MGMT567 Portland State Zara Multi Business Management Presentation I have a group presentation in Managing the Multi-Business Firm course. we choose Zara a

MGMT567 Portland State Zara Multi Business Management Presentation I have a group presentation in Managing the Multi-Business Firm course. we choose Zara a Company.

I`m responsible for slides :

slide number 2 Introduction

slide number 3 Company Background

slide number 10 Five Porter’s Analysis

slide number 11 Zara Mode of Entry

you should write the BulletPoint the on slide then write the speaker note below and the references in the last slide

you should write every things I have to say in the presentation

I attached below :

1- material all chapter

2- brief of the company

3- instruction for the presentation Strategic Management
Jeff Dyer
Second Edition
Chapter 6
Corporate Strategy
MGMT 567: Managing the Multi-Business Firm
Wontae Son, Ph.D.
Cisco Systems
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Founded in 1984
Network Hardware
Revenue: $48 B
Operating Income: $12 B
Employees: 7,300
Market Cap: $200 B
• Developed and commercialized the first multi-protocol router
• IPO in 1990 with $60 M revenue and $224 M market cap
• First acquisition in 1993, and continued growth by acquisitions
– 200 + deals: NW training, VOIP technology, Wireless technology
– Clear and consistent process of acquisitions: Integration Specialists
Copyright ©2018 John Wiley & Sons, Inc.
2
CORPORATE VS. BUSINESS UNIT STRATEGY
Business Unit Strategy- The search for competitive advantage within a single
industry, market, or line of business.
Corporate Strategy- The search for value and competitive advantages
through participation in several different industries and markets.
Vertical Integration- Movement into adjacent markets by a firm along its
own value chain. Movement in the direction of raw materials is backward
integration. Movement in the direction of sales, service, or warranty
operations is forward integration.
Horizontal Diversification- The movement into an adjacent, or unrelated,
market that is not along a firm’s own value chain.
Copyright ©2018 John Wiley & Sons, Inc.
3
VALUE CHAIN
Value Chain – The steps required to turn raw materials into finished products
and/or services. The value chain also describes key functions of the firm linked
to each stage and functions that span the productive activities of the firm.
Copyright ©2018 John Wiley & Sons, Inc.
4
MOVING ALONG THE VALUE CHAIN
• Vertical Integration (Ch. 7)
– Backward integration
(Apple OS development)
– Forward integration
(Apple Store)
• Horizontal Diversification
– Diversification
(Cisco from router into phones)
– Alliances (Ch. 8)
Copyright ©2018 John Wiley & Sons, Inc.
5
TWO WAYS TO DIVERSIFY
1. Go at it alone—Greenfield
Apple’s entrance into music player and phone markets
Apple opened its own stores, Apple Store
2. Buy your way in—Acquisition
Cisco’s growth strategy
Copyright ©2018 John Wiley & Sons, Inc.
6
Levels of Diversification:
Single Business- A firm earning more than 95 percent of the revenues from a single
line of business.
Dominant Vertical Business- A firm that earns more than 70 percent of its revenue
from its main line of business and the rest from businesses located along the value
chain.
Dominant Business- A firm that earns more than 70 percent of revenue from its main
line of business and the remainder from other lines across different value chains.
Related-constrained Diversification- A firm that earns less than 70 percent of its
revenue from its main line of business and its other lines of business share product,
technological, and distribution linkages with the main business. (ex: Amazon)
Related-linked Diversification- A firm that operates in related markets, but fewer
linkages exist between the new and existing markets than the elements create
separately. (ex: Amazon Fresh)
Unrelated Diversified Firm- Competes in product categories and markets with few, if
any, links between them. (ex: conglomerates such as GM, 3M and Samsung)
Copyright ©2018 John Wiley & Sons, Inc.
