NOVA Baldwin & Developing Corporate Level Strategy and Growth Paper A statement of your company’s overall short and longer-term financial and non-financial

NOVA Baldwin & Developing Corporate Level Strategy and Growth Paper A statement of your company’s overall short and longer-term financial and non-financial goals/objectives, and a list of key company outcome variables you intend to track each year to help determine if you are achieving your objectives?anual report link :http://ww5.capsim.com/capsimplatform/annualreport?simKey=389145&round=0&teamKey=2314651&historyKey=0&teamName=Baldwin&token=957CD032A27DA6EA17E2D58028FC3E49 CORPORATE-LEVEL STRATEGY PRIMER
An organization’s Corporate-level strategy addresses important questions about the short and
long-term strategic scope and direction of the entire business enterprise. It defines the industry(ies) and/or
business(es) [i.e., often called the enterprise’s portfolio] in which the enterprise chooses to invest and
compete. These businesses (sometimes called Strategic Business Units (SBU’s), thus represent the product
and/or service markets, including the geographic regions, the company conducts business in today and
perhaps intends to at some point in the future. A company’s Corporate-level strategy, working in concert
with the enterprise’s business and operating-level strategies, is thus the engine of growth for a healthy
company and the basis for renewal or retrenchment in poorly or underperforming companies.
For reference, in the Capstone simulation, Corporate-level Strategy involves your company’s
decisions about whether to continue to invest in and develop, or terminate, product(s) in each of the five
sensor segments (the low-end, traditional, performance, size and high-end markets) within the electronic
sensor industry, plus whether to create one or more new products in any of the existing segments. In
addition, because of its overall importance to the company’s strategies, tactics, operations and capabilities,
the financial strengths or weaknesses of your company should also be considered as a Corporate-level
issue.
Corporate-level strategy, by implication, addresses and establishes how the firm allocates
resources between its existing, and perhaps future, business(es), as well as how the firm should be
structured. The following outlines important concepts for understanding and creating corporate-level
strategy.
DEVELOPING CORPORATE-LEVEL STRATEGY/GROWTH:
GENERIC POSSIBILITIES
An enterprise’s “generic” corporate-level strategy options include the four types listed below.
Companies usually use some combination of the following generic possibilities. Please note, however, that
some are inconsistent with others (e.g., a company cannot use a Concentration strategy and be diversified
too).
The Four Generic Corporate-Level strategy types
I. Concentration
II. Vertical Integration
III. Diversification
Methods:
a. Internal Venturing
b. Acquisitions
c. Strategic Alliances and Joint Ventures
IV. Renewal: Retrenchment or Turnaround
A description of each of these generic corporate-level strategy options, and the various possibilities
within each of the strategic options, follows.
Corporate-level Strategy Primer: 2 of 7
I. CONCENTRATION STRATEGY
A Single Business Concentration Strategy:
• Is the simplest corporate-level strategy
• Allows an organization to specialize in and master one business
• Allows all organization resources to be allocated to one business and put under less
strain
• Is risky when the competitive environment is unstable
• Is subject to risks of product obsolescence and industry maturity
• May lead to internal cash flow problems during growth periods
• May not provide enough challenge for managers and lead to stagnation
II. VERTICAL INTEGRATION STRATEGIES
Firms can either negotiate on the open market for the products and services they use to produce
the goods and/or services they sell, or they can produce them internally. As an example of this, in the early
years of the Ford Motor Company, Henry Ford decided to become a completely vertically integrated
company, purchasing and operating everything from the rubber plantations in South America, the iron ore
mines from which he made the steel used in his foundry and stamping plant operations, to the factories
which assembled the parts some Ford owned company had manufactured, to the homes his employees
lived in, the banks they banked at, the grocery stores his employees shopped at, the insurance companies
his employees bought their insurance at, and so on.
