chapter 9 - 10 students

8/7/2019 Chapter 9 - 10 Students

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Chapters 9 - 10

Corporate Level Strategy


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Foods

Quaker North America

Quaker Oats

Capn Crunch cereal

Life cerealQuisp cereal

King Vitaman cereal

Mothers cereal

Quaker rice cakes and granola bars

Rice-A-Roni side dishes

Near East couscous/pilafsAunt Jemima mixes & syrups

Quaker grits

Business Level

Strategies

How are we going

to compete and

gain a competitive

advantage ineach of our

businesses?


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Snack Foods Beverage

s

Foods

Corporate Level Strategy1) What businesses do we want to compete in?

2) How do manage effectively across businesses


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Goals of Corporate Strategy

Moves to enter new businesses

Boosting combined performance of the

businessesCapturing synergies and turning them into

competitive advantages

Establishing investment priorities andsteering resources into business units


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4 Corporate Level Strategies

1) Vertical Integration

2) Strategic Outsourcing

3) Horizontal Integration 4) Diversification two or more different

businesses with distinct operations


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1) Vertical Integration

Forward or backwards Full integration Taper integration

Benefits

Build barriers to entry Facilitates investment in specialized assets Protecting product quality Improved scheduling

Risks

Costs Rapid technological changes Demand predictability


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Alternatives to Vertical Integration

Competitive bidding

Long term contracts or strategic

alliances

VerticalIntegration

Markets &Competitive Bidding

Hybrid &Contracts/Alliances

Form of Relationship


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2) Outsourcing

Cost reduction and differentiation

Hold-ups, scheduling and hallowing out


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3) Horizontal Integration

Acquiring or merging with industry

competitorsReduce cost and economies of scale

Increasing value through wider product line

or product bundling

Manage industry rivalry

Decrease buyer and supplier power


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4) How to Diversify?

1) Internal Development - corporate

entrepreneurship or internal venturingable to appropriate a larger portion of wealth

avoids complexities of multiple partners

time consuming and requires diversity of

organizational capabilities


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2) Strategic Alliances and Joint Ventures entering a new market via the combination of

complementary resources - do more together

cost reduction & sharing

development/diffusion of technologyProblems

appropriate partners - skills and compatibility

trust and commitment

communication


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3) Mergers & Acquisition


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Acquisitions

Reasons of Acquisitions

Increase Market Power

Overcome Entry Barriers

Increased Speed

Lower Risk

Avoid Competition

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation

Results

Poor

Performance

Who Wins?

Acquired Firm

Shareholders


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Failures of Acquisitions

30 - 40% average acquisition premium

Acquiring firms value drops 4% in the 3 months

following acquisitions

30 - 50% of acquisitions are later divestedAcquirers underperform S&P by 14%, peers by 4%

3 month performance before and after

30% substantial losses, 20% some losses, 33%

marginal returns, 17% substantial returns


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Why, then, do executives acquire?

Often, for personal reasons

Firm size and executive compensation are

related

When do executives loss their jobs?1) Acquired - larger firms harder to acquire

2) Performing poorly - employment risk is

reduced as returns are less volatile


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Levels of Diversification

Related Diversification - entering product markets

that share some resource or capability

requirements with the current business

horizontal relationships across businesses -

synergies

Advantages of related diversification include:

Leveraging Core CompetenciesSharing Activities

Market Power


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Levels of Diversification (cont.)

Unrelated Diversification - few similarities in the

resources and capabilities required among the

firms businesses

Conglomerate Diversification - no relatedness

between businesses


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When/Why to Diversify?

To create shareholder value

Porters Three Point Test

1) Attractiveness Test2) Cost of Entry Test

3) Better off Test

Should pass all 3


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Portfolio analysis

BCG Growth-Share Matrixquestion marks, dogs, cash cows, stars

GE- Nine Cell Matrix


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Growth

Rate

Relative Market Share

Stars QuestionMarks

CashCows

Dogs

Boston Consulting Group Matrix


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Growth

Rate


1.0High Low

Soft

Drinks

FritoLay

KFC

Pizza

Hut

Taco

Bell

Low

High

10%

BCG Matrix for PepsiCo - Early 1990s


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Growth

Rate


.75High Low

Soft

Drinks

Frito

Lay

KFC

Pizza

HutTaco

Bell

Low

High

5%

BCG Matrix for PepsiCo - Early 1990s


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Competitive Strengths

A

ttractiveness

Invest

Grow

Low

High

LowHigh

Harvest

Divest

Hold

GE 9 Cell Matrix


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Competitive Strengths

A

ttractiveness

Low

High

LowHigh

GE 9 Cell Matrix for Pepsico

Soft Drinks

Snack Foods

chapter 9 - 10 students

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