CORPORATE STRATEGY

The Only Way To Predict The Future Is to Invent it! J. Scully, Apple Computer

Levels of Strategies
Corporate Level Strategy: Mission, Vision, Integration, Expansion, Stakeholders Relationships

Business Level Strategy / Competitive: Strategic Business Units (SBUs), Functional Level Strategy: HRM strategy, Marketing Strategy, Production Strategy.

Corporate Strategy
All the moves that take place in order to achieve a competitive advantage through the selection and management of a business procedures mix, that may deal with various sectors or markets Hitt, Ireland & Hoskisson Three Major Types of Corporate Strategies: -Stability Strategies -Growth Strategies -Turnaround/Retrenchment Strategies

Stability Corporate Strategies

No-Change Strategy. No interest in strategic repositioning Profit Strategy. Sacrificing future development to immediate profit Pause Strategy. After M&A, increase inner control & systems, short-term, the goal is to achieve stability Caution Strategy. Careful steps due to turbulence in the macro-environment so as to gain insight & better info for the direction that should follow

Growth Corporate Strategies

Vertical Integration Horizontal Integration Diversification Related Diversification Unrelated Diversification Market Penetration Market Development Product Development

Turnaround Corporate Strategies

Joint Ventures (not always a turnaround strategy) Retrenchment (e.g. bankruptcy) Divesture Liquidation

Rectification Downsizing Stabilization Rebuilding

Captivity

Growth Corporate Strategies

How can you make God laugh?
Tell him your Plans! Woody Allen

Growth Strategies
Vertical Integration

Backward Integration: the firm takes ownership and control of producing its own inputs e.g. Henry Fords upstream expansion from automobile assembly to the production of his own components, back to the production of basic materials including steel and rubber. or Forward Integration: where the firm takes ownership and control of its own customers e.g. Coca-Cola acquiring its local bottlers. Full Integration: between two stages of production when all of the 1st stages production is transferred to the 2nd stage with no sales or purchases from 3rd parties. or Partial Integration: when stages of production are not internally selfsufficient.

Vertical Integration
Examples of Vertical Integration
Long-term

Contracts/Strategic Alliances (e.g. Nissan, Toyota JIT)

Short

Term Contracts (1 year, not a lot of investments, e.g. GM)

Partnerships Relational Contracts

Vendor

Value Adding

Partnerships many firms cooperating a value

chain
Franchising

Vertical Integration
Reasons/advantages for Integrating Vertically:
Strengthen

the competitive position of firms major business

Quality

protection e.g. McDonalds or Kodak

Expensive distributors/suppliers in specialized resources e.g. technological innovation

Investment Building Stability

high barriers to entry e.g. control of raw material flow of production economies of scale

Vertical Integration
Disadvantages: Cost possible competitive disadvantage - e.g. by company-owned suppliers that operate under high operational cost Failure to achieve synergies differences in culture, strategy, bureaucracy, personal interests.

Locks the firm deeper into the industry problem in case of a negative movement of the demand
Less flexibility Difficulty in changing suppliers or embracing and implement an innovation. Unless operating across more stages in the industrys value chain builds competitive advantage, it is a questionable strategic move.

Horizontal Integration
Development of a firm through acquisitions or creation of competitive companies at the same level of production Example of horizontal integration: Alpha Bank Ioniki Bank Reasons for integrating horizontally: Create competitiveness Monopolize a certain market Economies of scale in the production Acquire competitors that deal with financial problems and turn around the situation Possible Problems (more or less same as in the case of vert. integr): Locks the firm deeper into the industry Weak synergy effect or even not at all High Costs Legislation Problems

Diversification
And NOT Differentiation! Differentiation refers to competitive strategy whereas here we discuss corporate strategy, so:
Concentric

or Related Diversification

When the businesses that the firm deals with are connected e.g. offers products that have similarities in their technology, methods of production or the methods of promotion Examples in Hellas: Pouliadis, Altec, Intracom
Unrelated

or Conglomerate Diversification

When the businesses of the firm are connected with each other Global Example of Huyndai Corporation: Cars, Electronics, Telecommunications, Petrochemics, Ship Constructing & Constructions, Metals & Iron, Financial Services, Medical Machinery

When Does Diversification Start to Make Sense?

