Mgt. Session #6 Strategic and Global Management: Corporate Strategies

MGT.
Session #6 FALL 2011 Strategic and

Transnational &
Global Management:
FACULTY OF MANAGEMENT(SBE)
Corporate Strategies
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1
Corporate/Enterprise (Parent) Level Strategies
The New Reality - #1

Firms must learn to compete differently if they are to achieve strategic competitiveness in the 21st-century competitive landscape. To provide an idea of what this means, new ways of competing may include:
bringing new good and services to market more quickly

The use of new technologies (e.g., Amazon.com) Diversifying the product line (e.g., Barnes and Nobles into music as a catalyst for growth)
Shifting product emphasis (e.g., U-Hauls new focus on accessory sales) (i.e., Dual Branding)
Consolidation (e.g., the merger of Exxon and Mobil) Combining online selling with physical stores (e.g., CompUSAs new strategy)
Dell Model for Growth

Have New Business Model (maybe changes every 5 years?) Identify Core Competencies and then improve the four capabilities
Outsource non-core competencies

Create a Brand Management Company
Brief Overview of Corporate Strategy

Those strategies concerned with the broad and long-term questions of what business(es) the organization is in and what it wants to do with those businesses
Key Questions of Corporate/Firm-level Strategies

1. What businesses should the corporation/enterprise be in? 2. How should the corporate/G.O. office manage the array of business units (GBUs/SBUs/ Wholly owed subsidiaries)
Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
21st Century Organization Strategies for Growth and Profitability Multi-International: One Consumer Products Company (Corporate Level) Demand Side Strategies:
Global Scope Consumer Promotion
Supply Chain Strategies:
3600 Marketing
Superior Knowledge of Customers/Consumers Coverage of Trade Strong Alliances/ Partnerships with Customers
Driving Funding Growth (8) Growth (5) Creating the Best Place To Work (10)
Vision Direction:
Streamline and obtain A Seamless Supply Chain/ Demand Side (Value Chain) Integration
Use of Technologies to create Cost Savings IS/SAP/ Consolidated Partnership
HPWS
Guiding Core Values, Philosophies, Principles, Mission, & Others
Move to Global And Local Regional Business Focus on Product Quality
Acquisitions/JVs
Innovative New Products/Services
Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
Shared Leadership, Coaching & Feedback Lean & Flat Structures Horizontal, Structures, Systems, & Processes: Integration/communication/coordination Community Involvement Empower Stimulating Regionalization People Recognition & Careers With Local Control Financial Rewards http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #8
Corporate (and International) Strategies

Three directions for corporate strategy Growth
M&A , JV, and SA (external growth) International (internal growth)
Stability (internal growth) Renewal (internal growth)

Retrenchment Turnaround Increase the four capabilities via core competencies
How does it fit together?

Vision Direction and Strategies: 1st
Vision Direction
External and Internal Strategies

(Corporate & Business)
Business Imperatives:
2nd
Year 2009 Success Factors
Globalization
(External Growth)
Strategic Alliances
(External and/or Internal Growth)
8 Strategy.ppt Slide #10
Capabilities: 3rd
Improvement in the four Capabilities via Core Competencies along Value Chain
Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers,http://macy.ba.ttu.edu/5491/week8/Week San Francisco, CA. (forthcoming)
Future Work Trends
Organizational Growth: External and/or Internal

External and Internal Growth Strategy One that involves the attainment of specific growth objectives by increasing the level of an organizations capabilities Typical growth strategies include goals for: Increase in sales revenues Profits Other balanced scorecard performance measures
Types of Growth Strategies

International Concentration
Organizational Growth
Diversification
Related Businesses Unrelated Businesses
Vertical Integration
Related Businesses Horizontal Unrelated Businesses Integration: Along Value Chain
Concentration
Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business
Concentration
Product-Market Exploitation
Product Development
Market Focused Development
Product/Market Diversification
Another Possible Way for Growth
The Right People or the Right Organization?

