notes strategy frameworks and models

N O T E S O N S T R A T E G Y F R A M E W O R K & M O D E L By Taposh Dutta Roy

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Author’s Note: Organization strategy is very important topic for aspiring managers, entrepreneurs, social entrepreneurs, analysts, consultants and business leader. This note is a collection of my leanings and readings from various sources. Special thanks. Prof. Gina Dokko of UC Davis’s GSM School of business, under whom I took the course and developed my understanding. These notes explore the underlying theory and frameworks that provide the foundations of a successful business strategy. These notes will help us develop your ability to think strategically by providing you the tools for conducting a strategic analysis. Strategic analysis is critical for analyzing the competitive context in which an organization operates and for making reasoned and reasonable recommendations for how that organization should position itself and what actions it should take to maximize value creation.


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Introduction Strategy is the plan to win. Lately it has become a catch all term used to mean whatever one wants it to mean. However a well crafted strategy is one that the following characteristics

1. Presents an integrated plan to win 2. Clearly articulates the source of sustainable competitive advantage. 3. Guides action and decision making at all levels

Frameworks and models help structure the information. They provide a set of categories that describes “what”, or a simplified view of realty that explains “why” or “how”. These frameworks and models are used for situation analysis and prediction. A few of these are – SWOT, Strategy diamond, Porter’s 5 forces, Research Based Value (RBV), Value chain and Strategy/CSR. SWOT Analysis This stands for Strengths, Weakness, Opportunities and Threats. Strengths and weakness are internal to the organization while opportunities and threats are external. The problem with this framework is it does not tell us what to do.


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Strategy diamond/Elements of Strategy The five elements of strategy are the necessary parts that need to be answered to have a viable strategy – 1. Arenas: where will be active? 2. Vehicles: how will we get there? 3. Differentiators: how will we win in the market place? 4. Staging: what will be our speed and sequence of moves? 5. Economic logic: how will we obtain our returns. Arenas: - Where will be active and with how much emphasis? • Which are the product categories? • Which market segments? • Which geographic areas? • Which core technologies? • Which value-creation stages?

Vehicles: - How will we get there? • Internal development • Joint Ventures • Licensing or Franchising? • Acquisitions? Differentiators: - How will we win? • Image? • Customization? • Price? • Styling? • Product reliability?


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Staging: What will be our speed and sequence of moves? • Speed of expansion? • Sequence of initiatives? Note :Plot XY plots (perception maps) to find out where you are and where you want to be. Economic logic : How will be obtain our results? • Lowest costs through scale advantages? • Lowest costs through scope and replication advantages • Premium prices due to unmatchable service? • Premium prices due to proprietary product features

The heart of business logic must be a clear idea of how profits will be generated – not just profits, but profits above the firm’s cost of capital.

*IKEA, STARBUCKS and BRAKE Intl.

Porter’s 5 forces (that shape industry competition and Not Firm)

1. Threat of New entry 2. Bargain power of buyers 3. Threat of substitutes 4. Bargain power of sellers 5. Intensity of Rivalry


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Concentration as an indicator of intensity of rivalry 1. Concentration Ratio CRx : The market share held by the x largest firms. In economics, a ratio that

indicates the relative size of firms in relation to their industry as a whole. Low concentration ratio in an industry would indicate greater competition among the firms in that industry than one with a ratio nearing 100%, which would be evident in an industry characterized by a true monopoly The concentration ratio indicates whether an industry is comprised of a few large firms or many small firms • The Four-Firm Concentration Ratio measures the total market share of the four largest firms in an

industry. • The Eight-Firm Concentration Ratio measures the total market share of the eight largest firms in

an industry.

The concentration ratio is the percentage of market share held by the largest firms (m) in an industry.

CRm= Σmi=1 si

Therefore it can be expressed as: CRm = s1 + s2 + .... + sm where si is the market share and m defines the ith firm

Concentration ratios range from 0 to 100 percent. The levels reach from no, low or medium to high to "total" concentration. [1]

• No concentration 0% means perfect competition or at the very least monopolistic competition. If for example CR4=0 %, the four largest firm in the industry would not have any significant market share.