Strong competitive position, rapid market growth -- Not a good time to diversify
Strong competitive position, slow market growth -- Diversification is top priority consideration

Weak competitive position, rapid market growth -- Not a good time to diversify
Weak competitive position, slow market growth -- Diversification merits consideration

When to Diversify?

Diminishing growth prospects in present business

Opportunities to add value for customers or gain competitive advantage by broadening present business to include complementary products Attractive opportunities to transfer existing competencies to new businesses
Potential cost-saving opportunities to be realized by entering related businesses Availability of adequate financial and organizational resources

Why Diversify?
To build shareholder value
1+1=3

Diversification is capable of increasing shareholder value if it passes three tests

1. Industry Attractiveness Test 2. Cost of Entry Test
3. Better-Off Test

(is there a profit of a competitive advantage?)

Strategy Alternatives for a Company Looking to Diversify

Diversify into Related Businesses
Build shareholder value by capturing crossbusiness strategic fits - Transfer skills and capabilities from one business to another - Share facilities or resources to reduce costs - Leverage use of a common brand name - Combine resources to create new competitive strengths and capabilities

Strategy Options for a Company Looking to Diversify

Diversify into Unrelated Businesses

Spread risks across diverse businesses Build shareholder value by doing a superior job of choosing businesses to diversify into and of managing the whole collection of businesses in the companys portfolio

Diversify into Both Related and Unrelated Businesses

More specifically Related Diversification...

Should be used in the next cases:
1.

Acquiring Information e.g. about new technological advances, competition, trends in the market Cost reduction e.g. the complete production of steel reduces the cost re-heating & transportation Possible Profits Spread of the Danger e.g. by been locked in the market with 1 product or seasonality or the sales High level of resources usage Increased power in the market Empire Building Motivation of Top Management

2.

3. 4.

5. 6. 7. 8.

More specifically Unrelated Diversification

Should be used in the next cases:
1. 2.

Need of investment of surplus capital Firm is competing in an industry of negative development & profits Spread of Danger Surplus Resources & Management in the firm to compete in another industry A great opportunity to acquire an unrelated business Financial synergies between the two firms Monopolistic legislation forbids related expansion Aspirations of Top Management and Motivation

3. 4.

5. 6. 7. 8.

Identifying a Diversified Companys Strategy

Narrow or broad-based diversification Approach to allocating investment capital and resources Efforts to capture cross-business strategic fits Is diversification related, unrelated or a mix?

Corporate Strategy

Scope of geographic operations

Moves to divest weak business units

Moves to build positions in new industries

Moves to add new businesses

Diversification Decision
Should take into consideration: The bureaucratic cost The limits of diversification The number of businesses The coordination of business control The calculation of profit margin in order to effectively manage resources. Empirical Research has shown that:

Related Diversification leads to greater profit usually, Whereas Unrelated Diversification leads to greater development
New trends: Business Venture e.g. Titans Cooperation with Lafarge in Egypt (Devolvement &) Refocusing of businesses/conglomerates

Diversity & Performance

Growth Corporate Strategies

All the above strategies silently assume development of the company both in new products and/or in new markets. However there also other choices:
Same Product Same Markets New Markets New Product

Market Penetration Market Development

Product Development Diversification

Market Penetration
Investment of Resources in the most profitable product, market a technology. The Goals in this situation are:
Increase

or

of product usage by the present customers e.g. reduce the rate of product disposal period (toothbrush), advertise new uses of the product (Johnson & Johnson baby shampoo), incentives to customer to buy more units. the competitors customers e.g. repositioning, promotion efforts, lower prices of non users e.g. test trial through samples

Attract

Attract

It is recommended when: the present markets are not saturated, theres space for usage increase by the present customers, the market shares are decreasing but the market increases, economies of scales, the industry is not dependent upon technological innovations, there are barriers to entry.