A Values-Based View of Strategy
Fundamental Values or Beliefs What are our basic Principles, Philosophies and Core Values? What do we believe in? What policies and practices are consistent with these Values and Philosophies?
Design Management Practices That Reflect and Embody These Values
Use These to Build Core Capabilities
What can we do for the customer better than our competitors?
Invent a Strategy That is Consistent with the Values and Uses the Talents & your four Capabilities to Compete in New and Unusual Ways
Given our core capabilities, how can we deliver value (EVA) to customers in a way our competitors cannot easily imitate?
Senior management manages the values and culture of the firm.
Senior Managements Role
Possible Strategic Focus

Trust: Is it Valuable, Rare, Costly to Imitate, and Nonsubstitutable?
The following examples are provided as evidence that the trust structures contribute to the above average performance of each firm. Anderson & Associates practices open-book management, meaning that all financial data are readily accessible on the firms Intranet. The companys CEO claims that this practice contributes to employee loyalty. Radius, a French restaurant in Boston, relies upon trust to sustain one of its competencies excellent teamwork.
MTW Corp., a software and Internet applications provider, relies upon expectation agreements among the boss , an employee, and his or her work team.

What is the value of a friend who can be trusted compared to one who cannot be trusted?
Would you be willing to loan your car to the less-thantrustworthy acquaintance if they were going to need it for a few hours? Would you trust them at all? For firms, trust relationships can easily make the difference between a deal getting done or not, or it can impact the size of the deal that is done. Trust carries a great deal of weight, especially in an environment where it is in short supply. AND Todays deal that is based on trust can lead to a sustainable edge when future 3-18 deals are considered. http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #18

Trust and organizational success are closely linked. Trust benefits the organization in that it reduces the overall transaction costs. There are many attributes to trust, the most prominent of which is risk. This risk can be divided into two categories:
Managerial Risk the general risk of management decisions Organizational Risk characteristic of forms with volatile income streams

Davis, Schoorman, Mayer and Tan define trust as the willingness of a party (trustor) to be vulnerable to the actions of another party (trustee) based on the expectation that the trustee will perform an action important to the trustor, regardless of the trustors ability to monitor or control the trustee.
Trust between general manager and employees may be a source of competitive advantage. This trust rests upon the trustors perception of the trustees: ability skills and competencies by which trustee may influence outcomes benevolence degree to which trustor believes trustee acts for the good of the trustor integrity belief that the trustee will follow a set of principles that are desired by the trustor 3-17

The Davis, et al. study suggests that these three factors of trust can contribute to competitive advantage of the firm. We can conclude that trust satisfies at least three of the four (and conceivably all four) criteria for sustainable competitive advantage. Valuable the study demonstrated that trust increased profitability and reduced turnover. Rare this relationship dynamic is uncommon. Costly to imitate trust is an intangible social construct that cannot easily be replicated. Nonsubstitutable possibility, since trust is difficult to observe 3-17 http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #21
Another Way: Diversification

Value Chain Capabilities/ Core Competencies
Product Similarities
Related Diversification
Distribution Channels
Similar Technology
Customer Use
Diversification
Level Horizontal
Anti-trust laws prohibit a lot of these
Vertical
Suppliers buying buyers (or vice versa)
Two Types Related Businesses Unrelated Businesses

Related Diversification and Competitive Advantage

Competitive advantage can result from related diversification if opportunities exist to
Transfer expertise / capabilities / technology Combine related activities into a single operation and reduce costs Leverage use of firms brand name reputation Conduct related value chain activities in a collaborative fashion to create valuable competitive capabilities
What is Unrelated Diversification?