7
WHY DIVERSIFICATION – ADDING VALUE
Critical
Questions
1) Why will the existing businesses be more valuable
by entering an adjacent market?
2) Why will the new business be more valuable inside
the company than operating alone?
1) Exploiting current resources & capabilities
*GE:
Entry into the finance business
Entry into a new, high-tech market
2) Expanding new resources & capabilities
*Cisco:
Expand IP phone businesses by acquisitions
Copyright ©2018 John Wiley & Sons, Inc.
8
ADDING VALUE THROUGH DIVERSIFICATION
Copyright ©2018 John Wiley & Sons, Inc.
9
MECHANISMS TO CREATE VALUE
Slack
Similar Business Models
Synergy
Spreading Capital
Shared Knowledge
Stepping stone
Stopping Competitors Staying ahead
Copyright ©2018 John Wiley & Sons, Inc.
10
THE 6 S’S
(1/3)
Slack- Unused resource capacity.
• Economies of Scope- Activities where the average cost of producing
two different products is less when delivered together than
separately. (ex. Delta’s cargo freight business)
• Management Skills- The individual and collective abilities of a firm’s
management team to engage in value-creating activities.
(ex. Marriot’s portfolio of brands)
Synergy- Action between different elements of a system that creates
more value together than the elements create separately.
(ex. Disney, P&G)
Copyright ©2018 John Wiley & Sons, Inc.
11
THE 6 S’S
(2/3)
Shared Knowledge- Collective knowledge that can be distributed
throughout the organization to create value. (ex. Honda, ESPN)
“Competitive advantages come from the common roots,
processes or knowledge (that is, core competence).”
Similar Business Model- Business model is a method to enable the
creation and exchange of value between companies and their customers.
(ex. Sumitomo, Newell Rubbermaid)
• Dominant Logic- A conceptualization of a business, or a set of rules for
competition, that applies to seemingly unrelated product markets or
industries. Some businesses have common elements or keys to success.
Copyright ©2018 John Wiley & Sons, Inc.
12
THE 6 S’S
(3/3)
Spreading Capital
• Internal Capital Market- The movement of funds, talent, or knowledge
from unit to unit directed by the leaders of the firm. (ex. GE, Samsung)
Stepping Stones- Works to enhance capabilities through “long leaps” and
“short leaps”, and “short hops” (ex. Safeguard Scientific)
Safeguard Scientific shifted from computer peripherals to optical instruments
business. It migrated through adjacent industries to acquire skills and capabilities.
1991
computer
peripherals
1993
moved into
telephone
equipment
1995
moved into
electrical
instruments
Copyright ©2018 John Wiley & Sons, Inc.
1996
exited
computer
and entered
optical
instruments
1999
exited
telephone
business
13
THE 6 S’S + 2S’S: 8 S’S
Stopping Competitors- A method to diversify to forestall a competitor
from entering, rather than to clearly exploit or expand a current resource or
capability.
• Google’s purchase of Waze (2003, $1 Billion)
Staying Ahead of Technology- Diversification, primarily through
acquisitions, can shorten lead times and reduce the overall costs of tech
ology development. (ex. Cisco Systems)
• Corporate Venture Capital- A venture capital fund owned and managed
by a corporation instead of independent investors.
Can the technology be transferred to the corporate parent?
Copyright ©2018 John Wiley & Sons, Inc.
14
DESTROYING VALUE THROUGH DIVERSIFICATION
Hubris
• Excessive pride, arrogance, or overconfidence
• Decisions based on gut-feelings or experience?
• Need solid data and research as well
Imitation
Sunk-Cost Fallacy
• Hurry to mimic competitors acquisitions
• UPS Mailbox acquisition vs. FedEx Kinko
acquisition
Poor Governance
and Incentives
• Risky beliefs that investment in a failed
acquisition must continue because
significant investment already made
Lack of Resources
• Managers in diversified firms tend to prefer
salary-based compensation
• Decisions based on internal politics, resource
allocations constraints, or mandatory transfers
with other divisions.
• Lack of ability to understand and respond
