lecture 06 - corporate strategy.pptx

7/28/2019 Lecture 06 - Corporate Strategy.pptx

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Lecture Session

6

Corporate Strategy

Dr K. SankaranDirector

Justice KS Hegde Management Institute

Nitte, Karnataka


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Multi-Business Organization

But what about Corporate Strategy?

(Johnson, Scholes and Whittington, 2008)


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Rationale for the Portfolio

What businesses to be in and their characteristics?Portfolio Rationalization (Matrix / Core Competency)

Growth - M&As, Greenfield - Means of getting there

Managing the Businesses - Parenting

Corporate Strategy Issues


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CORPORATE STRATEGYPARENTING

Applies to Multi-businesses consists of several businesses with a parent corporate consisting of its own

hierarchy line and staff functions. Eg. Tata Industries is a corporate parents for many Tata organizations

Corporate Strategy guides corporate level decisions and addresses two basic questions:

1)Investments in what buz. (through ownership, minority holdings, joint ventures or alliances?)

2)What is the nature of influence exerted by the corporate on the individual businesses

Four Generic types of Corporate Control(Source: Corporate Strategy: Creating Value in theMulti-business Company Goold, M. Campbell, A. and Alexander, M. Pub: Wiley)

I. StandAlone Influence II. Linkage Influence

III. Central Functions and Services I. Corporate Development


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Stand Alone Influence

Corporates will be involved in agreeing and monitoring performance, approving major corporate

expenditure and in selection and replacement of business-unit chiefs/ MDs. Some may exercise greater

Influence in product-market strategies, pricing decisions, overall HRD policies etc. The downside:pressing for wrong targets, starving businesses of resources for worthwhile projects, wasteful

investments, appointing wrong managers etc.

Example 1: Dover Corporation

Size: $ 2.5 bil $ company, 50 different businesses such as elevators, pumps, valves and heat exchangers

Profile of businesses: Small to medium tech. Niche manufacturing businesses, industrial businesses.

Key Corporate Function: Managing through heads of the 50 businesses, appointment of the head a veryserious matter, attracts entrepreneurial managers; very supportive corporate office (nearly hand-holding

Initially). High sense of accountability later.

Corporate Growth Strategy: Natural business growth of businesses and diversification by takeovers.

Usually attracts entrepreneurs who wish to exit businesses after having built them up initially.

Example 2: BTR

Size: US $ 12 billion UK company involved in aerospace, transmission towers, electric motors, material

handling, diesel engines, control systems, construction, packaging equipment,Key Corporate Function: Intensive profit planning (not budgeting), close monitoring thru BTR profit

planning process and periodic stretching of targets, imposes high personal responsibility for performance

and high motivation to deliver

Corporate Strategy: Skills in Identifying and integrating acquisitions


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Functional and Services Influence

The parent provides functional (or services) leadership and cost effective services for business units.

Generally it is found that this is more a stepping stone to either towards Stand-alone Influence or

Linkage Influence with respect to functions of marketing, finance etc. But you would find some other

functions such as R&D may be centralised while certain specialist functions such as Projects aredeployed on a time bound basis to specific businesses.

Example 1:3M

Size: $ 14 billion sales from 41 product divisionsMainly to automotive and office products and metals

working sectors.

Key Business Philosophy: Innovative new products and whole new businesses can be created by

effective parenting of the innovation and technical function and thereby internal development of the

new businesses. A culture of cooperation, internal promotion, long tenure and innovative spirit.

Technical function is the first among equals

Corporate Influence through: Facilitation of high quality laboratory and innovation management. For

example, 3M has a large number of high tech. laboratories that are subject to assessment by the

corporate through a lab audit process that involves evaluation by other lab directors.

Example 2: Cooper

Restructuring: Until recently performing in a lack lustre fashion, Cooper was on the rebound byconsolidating five North American production centres to two.

Key Function: Manufacturing, concentrates on mature industrial businesses of spark plug, ignition

systems and other automotive and aircraft components.