Involves diversifying into businesses with NO strategic fit NO meaningful value chain relationship NO unifying strategic theme Approach is to venture into any business in which we think we can make a profit Firms pursuing unrelated diversification are often referred to as conglomerates
Attractive Merger/Acquisition Targets

Companies with undervalued assets
Capital gains may be realized
Companies in financial distress

May be purchased at bargain prices and turned around
Appeal of Unrelated Diversification Strategy

Business risk scattered over different industries Financial resources can be directed to those industries offering the best profit prospects If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced
Drawbacks of Unrelated Diversification

Difficulties of competently managing many diverse businesses Lack of strategic fits which can be leveraged into competitive advantage
Consolidated performance of unrelated businesses tends to be no better than sum of individual businesses on their own (and it may be worse)
Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3
Promise of greater sales-profit stability over business cycles seldom realized

Combination Related-Unrelated Diversification Strategies

Dominant-business firms One major core business accounting for 50 80 percent of revenues, with several small related or unrelated businesses accounting for remainder Narrowly diversified firms Diversification includes a few (2-5) related or unrelated businesses
Combination Related-Unrelated Diversification Strategies (cont.)

Broadly diversified firms Diversification includes a wide ranging collection of either related or unrelated businesses or a mixture Multi-business firms Diversification portfolio includes several unrelated groups or related businesses
Diversification and Corporate Strategy

A company is diversified when it is in two or more lines of business Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business
A diversified company needs a multi-industry, multibusiness strategy A strategic action plan must be developed and implemented for several different businesses competing in diverse industry environment
Levels and Types of Diversification

Low Levels of Diversification
Single business
> 95% of revenues from a single business unit A A B
Dominant business
Between 70% and 95% of revenues from a single business unit
Moderate to High Levels of Diversification

Related constrained
< 70% of revenues from dominant business; all businesses share product, technological and distribution linkages < 70% of revenues from dominant business, and only limited links exist B A B A
A C
Related linked (mixed)
Very High Levels of Diversification

Unrelated-Diversified
Business units not closely related B
When to Diversify
Some companies do EXCELLENTLY and are not diversified
McDonalds, SWA, Coca-Cola, Dominos Pizza, Wal-Mart, FedEx, Timex, Gerber Why stay single business Clear understanding of who we are/what we do No Dilution of managements attention Risks of a single business strategy Putting all the eggs in one industry basket Unforeseen changes can undermine a single business firms prospects
Adding Value by Diversification

Diversification most effectively adds value by either of three mechanisms:
By developing economies of scope between business units in the firms which leads to synergistic benefits By developing market power which leads to greater returns ECR (Efficient Consumer Response)
Efficient Assortment Efficient Product Introduction Efficient Replenishment Efficient Promotion TOTAL ECR SCORE = Sum of 4 above
Alternative Diversification Strategies

Sharing Activities
Assumptions: Strong sense of corporate identity Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance (balanced scorecard)

Related Diversification Strategies
Sharing Activities (Shared Global Services)
Transferring Core Competencies
Unrelated Diversification Strategies

Efficient Internal Capital Market Allocation Restructuring

Sharing Activities
Key Characteristics: Sharing Activities often lowers costs or raises differentiation
Example: Using a common physical distribution system and sales force such as Procter & Gambles disposable diaper and paper towel divisions
Sharing Activities can lower costs if it:

Achieves economies of scale Boosts efficiency of utilization Helps move more rapidly down Learning Curve
Example: General Electrics costs to advertise, sell and service major appliances are spread over many different products http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #36

Sharing Activities
Key Characteristics: Sharing Activities can enhance potential for or reduce the cost of differentiation
Example: Shared order processing system may allow new features customers value or make more advanced remote sensing technology available
Must involve activities that are crucial to competitive advantage

Example: Procter & Gambles sharing of sales and physical distribution for disposable diapers and paper towels is effective because these items are so bulky and costly to ship

Transferring Core Competencies
Key Characteristics:
Exploits Interrelationships among divisions Start with Value Chain analysis Identify ability to transfer skills or expertise among similar value chains Exploit ability to transfer activities
Summary Model of the Relationship Between Firm Performance and Diversification

Capital Market Intervention and Market for Managerial Talent Firm Performance
Resources
Incentives
Diversification Strategy
Managerial Motives
Strategy Implementation
Diversification and Firm Performance
Performance
Dominant Business
Related Constrained
Unrelated Business
Level of http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #40 Diversification
How does it fit together?