to unique strategic needs of each market,
customer group, and line of business
Copyright ©2018 John Wiley & Sons, Inc.
15
BCG MATRIX
Copyright ©2018 John Wiley & Sons, Inc.
16
ENTRY MODE
Greenfield
Acquisition
• Existing resources move from
existing to new business
– Brand
– Customer knowledge
– Technology overlap
• Speed not essential
• Scale economy less important
Coke: Zero
GE:
medical products
financial services
• Resources don’t move from
existing to new business
– No brand equity
– New customers
– New technology
• Speed essential
• Scale economy important
Coke: Zico
GE:
acquisition of AVIO
Copyright ©2018 John Wiley & Sons, Inc.
17
Greenfield vs. Acquisition
Copyright ©2018 John Wiley & Sons, Inc.
18
ACQUISITION AND INTEGRATION PROCESS
Making
the Acquisition
Integrating
the Target
1) Acquisition Process
Searching for targets
• Understand the value
creating needs
• Focus on resources and
capabilities (both firms)
Due Diligence
Negotiation and
Deal Close
• Examine closely the target • Hire experts for valuation
firm to understand its
core processes, strengths, • Consider the right
premium – roughly 30%
and weaknesses
Copyright ©2018 John Wiley & Sons, Inc.
19
2) Integration of the Target
Running as ONE single business vs. TWO distinct ones
Copyright ©2018 John Wiley & Sons, Inc.
20
INTEGRATION STRATEGIES
completely
absorb target
a new entity,
best of breed
loose coupling,
leverage target
two firms,
one owner
takeover
merger
blended
acquisition
cash and profit
contributions
Apple’s
acquisitions of
start-up firms
Daimler-Chrysler
merger
“Newellize”
ITT’s
diversifications
Copyright ©2018 John Wiley & Sons, Inc.
21
INTEGRATION MATTERS
“You are only acquiring employees.”– integrity, respect for individuals, and open
communications (John Chamber, Cisco)
Integration team- a group of individuals from different functional areas of an
acquiring firm that coordinate and manage the integration of the target company
after the acquisition has closed (fully dedicated).
Principles of Integration – How GE integrates acquisitions
1. Acquisition is a process, not an event.
2. Successful integration requires a committed team of talented professionals whose
only job is integration.
3. Communication about important matters such as who will lose their jobs and how
compensation systems will change must be clear, forceful, and immediate.
4. Real and significant integration happens best when people work together on real,
mission critical tasks.
Copyright ©2018 John Wiley & Sons, Inc.
22
END
Copyright ©2018 John Wiley & Sons, Inc.
23
Strategic Management
Jeff Dyer
Second Edition
Chapter 7
Vertical Integration and Outsourcing
MGMT 567: Managing the Multi-Business Firm
Wontae Son, Ph.D.
Dell and ASUS
A Tale of Two Companies
Dell
ASUS
• Founded in 1984 by Michael Dell
• “Create & Deliver custom PCs
within 48 hours”
• High profits with a few assets by
outsourcing most components
and operations
• Outsourcing extended to much
of supply chain & final assembly
• Supplied components for Dell:
circuits & motherboards
• The largest motherboard
producer with cost advantage
• Expanded capabilities in supply
chain and computer assembly
• Successful launch of Eee PC,
the low-priced PC in the market
Copyright ©2018 John Wiley & Sons, Inc.
2
WHAT IS VERTICAL INTEGRATION?
Outsourcing- The process where a firm contracts out a business
process or activity to an external supplier.
Vertical Integration (or insourcing)- Bringing business processes or
activities previously conducted by outside companies in-house.
Make
(ASUS)
vs.
Buy
(DELL)
Copyright ©2018 John Wiley & Sons, Inc.
3
WHAT IS VERTICAL INTEGRATION?
Value Chain- The sequence of all activities that are performed by a firm
to turn raw materials into the finished product that is sold to a buyer.
Industry Value Chain
vs.
Company Value Chain
Vertically Integrated
vs.
Vertically Specialized
Upstream Activities
vs.
Downstream Activities
Copyright ©2018 John Wiley & Sons, Inc.
4
VERTICAL INTEGRATION
Forward Integration– Growth by moving forward in the value chain, that
is, downstream activities (ex. Becoming a buyer or a distributor)
