1

Chapter 6

Strategy Formulation:

Corporate Strategy

2

Corporate Directional Strategies

3

Corporate Strategy Growth Strategies:

– Most widely pursued strategies– External mechanisms:

• Mergers– Transaction involving two or more firms in which

stock is exchanged but only one firm survives.

• Acquisition– Purchase of a firm that is absorbed as an operating

subsidiary of the acquiring firm.

• Strategic Alliance– Partnership of two or more firms to achieve

strategically significant objectives that are mutually beneficial.

4

Corporate Strategy

2 Basic Growth Strategies:

– Concentration– Current product line in one industry

– Diversification– Into other product lines in other industries

5

Corporate Strategy

Basic Concentration Strategies:

–Vertical growth

–Horizontal growth

6

Corporate Strategy

Concentration:

Vertical growth

– Vertical integration• Full integration• Taper integration• Quasi-integration

– Backward integration

– Forward integration

7

Corporate Strategy

Concentration:

Horizontal Growth

– Horizontal integration

8

Corporate Strategy

Basic Diversification Strategies:

– Concentric Diversification

– Conglomerate Diversification

9

Corporate Strategy

Diversification:

Concentric:

– Growth into related industry– Search for synergies

10

Corporate Strategy

Diversification:

Conglomerate:

– Growth into unrelated industry– Concern with financial considerations

11

Corporate Strategy

InternationalEntry

Options

ExportingLicensing

FranchisingJoint Ventures

AcquisitionsGreen-Field Development

Production SharingTurnkey Operations

BOT ConceptManagement Contracts

12

Corporate Strategy

Stability Strategies:

–Pause/proceed with caution

–No change

–Profit strategies

13

Corporate Strategy

Retrenchment Strategies:

– Turnaround

– Captive Company Strategy

– Selling out

– Bankruptcy

– Liquidation

14

Corporate Strategy

Portfolio Analysis

– How much of our time and money should we spend on our best products to ensure that they continue to be successful?

– How much of our time and money should we spend developing new costly products, most of which will never be successful?

15

Corporate Strategy

Portfolio Analysis

BCG (Boston Consulting Group) Matrix– Product life cycle and funding

decisions• Question marks• Stars• Cash cows• Dogs

16

BCG Matrix

17

GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

18

General Electric’s Business Screen

AWinners Winners

B

C

Question Marks

D

F

Average Businesses

EWinners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Indu

stry

Att

ract

ive

ness

19

Hofer-Schendel Portfolio Matrix

20

International Portfolio Analysis

2 Factors:

• Country’s attractiveness• Market size, rate of growth, regulation

• Competitive strength• Market share, product fit, contribution

margin, market support

21

Portfolio Matrix for Plotting Products by Country

Harvest/Divest Combine/License

Invest/Grow Dominate/Divest Joint Venture

Lo

wH

igh

High Low

Competitive Strengths

Co

un

try

Att

ract

iven

ess

Selective Strategies

22

Corporate Strategy

Portfolio Analysis

Advantages:– Top management evaluates each of

firm’s businesses individually– Use of externally-oriented data to

supplement management judgment– Raises issue of cash flow availability– Facilitates communication

23

Corporate Strategy

Portfolio Analysis

Disadvantages:– Difficult to define product/market

segments– Standard strategies can miss

opportunities– Illusion of scientific rigor– Value-laden terms

24

Corporate Strategy

Horizontal Strategy:– Corporate strategy that cuts across

business unit boundaries to build synergy across business units to improve the competitive position of one or more business units.