Today, by law and custom, companies in the US don’t exert that kind of control over all of the
aspects of their environments. The logic of vertical integration is, however, as follows:
Vertical Integrations are used when:
• resources or supplies cannot be purchased without spending undue time or other
resources on the contracting process, then firms should make those supplies rather than
buy them in the marketplace
In general, it may pay to produce internally when:
• The future is uncertain and outside contracting increases your firm’s vulnerability
• There are few external suppliers, or suppliers otherwise act opportunistically in the
marketplace (see: Porter Analysis)
Corporate-level Strategy Primer: 3 of 7
III. DIVERSIFICATION STRATEGIES
REASONS FOR DIVERSIFICATION
1. To reduce a firm’s risk through investments in dissimilar businesses or less dynamic
environments
2. To stabilize or improve earnings of the enterprise
3. To improve growth prospects for the enterprise
4. To use the cash generated in slower growing business units exceeding that needed for
profitable investment in those units
5. To create the possibility for the synergistic application of resources, capabilities, and core
competencies to potential new enterprise business units or additions
6. To generate synergy/economies of scope and scale throughout the enterprise
7. To use excess debt capacity productively
8. To bring in and learn new technologies
9. To increase power in the firm’s markets by quickly adding size
10. To turn around a failing business, leading to higher returns
TYPES OF DIVERSIFICATION
UNRELATED:
Involvement in additional businesses that are not related to the dominant or core
business on any dimensions
RELATED:
Involvement in additional businesses that are somehow related to the dominant or
core business of the organization
UNRELATED DIVERSIFICATION
Unrelated Diversification Gained Popularity in previous decades because of the:
1. Belief in the “Professional Manager” who could/would succeed in any environment
2. Rigid antitrust enforcement that prevented organizations from getting too large in one
industry.
3. Increase in popularity of Capital Asset Pricing Model (CAPM):
– Financial managers can reduce risk of a portfolio of securities by investing in
securities with dissimilar return streams
– This proposition was applied, perhaps erroneously, to business portfolios of
individual organizations
Problems with Unrelated Diversification Strategies:
1. They tend to be less profitable than other corporate strategies.
2. They make sometimes unrealistic demands on executives due to the increased complexity
of the enterprises’ operations.
Corporate-level Strategy Primer: 4 of 7
RELATED DIVERSIFICATION STRATEGIES
1. Tangible Relatedness:
The organization has the opportunity to use the same physical resources for multiple purposes such
as:
1.
2.
3.
4.
Shared marketing channels
Similar raw materials purchased through same group
Shared R&D programs
Shared advertising programs
This type of diversification allows unused (slack) resources to be more effectively, creating
operating synergy and/or economies of scale and scope
2. Intangible Relatedness:
Although there is no tangible relatedness, this occurs when an organization develops skills in one
area and applies these in other areas
DIVERSIFICATION METHODS
Tactics for achieving diversification include:
1. Internal venturing
2. Acquisitions
3. Strategic alliances and joint ventures
1.
INTERNAL VENTURING
Internal Venturing is an organizational learning process for developing skills and knowledge
necessary to compete in new domains. It consists of three basic types:
•
•
•
Product line extension, refinement and repositioning that draws the organization into new business
opportunities
Introduction of new products related to an existing competence of the firm
Development of truly new-to-the-world products not related to the core business of the firm
2. ACQUISITIONS & MERGERS
An acquisition occurs when one organization buys a controlling interest in the stock of another
organization or buys it outright from its owners. Acquisitions:
1. are the most common types of mergers
2. are a quick way to:
Corporate-level Strategy Primer: 5 of 7
•
•
•
•
•
•
•
Enter new markets
Acquire new products or services
Learn new resource conversion processes
Acquire needed information, knowledge and people skill
Vertically integrate
Broaden markets geographically
Fill Needs in the Corporate Portfolio.
PROBLEMS WITH MERGERS AND ACQUISITIONS
Most research indicates mergers and acquisitions do not benefit the shareholders of the acquiring
firm because of:
High financial costs
• High premiums paid by acquiring firms
• Increased interest costs
• High advisory fees and other transaction
• Costs
• Poison pills
Strategic problems
• High turnover among managers of acquired firm
• Management preoccupied by “Doing the Deal”
IMPROVING THE SUCCESS OF MERGERS AND ACQUISITIONS
Acquisitions are more likely to be a success, if:
1. They are friendly, because the cost of the merger is apt to be smaller, and post-merger
integration of the companies will be easier
2. The cultures of the two companies are similar
3. The two companies involved in the merger have something real to contribute to each
other so that the cost of the acquisition can be offset.