Backward Integration– Growth by moving backward in the value chain,
that is, upstream activities (ex. Becoming a supplier)
Disney is vertically integrated
Disney produces movies and TV shows with its own studios and
subsidiaries (Pixar) and it distributes them through its own TV networks
(ABC, Disney Channels) and through a world wide networks
Nike is vertically specialized
Nike designs and markets its products and outsource many activities.
It forward integrated when started selling thru its own Niketown stores.
Copyright ©2018 John Wiley & Sons, Inc.
5
REASONS FOR VERTICAL INTEGRATION: 3C’S
Capabilities
Coordination
Control
1) Capabilities (Competence)
• Conduct the activity internally when the firm has or can develop
capabilities to perform it better than other firms
• Nike focuses on design and marketing to differentiate
– Saves large capital by not building plants and manufacturing capabilities
– Marketing capabilities become core competence to build brand to 1)
differentiate and 2) create barriers to imitation to prevent suppliers
becoming competitors
Copyright ©2018 John Wiley & Sons, Inc.
6
REASONS FOR VERTICAL INTEGRATION: 3C’S
2) Coordination
• Conduct the activity internally when effective coordination and
tight integration of the activities of other firms improve work
performance (that is, high coordination cost)
• “The greater the interdependence, the more likely you want to
conduct both activities inside due to higher coordination needs.”
• Apple backward integrated a chip design function
– Lower coordination cost
– Enhance the speed of new product development
– Create barriers to imitations – difficult for competitors to imitate
Copyright ©2018 John Wiley & Sons, Inc.
7
How Interdependence Influences Vertical
Integration and Outsourcing
Golf Team
Baseball Team
Copyright ©2018 John Wiley & Sons, Inc.
Basketball Team
8
REASONS FOR VERTICAL INTEGRATION: 3C’S
3) Control
• Conduct the activity internally to control scarce inputs or to
control over investments in specialized asset or equipment
– Alcoa integrates back into bauxite to secure raw material
– Oil refinery controlling the pipeline
– Apple forward integrated with Apple Stores to control customer
experiences
• Integrate the operations involved with transaction-specific asset
or investment. (e.g., gas pipeline, bowling alley) ? avoid hold-up
Copyright ©2018 John Wiley & Sons, Inc.
9
DANGERS OF VERTICAL INTEGRATION: 2 Fs
(=) Advantages of Outsourcing
Loss of Flexibility to move the activity to a company or supplier
that offers lower costs or better technology.
• Valuable when technologies are being developed or changed
(e.g., DEC & Data General)
• Significant effect if the cost can change quickly (e.g., Nike)
Loss of Focus associated with managing too many activities may
result in poor performance because the firm can’t do them all well
• GM: made 70% of its parts internally ? increased the overall cost
• Toyota: makes 25%, outsource the rest to the specialized companies
? leads to reduced costs
Copyright ©2018 John Wiley & Sons, Inc.
10
ADVANTAGES OF OUTSOURCING
Flexibility to move to new suppliers that offer lower costs or
better technology.
Lower costs or better performance from a company that
specializes in that activity and benefits from economies of scale.
Focus: Keeps the firm focused on a narrower set of core
competencies
Minimizes capital investment
Copyright ©2018 John Wiley & Sons, Inc.
11
DANGERS OF OUTSOURCING
Example
IBM’s PC – Microprocessors outsourced to Intel
Operating Systems outsourced to Microsoft
IBM failed to replace Intel’s microprocessors and Windows OS
with its own products developed later. Why?
Outsourcing isn’t always the answer
Copyright ©2018 John Wiley & Sons, Inc.
12
DANGERS OF OUTSOURCING
Loss of Control May give an outside supplier undue power or
control if the outsourced activity is critical to success.
Ex) IBM’s Outsourcing Strategy for PC business
Loss of Capabilities May set in motion the loss of capabilities
that may be important for the future—and create a future
