Disc#ss orani$ationa% ro&t' strateiesE Co#rse Le,e% O)>ecti,es2 Disc#ss )est
H. 4in$elstein1s boo$ itself may be an interesting pro@ect. +t may be interesting to compare this to
Hgroupthin$.I Mou may want to brainstorm with the class to create a list of Hbad decisionsI and
allow the students or groups to select from the list. %'amples) he introduction of (ew Co$e&
9ua$er1s ac?uisition of Snapple& %nron1s decision to use ?uestionable accounting practices& ;artha
Stewart1s decision to try to alter records& 0an =ather1sAC:S1 decision to release the falsified
(ational Buard memos. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is
e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!
20
Strateic Manae3ent in Action Cases
Case I1 Gro&in Up
1. Under Armour is a single-business organi/ation that is utili/ing two growth strategies. 4irst&
there is a concentration strategy -in that the company remains true to the shirts that originally
built the brand.. Second& Under Armour is utili/ing a related di#ersification strategy -through
the addition of new product lines li$e shoes& women1s apparel& and so on.. DLearnin
O#tco3e 6.12 Define corporate strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss )est
2. he primary challenge for Under Armour is $eeping up with not only the technology of the
apparel that is sold& but fashion as well. ;onitoring trends is $ey for the company1s success. +n
addition& the firm must be careful not to spread itself too thin across a #ariety of product
categories as this could affect o#erall corporate performance. DLearnin O#tco3e 6.12
Define corporate strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for
strate! i3p%e3entationE AACS?2 Ref%ecti,e t'in:in s:i%%sF
7. Students may interpret the firm1s mission statement in a wide #ariety of ways. DLearnin
O#tco3e 6.12 Define corporate strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss t'e
f#nctions of ,ision state3entsG 3ission state3entsG an- %on1ter3 corporate
o)>ecti,esE AACS?2 Ref%ecti,e t'in:in s:i%%sF
". he company may choose to use as an e#aluation measure the corporate goals. %#aluating
success in achie#ing targets and results would be an indicator of effecti#eness. +n addition&
Under Armour can certainly e'amine efficiency& effecti#eness& and producti#ity. hese
measures will help ascertain success as well. DLearnin O#tco3e 6.+2 Disc#ss 'o&
corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss
)est practices for strate! i3p%e3entationE AACS?2 Ref%ecti,e t'in:in s:i%%sF
K. See Under Armour1s website for the latest information. DLearnin O#tco3e 6.+2 Disc#ss
'o& corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2
Disc#ss )est practices for strate! i3p%e3entationE AACS?2 Use of infor3ation
tec'no%o!G Ref%ecti,e t'in:in s:i%%sF
Case I" Ti3e for ?rea-
1. Corporate plays a role in determining ?ualifications for franchisees& de#eloping site criteria for
restaurant locations& setting uniform recipes and menus and national ad#ertising campaigns.
Competiti#e strategies would include $eeping food and image upscale and #aried to $eep customers
interested. 4unctional strategies might include hiring practices in local mar$ets& ad#ertising and
sponsorship publicity in local mar$ets. DLearnin O#tco3e 6.12 Define corporate strate!E
Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entationE AACS?2
". Shaich1s team should trac$ some specific indicators such as how fast new stores are coming on line&
how the sales per store is changing as more stores are created and how much brand recognition there
is among consumers and if that recognition translates into customers #isits. DLearnin O#tco3e
6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e%
O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entationE AACS?2 Ref%ecti,e
t'in:in s:i%%sF
21
(. :eing on #arious lists is positi#e for a company in that it fosters a strong sense of accomplishment
for those wor$ing for the firm. +t also signifies that from a strategic management standpoint&
inclusion on these lists is important. Chen it comes to rapid growth& a company must be cogni/ant
of the ?uality of its offerings. 3anera wants to a#oid becoming complacent with their ser#ice&
offerings& and e#en the ambiance of the stores. +n addition& too rapid of growth might result in
?uality controls losing importance -such as happened with <rispy <reme in the late 1990s and early
2000s.. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an-
c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!
*. 4ranchisees may become less interested& may be less ?ualified to own a restaurant. Site selection
may suffer as fewer good sites are a#ailable. 5ow #olume of sales in new restaurants. 8ealth
#iolations and customer complaints if operations are not running smoothly. 0ifficulty in hiring
managers and $ey employees if brand image is shifting or if restaurant is not seen as an attracti#e
opportunity.
A $ey ad#antage is to be able to mo#e fast using other people1s capital. Eften get owners who
understand how to reach local mar$ets and ha#e relationships with suppliers. En the other hand&
franchisees can be politically acti#e and may oppose management initiati#es& a bad owner can hurt
the entire brand by poor management of a single franchise -discrimination in ser#ice or hiring for
e'ample.. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an-
c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!