Vision Direction and Strategies: 1st
Vision Direction
External and Internal Strategies

(Corporate & Business)
Business Imperatives:
2nd
Year 2013 Success Factors
Globalization
(External Growth)
Strategic Alliances
(External and/or Internal Growth)
Capabilities: 3rd
Improvement in the four Capabilities via Core Competencies along Value Chain
Future Work Trends
Questions for Strategy to Consider

Competitive Dynamics
Strategic Actions and Organizational Size - 1

An organizations size affects the likelihood that it will take competitive actions as well as the types of action it will take and their timing. Small firms are more likely to launch competitive actions and tend to be quicker in doing so.
5-10

Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period. Thus, the competitive actions a firm will likely ecounter from larger competitors will be different than the competitive actions it will encounter from smaller firms.
5-10

Large organizations often have the slack resources required to launch a larger number of total competitive actions, and thus do. However, smaller firms have the flexibility needed to launch a greater variety of competitive actions.
5-10
Factors Leading to More Complex Rivalry

Declining emphasis on single, domestic markets and increasing emphasis on global markets Advances in communication technology make coordination easier across multiple markets Advances in technology and innovation have increased competitiveness of small and medium sized firms National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC)
Results from a series of competitive actions and competitive responses among firms competing within a particular industry
Competitive Rivalry
Exists when two or more firms jockey with one another in the pursuit of better market position
A firms strategic conduct is dynamic in nature
Actions taken by one firm elicit responses from competitors
Actions and responses shape the competitive positions of each firms business level strategy
Competitive responses lead to additional actions from the firm that acted originally
Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior
Awareness
Motivation
Do managers understand the key characteristics of competitors?
Capability
Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Awareness Motivation Does the firm have appropriate incentives to attack or respond?
Capability
Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Awareness Motivation
Capability
Does the firm have the necessary resources to attack or respond?
Model of Interfirm Rivalry: Likelihood of Attack and Response Competitor Analysis Market Commonality Resource Similarity
Do firms compete with each other in multiple markets?
Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs
For example, airlines price flights similarly but respond quickly when competitors introduce promotional prices
Do competitors possess similar types or amounts of resources?
Firms are less inclined to attack a firm that is likely to retaliate Firms with similar resources are more likely to be aware of each others competitive moves
Firms with dissimilar resources are more likely to attack

Model of Interfirm Rivalry: Likelihood of Attack and Response
Interfirm Rivalry:
Attack & Response Likelihood of Attack First Mover Incentives Likelihood of Response Type of Competitive Action Actors Reputation Dependence on the Market Resource Availability
First Mover advantage can be substantial
First Mover
Firms that take an initial competitive action Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies
Can earn above average profits until competitors respond

Gain customer loyalty, helping to create a barrier to entry by competitors Advantage depends upon difficulty of imitation
Second Mover
Firms that respond to a First Movers actions Second Movers frequently imitate First Movers Speed of response often dictates success
Should evaluate customers response before moving Fast Second Movers can capture some of initial customers and develop some brand loyalty Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate

Types of Competitive Actions

Strategic Actions
Example
Significant commitments of specific and distinctive organizational resources Difficult to implement Difficult to reverse
Major Acquisition
Undertaken to fine tune strategy Relatively easy to implement Relatively easy to reverse
Tactical Actions
Example
Price cut
Ability for Action and Response

Relative Size Speed Innovation Quality
Firm size can have opposing effects on competitive dynamics