Market

Development

The company is trying to promote the present products to new markets

It can be done by: Expansion to a new geographical area, locally or globally Attracting customers by other market segments (e.g. industrial customers) Entering new distribution channels The particular strategy is recommended when: There are new, not expensive but reliable distribution channels

There are unexploited or not saturated markets

Sometimes firms have to follow this strategy due to surplus production capacity that has to be channeled somewhere else.

Product

Development

New products are developed in present markets or significant reengineering is being done to the same products.

The firm has three options here: Develops new features of the products e.g. shape, color, increases the product in general tries to add value Develops new types of the product in terms of quality Develops new products, sizes and models product proliferation
The particular strategy is recommended when the company has successful products that are in the maturity stage.

Turnaround / Retrenchment Corporate Strategies

Think of a mouses wisdom. It never trusts its life to only one exit from its nest.

Plato

Sometimes Things go wrong

Bad adoption to the environment
Lack of Inner Control Too much risk taking, unnecessarily in certain occasions Uncontrollable factors such as governmental policies, technological advances, natural disasters. A combination of the above! A very popular strategy in such situations is Rectification that takes place in three stages: Downsizing Stabilization Rebuilding

Rectification
Reduced Resources Bad Moral of the Workers Suspicious Stakeholders - and Lack of Time are the elements that discriminate Rectification from the other strategies! Downsizing: the goal here is survival retrenchment of costs liquidation of non productive resources even human ones new top executives stop cooperation with marginal customers and marginal products stop operating in distribution channels on low profit
Examples: two towers = 300.000 people lost their jobs, also during the period of 1987-1991 5,6 million people in US lost their jobs and also 5 million executives were sacked!

Downsizing
Downsizing usually comes along with:
Sequences

in the organizational function people deal with totally new duties and situations training is needed

Sequences

in the Operating Cost opposite outcomes e.g. due to external consultants

in the moral and motivation of the workers survival syndrome (low productivity and moral, suspicious of everything) in the effectiveness and productivity in terms of the Stakeholders behavior

Sequences

Sequences Sequences

The next steps are Stabilization and Rebuilding

Stabilization and Rebuilding

Stabilization: - Improve the profit margin Alter the product mix Refocus in Profitable Markets New MIS and Control Systems Rebuilding: Growth New Products New Ventures Investments in Aggressive Advertising Campaigns Increase of Capital New Technologies Development of the Human Factor

Rectification usually lasts 3 years and the most common mistakes that are likely to occur are: Over-downsizing lack of proper management no coordination and planning of strategic moves

Divesture Strategy
Selling a companys department or more, When
Rectification

Strategy Failed expenses are more than the firm is able to

A departments

handle
A firm

decides to sell a department because it is not profitable or even doesnt abide by the companys long term mission/vision

A company

due to legislation decides to sacrifice part of its power e.g. Vodafone in 2000 bought Mannesmann, but the EU granted the acquisition by the term that the 1st one would sell Orange (Mannesmann mobile phone company) to Great Britain

Captivity & Liquidation Strategy

Captivity: When a company is dependent of another due to its decision to reduce the range of its activities The prisoner abides by the rules and will of the savior since most of the times his survival depends on the 2nd one. Examples of Ford during 80s and Viohrom Colgate Palmolive Liquidation: THE END! Everything else has failed If the Company want to avoid such situations should always:
1. Constantly Control its Strategic Health not only by financial terms

but also in terms of competitiveness

2. Seek /Foresee Trends and Position itself in the changing environment 3. Establish the proper business culture to do all the above

Corporate Portfolio Management

Portfolio balance Markets Organisations needs Attractiveness of business units Profitability Growth rates Portfolio fit Synergies between business units Synergies with corporate parent

The Growth Share (or BCG) Matrix

Strategy Guidelines Based on Directional Policy Matrix

Indicators of SBU Strength & Market Attractiveness

Thank you very much for your attention

Questions - Discussion