+. Starbuc$s and other coffee chains o#er local diners or cafes& 8aagen-0a/s and Cold Stone premium
ice creams o#er 0airy 9ueen and other chains. Bodi#a chocolates o#er 8ershey1s. 4lat screenAwide
screen home theaters o#er tele#isions. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate
strate! is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices
for strate! i3p%e3entationE AACS?2 Ref%ecti,e t'in:in s:i%%sF
Case I( Spee- ?#3p
1. 4inding new mar$ets without alienating his loyal base of customers. :rian 4rance should try to re-
pac$age the sport to appeal to new fans but $eep the basic product intact. DLearnin O#tco3e
6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e%
O)>ecti,es2 Disc#ss )est practices for strate! i3p%e3entationE AACS?2 Ref%ecti,e
t'in:in s:i%%sF
". At the corporate le#el& (ASCA= needs to decide on its message or image& the number of #enues
-does it want multiple regional circuits& a single national circuit& independent e#ents. and national
sponsorships. At the competiti#e le#el& strategies surrounding the schedule of when races will occur
ta$ing into account other sporting e#ents and traditions in #arious trac$s. At the functional le#el&
they need to consider local promotions to compete with local e#ents each year. Also& tic$et pricing
decisions and the need for local tele#isionAnewspaper promotion will be at the functional le#el.
DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-E
(. <eep in mind their needs and focus on deli#ering what each group #alues without offending other
groups. Ad#ertisers want #iewers and fans& the dri#ers want safety and great races with big pri/es
and prestige& customers want to see good competition& to meet their heroes& to see the cars and to be
able to buy merchandise. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is
22
*. Ene e'ample& a product-mar$et e#olution matri' will help them see how the different products
relate to their counterparts and to determine which may be in need of renewal or change.
DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-E
Case I* C'anin t'e Men#
1. <raft competiti#e strategies included in the case continually de#eloping new products& di#ersifying
the business& ac?uisition by 3hilip ;orris Corporation& merger with Beneral 4oods& discontinuing
almost 700 food items& <raft went public and sold se#eral business di#isions& sold brands that didn1t
fit into its portfolio& reducing the fat and sugar content and portion si/es of its products& and finally
<raft being spun-off as a complete spin-off. DLearnin O#tco3e 6.12 Define corporate
strate!E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for strate!
". C%E =osenfeld1s strategic challenges include crafting a corporate direction for the company that
e'plicates its competiti#e ad#antage in light of the changes ta$ing place in the food industry such
that <raft le#erages its assets to accelerate its growth.
C%E =osenfeld has to deal with strategic challenges including decreased product ?uality& eroding
the strength of some brands and causing the company to lose mar$et share. Additionally& wor$ers
were afraid to spea$ up when they saw problems. DLearnin O#tco3e 6.+2 Disc#ss 'o&
corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est
(. An organi/ation1s corporate strategy is used to guide the organi/ation in a certain direction long-
term. An organi/ation1s functional strategy pro#ides the means for ma$ing sure that direction is
followed and ensuring that significant progress is made toward achie#ing its corporate strategy.
herefore& if an organi/ation fre?uently changes its corporate strategies& it1s li$ely that its day-to-
day operations will suffer. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate! is
*. <raft might use the following corporate strategy e#aluation measures) -1. corporate goals& -2.
efficiency& effecti#eness and producti#ity measures& -7. benchmar$ing and -". portfolio analysis.
Corporate goals indicate the desired end results or targets that strategic managers ha#e established.
he corporate goals become the standards against which actual performance is measured.
.$$iciency is an organi/ation1s ability to minimi/e resource use in achie#ing organi/ational goals.
.$$ecti(eness is an organi/ation1s ability to reach its goals. %roducti(ity is a specific measure of how
many inputs it too$ to produce outputs and is typically used in the production-operations area. Since
total organi/ational performance is a result of the interaction of a #ast array of wor$ acti#ities at
many different le#els and in different areas of the organi/ation& these three measures are appropriate
assessments of how well the organi/ation wor$s and how well it1s doing at going in the desired
corporate direction -growth& stability& or renewal..
Benchmar&ing is the search for best practices inside and outside an organi/ation. Using the
benchmar$s& strategic managers can e#aluate whether the organi/ation is being strategically
managed as a world-class organi/ation and where impro#ements are needed.
27
%ort$olio analysis includes two-dimensional matrices that summari/e internal and e'ternal factors
consisting of) -1. :CB matri'& -2. ;c<insey-B% stoplight matri'& and -7. product-mar$et
e#olution matri'. +f the portfolio e#aluation indices indicate that performance results aren1t as
strategic managers had hoped& then strategic changes are in order. DLearnin O#tco3e 6.+2
Disc#ss 'o& corporate strate! is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2
Disc#ss )est practices for strate! i3p%e3entationE AACS?2 Ref%ecti,e t'in:in
s:i%%sF
+. 8a#e student groups #isit <raft 4oods Ceb site Twww.$raft.comU to update re#enues& profits and
strategic initiati#es information. DLearnin O#tco3e 6.+2 Disc#ss 'o& corporate strate!
is e,a%#ate- an- c'ane-E Co#rse Le,e% O)>ecti,es2 Disc#ss )est practices for
strate! i3p%e3entationE AACS?2 Use of infor3ation tec'no%o!G Ref%ecti,e t'in:in
s:i%%sF
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Chapter 6 Corporate Strategies

CHAPTER 6 CORPORATE STRATEGIES

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