Large firms may exert market power over rivals and erect barriers to entry against smaller competitors However, smaller competitors may be more nimble and innovative Think and act big and well get
smaller. Think and act small and well get bigger. -- Herb Kelleher,
CEO, Southwest Airlines

Quick response is crucial to both the first mover and the fast second mover

Relative Size Speed Innovation Quality Consistent innovation is required for market leadership in many dynamic industries

Relative Size Speed Innovation Quality Exceeding customer expectations is a necessity to compete in the 21st century
Model of Interfirm Rivalry: Likelihood of Attack and Response Outcomes
Competitive Market Types Slow cycle markets are

Slow, Standard or Fast Cycle
Competitive Outcomes
Sustained Competitive Advantage Temporary Advantage
frequently shielded by monopoly power or very strong brand loyalties

This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage
Evolutionary Outcomes
Evolutionary Actions Growth-Oriented Actions Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #65

Standard cycle markets Competitive Market Types often lead to highly Slow, Standard or Fast Cycle competitive pressures Competitive Outcomes despite world class products Sustained Competitive Advantage Firms with multimarket Temporary Advantage competition may dampen rivalry somewhat Evolutionary Outcomes Sustained competitive Evolutionary Actions advantage is a possible Growth-Oriented Actions outcome in Strategy.ppt Slide #66 Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week 8 this instance

Fast cycle markets are Competitive Market Types intensely dynamic and a Slow, Standard or Fast Cycle first mover advantage is Competitive Outcomes often unsustainable Sustained Competitive Advantage Temporary Advantage Firms may cannibalize older generation products while introducing new innovative premium products
Evolutionary Outcomes
Evolutionary Actions Growth-Oriented Actions Sustainable competitive Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week is unilkely advantage 8 Strategy.ppt Slide #67

Mgt. Session #6 Strategic and Global Management: Corporate Strategies

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Mgt. Session #6 Strategic and Global Management: Corporate Strategies

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MGT.

Session #6 FALL 2011 Strategic and

Corporate/Enterprise (Parent) Level Strategies

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #2

The New Reality - #1

bringing new good and services to market more quickly

The New Reality - #2

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #4

The New Reality - #3

Dell Model for Growth

Outsource non-core competencies

Brief Overview of Corporate Strategy

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #6

Key Questions of Corporate/Firm-level Strategies

Supply Chain Strategies:

Guiding Core Values, Philosophies, Principles, Mission, & Others

Move to Global And Local Regional Business Focus on Product Quality

Corporate (and International) Strategies

Stability (internal growth) Renewal (internal growth)

How does it fit together?

External and Internal Strategies

Year 2009 Success Factors

Future Work Trends

Organizational Growth: External and/or Internal

Types of Growth Strategies

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #13

Market Focused Development

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #14

Another Possible Way for Growth

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #15

The Right People or the Right Organization?

Design Management Practices That Reflect and Embody These Values

Use These to Build Core Capabilities

What can we do for the customer better than our competitors?

Senior management manages the values and culture of the firm.

Senior Managements Role

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #16

Possible Strategic Focus

Possible Strategic Focus

Possible Strategic Focus

Possible Strategic Focus

Possible Strategic Focus

Another Way: Diversification

Two Types Related Businesses Unrelated Businesses

Related Diversification and Competitive Advantage

What is Unrelated Diversification?

Attractive Merger/Acquisition Targets

Companies in financial distress

Appeal of Unrelated Diversification Strategy

Drawbacks of Unrelated Diversification

Promise of greater sales-profit stability over business cycles seldom realized

Combination Related-Unrelated Diversification Strategies

Combination Related-Unrelated Diversification Strategies (cont.)

Diversification and Corporate Strategy

Levels and Types of Diversification

Between 70% and 95% of revenues from a single business unit

Moderate to High Levels of Diversification

Related linked (mixed)

Very High Levels of Diversification

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #31

Adding Value by Diversification

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #33

Alternative Diversification Strategies