3. STRATEGIC ALLIANCES/JOINT VENTURES
Strategic Alliances and Joint Ventures:
1. May be used to achieve resource sharing in one or more of the following areas:
• Marketing
• Technology
• Raw Materials and Components
• Financial
• Managerial
• Political
2. May allow an organization to enter a new product area or new market more quickly
3. Will spread the risk of failure among more participants
Corporate-level Strategy Primer: 6 of 7
THE LIMITATIONS OF STRATEGIC ALLIANCES AND JOINT VENTURES
1.
2.
3.
4.
The organization only has partial control over the venture,
The organization enjoys only a percentage of the growth and profitability it creates
Administrative costs associated with developing and managing the venture are often quite
high
Joint ventures entail a risk of opportunism by venture partners
STEPS TO IMPROVE ALLIANCE AND VENTURE SUCCESS
1.
2.
3.
4.
5.
6.
7.
8.
Through systematic study, identify a potential partner with the necessary resources and
capabilities.
Clearly define the role of each partner and ensure that the project is of value to both.
Develop a strategic plan for the venture.
Keep key managers involved in the process so they stay committed.
Meet often, informally, at all managerial levels.
Appoint someone to monitor all aspects of the alliance and use an outside mediator when
disputes arise.
Avoid becoming a captive of the partner.
Anticipate and plan for cultural differences.
THE CONCEPTS OF ORGANIZATIONAL AND STRATEGIC FIT
STRATEGIC FIT
In a completed or proposed merger/alliance/joint venture, the companies involved exhibit strategic
fit if those companies are effectively matched in their strategic organizational capabilities; in particular, if
they have complementary strengths and weaknesses
ORGANIZATIONAL FIT
In a completed or proposed merger/alliance/joint venture, the two companies can be said to
exhibit organizational fit when their two organizations have similar management processes, cultures,
systems and structures. This encourages compatibility of units.
Problems with Strategic and Organizational Fit are the prime reasons for the failure of many joint
ventures, mergers and acquisitions.
Corporate-level Strategy Primer: 7 of 7
IV. RENEWAL STRATEGIES
A Renewal strategy is a sometimes unavoidable strategic maneuver when the firm is declining and
needs to do something (including downsizing) to help the company achieve the success it desires or survive.
The two main renewal strategies are Retrenchment and Turnaround strategies. These are usually used in
some combination as the company struggles to regain its sustainable competitive advantage.
Retrenchment Strategies: usually a short-run strategy designed to address the company’s
weaknesses that may be contributing to its decline.
Turnaround Strategies: designed for situations in which the company’s performance
problems are more serious and which may severely threaten the company’s survival in the
marketplace.
Typical Tactics used for Company Renewal
– Severe cost cutting to bring costs in line-with competitors’ and/or to meet cash
crises
– Restructuring by divesting unprofitable or otherwise undesirable business units
– Spinning-off or removing a strategic business unit (SBU) by setting up that SBU as
a separate business, usually through a distribution of shares of stock.
– Liquidating an SBU by shutting it down and selling its assets
– Bankruptcy filing (Chapter 11) under which a court of law will reorganize the SBU’s
debts and protect the SBU from creditors’ claims until it can regain its ability to pay
and emerge from the bankruptcy.
An organization or company’s “mission statement” is a description of why the company exists
and what the company does; aspires to; values; how it believes it best meets the needs of its
customers,
markets, and employees; and stands for ethically. It can be a powerful device, and a constant
reminder,
to help a business’ employees, investors (and potential investors), customers and other
stakeholders
focus and identify with the company goals and objectives as well as its product or service
offerings. If
written effectively, and is relevant and meaningful to the organization’s leaders and members,
a mission
statement provides a contextual framework that can guide a company’s strategic decision
making and
operations (i.e., a “mission-driven” organization).
Mission statements can be written as a single statement, but, as asked for here, can also
include
separate component statements such as “mission” “vision”, “values”, “objectives”, ethics
and/or social
responsibility.
A statement of your company’s overall short and longer-term financial and non-financial
goals/objectives, and a list of key company outcome variables you intend to track each year
to
help determine if you are achieving your objectives?

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