competitor.
Ex) Dell’s Outsourcing Strategy
• Low-cost production capabilities given to ASUS
• Difficulty in designing and building differentiated products
Copyright ©2018 John Wiley & Sons, Inc.
13
Outsourcing can cause the loss of capabilities and
the creation of a competitor
Dell vs. AsusTek
HOW TO PREVENT A SUBCONTRACTOR
A COMPETITOR
FROM BECOMING
Build barriers to
imitation
Take an equity stake
in the supplier
Limit knowledge of
the full product
Use multiple
contractors
Copyright ©2018 John Wiley & Sons, Inc.
14
Mini-Case: Should you Make or Buy?
You have to decide whether to make or buy a component (part) that is
an input for a product that costs $50 to manufacture. Your analysis
shows that based upon the estimated volume of parts you will require,
your variable costs per unit will be $.50 and given estimated volumes,
your fixed (plant and equipment) cost per unit is $.48 per unit. A quick
bid in the market suggests that you can currently buy the same part
from two suppliers for $1.00 (another supplier bid $1.01). You should:
Choose the best answer given the information above and explain
your choice.
a) Make the part and capture the profits
b) Buy the part on the market
c) Make some parts and buy some parts to keep leverage over
your suppliers
d) None of the above
Copyright ©2018 John Wiley & Sons, Inc.
15
STRATEGY TOOL: MAKE VERSUS BUY ASSESSMENT
1. To what extent are you, or could you be, the best in the
world at conducting this activity?
A. We are, or fairly easily could be, as good as the best in
the world at conducting this activity.
B. We are not, and are not likely to become, as good as
the best in the world at conducting this activity.
2. To what extent does this activity differentiate your
offering (product or service) in the mind of the customer?
A. This activity does provide some differentiation in the
mind of the customer (it provides unique value and
influences the purchase decision).
B. This activity provides little differentiation in the mind
of the customer (it doesn’t really provide unique value).
5. To what extent is this activity highly interdependent and
requires coordination with other activities performed in the
firm?
A. Highly interdependent (reciprocal interdependence),
meaning that in order to do this and other activities well, we
need to tightly coordinate this activity with other activities
(simultaneously iterate when conducting the activities).
B. Somewhat interdependent (sequential interdependence),
meaning that this activity must be done before (or after) we
conduct our other activities; we don’t need to work on this
simultaneously and iterate.
C. Not interdependent at all. We merely pool our
processes/products with those of other suppliers.
3. What is your cost of performing the activity (with similar
quality) compared to an outside supplier?
A. 5% or more lower.
B. About the same or higher.
6. Does performing this activity allow you to maintain control
over information or resources that are important for either
offering unique value or preventing imitation of what you do?
A. Yes
B. No
4. How many outside suppliers can conduct the activity
(with similar quality) at a cost that is about the same or
lower than your firm?
A. 0 or 1
B. 2 or more
7. Does performing this activity create a barrier to competitors
imitating the unique value you are attempting to offer?
A. Yes
B. No
Copyright ©2018 John Wiley & Sons, Inc.
16
CONSIDERATIONS IN OUTSOURCING
Ethical Issues
Crowdsourcing
• Levi Strauss in Bangladesh
• Crowdtasking
• Child Labor
• Crowdcreating
• Keep them working in the
factory, or eliminate a viable
option for their survival?
• Crowdvoting
• Crowdinnovation
Copyright ©2018 John Wiley & Sons, Inc.
17
END
Copyright ©2018 John Wiley & Sons, Inc.
18
Strategic Management
Jeff Dyer
Second Edition
Chapter 8
Strategic Alliances
MGMT 567: Managing the Multi-Business Firm
Wontae Son, Ph.D.
WHAT IS A STRATEGIC ALLIANCE?
Strategic Alliance- A cooperative arrangement in which two or more firms
combine their re…
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