Corporate Philosophy: Many independent businesses serving similar markets can derive synergy

benefits in manufacturing and distribution, if brought under parental domain.


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Corporate Development

A pure portfolio approach is adopted. The corporate parent buys and sells (or juggles) businesses like as

if they are liquid properties. It may, by design, hold businesses for short durations of time, as low as 1-2

years. With timely acquisitions is the key, this strategy also envisages timely selling of businesses to

buyers for whom the worth of the properties is more than to the portfolio manager. High focus ontypes of businesses that the company would deal with, astute deal making skills, quick responses, hard-

nosed short-term cash generation, break-up of assets to fully realise true aset values etc.mark this

strategy.

Example 1:Hanson

Method: First Hanson developed a small highly competent team for identification, screening and deal

making. It actively sought acquisitions and selected from hundreds about 12 businesses. It developed

an efficient and speed way to figure out which businesses and managers to keep and managing culture

change that most acquisitions needed.

Philosophy: Companies that seek growth from mature businesses tend to destabilise competitive

conditions, indulge in unnecessary investments and take on excessive costs. This gives opportunity to a

parent that stresses tight profitability controls. Willingness to sell ny business that is worth more to

others than we think its worth to us.

Example: In 1986 Hanson acquired Imperial Group for $ 2.6 billion and within 3 years sold off aportion of the compamy to others for $ 2.3 billion. The company was let with ownership of Imperials

main tobacco business with an estimated net wroth of 1.3 billion $. Total returns from the deal in three

years = 1 billion $.

.


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There could also be combinations of Generic Control

DuPont*Structure before reorganization

- DepartmentsFibres Chemicals, Polymers etc.

- Each independent with the own finance, engineering, HR

- CorporateSupport function

- Mainly a Linkage Influence from the corporate towards departments

- Within each department (which acted like a business), the various products (Lycra) were provided

Functional or Service support

DuPontAfter reorganization

-Move towards the standalone structure with some characteristics oflinkageStrategic Business Unit

-* based on Streamlining the over-managed company, Carey & von Weiches

II. Linkage Influence

III. Central Functions and Services I. Corporate Development

I. StandAlone Influence


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How did the new structure help?

Speed:

- Delayering, closer to the customer

- Independence of the functional units at the SBU level

Accountability

- SBU head has direct responsibility (with of course freedoms too)

Specificity

- New Measurement system introduced- Business head in change

- Blue BookMetrics for each unitrevenue, fixed costs, productivity,

commitments for the year

Culture- Step Change eg: Waste Management (Improvements in the Production Process)

- Measurement bound (Blue book)

- Targets not to be altered midway through

- Communication (Fixity of targets, accessibility of CEO, simplicity of communication, rationale for

acquisitions and divestments


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Blue Ocean Strategy

Create uncontested markets and make competition irrelevant by:

Looking Across Alternate Industries: Netjets: Combining Commercial Airlines and

Aircraft ownership

Looking Across Strategic Groups within Industries: Champion Pre-fabricated

homes (Quick installation + Comfort)

Looking Across Chain of Buyers: Intel (Assemblers to Users)

Looking Across Complementary Products/ services:Auto companies offering car

financing

Looking across industrys functional or emotional orientation: Swatch watches

(Functional combining with emotional appeal)

Looking across time:Apples itunes saw the future while observing illegal music

downloads through Napster, Kazaa, Limewire(Kim and Mauborgne, 2005)


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CapitalLinkages

Low

High

High

SBUs

70s-80s

Conglomerates

1950-70

Linkage: Oper/Competence/Customer Need

Vertically

Integrated

Firms

Core

Competency

80s-90s

(Adapted from Hinterhuber, Long Range Planning, 1994)

Low

Idealized Firm

TowardsInter-

Organizational

Systems

Horz.

Integrated

Firms

1

2

3

4

5

Evolution of Organizational Forms & Strategy Issues


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Thank you

lecture 06 - corporate strategy.pptx

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