• Total concentration 100% means an extremely concentrated oligopoly. If for example CR1= 100%, there is a monopoly.

• Low concentration 0% to 50%. This category ranges from perfect competition to oligopoly.

• Medium concentration 50% to 80%. An industry in this range is likely an oligopoly.

• High concentration 80% to 100%. This category ranges from oligopoly to monopoly.

Problems with Concentration Ratio:

The definition of the concentration ratio does not use the market shares of all the firms in the industry and does not provide the distribution of firm size. It also does not provide a lot of detail about competitiveness of the industry. The concentration ratios just provide a sign of the oligopolistic nature of an industry and indicate the degree of competition The Herfindahl index provides a more complete picture of industry concentration than does the concentration ratio.

Herfindahl–Hirschman Index, or HHI

The Herfindahl index (also known as Herfindahl–Hirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Named after


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economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust[1] and also technology management.[2] It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50)[3] within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite. Alternatively, if whole percentages are used, the index ranges from 0 to 10,000.

The major benefit of the Herfindahl index in relationship to such measures as the concentration ratio is that it gives more weight to larger firms.

For instance, two cases in which the six largest firms produce 90% of the goods in a market:

• Case 1: All six firms produce 15% each, and • Case 2: One firm produces 80% while the five others produce 2% each.

We will assume that the remaining 10% of output is divided among 10 equally sized producers.

The six-firm concentration ratio would equal 90% for both case 1 and case 2. But the first case would promote significant competition, where the second case approaches monopoly. The Herfindahl index for these two situations makes the lack of competition in the second case strikingly clear:

• Case 1: Herfindahl index = 6 * 0.152 + 10 * 0.012 = 0.136 (13.6%) • Case 2: Herfindahl index = 0.802 + 5 * 0.022 + 10 * 0.012 = 0.643 (64.3%)

This behavior rests in the fact that the market shares are squared prior to being summed, giving additional weight to firms with larger size.

The index involves taking the market share of the respective market competitors, squaring it, and adding them together (e.g. in the market for X, company A has 30%, B, C, D, E and F have 10% each and G through to Z have 1% each). If the resulting figure is above a certain threshold then economists consider the market to have a high concentration (e.g. market X's concentration is 0.142 or 14.2%).

This threshold is considered to be 0.25 in the U.S.,[1] while the EU prefers to focus on the level of change, for instance that concern is raised if there is a 0.025 change when the index already shows a concentration of 0.1.[4] So to take the example, if in market X company B (with 10% market share) suddenly bought out the shares of company C (with 10% also) then this new market concentration would make the index jump to 0.162. Here it can be seen that it would not be relevant for merger law in the U.S. (being under 0.18) or in the EU (because there is not a change over 0.025).

Note: HHI over 1800 is generally considered to be concentrated while under 1000 is considered un concentrated


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where si is the market share of firm i in the market, and N is the number of firms. Thus, in a market with

two firms that each have 50 percent market share, the Herfindahl index equals 0.502+0.502 = 1/2.

The Herfindahl Index (H) ranges from 1/N to one, where N is the number of firms in the market.

Equivalently, if percents are used as whole numbers, as in 75 instead of 0.75, the index can range up to

1002, or 10,000.

A HHI index below 0.01 (or 100) indicates a highly competitive index.

A HHI index below 0.15 (or 1,500) indicates an unconcentrated index.

A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.

A HHI index above 0.25 (above 2,500) indicates high concentration

http://www.justice.gov/atr/public/guidelines/hmg-2010.html

A small index indicates a competitive industry with no dominant players.

If all firms have an equal share the reciprocal of the index shows the number of firms in the industry. When

firms have unequal shares, the reciprocal of the index indicates the "equivalent" number of firms in the

industry.

Using case 2, we find that the market structure is equivalent to having 1.55521 firms of the same size.

There is also a normalised Herfindahl index. Whereas the Herfindahl index ranges from 1/N to one,

the normalized Herfindahl index ranges from 0 to 1. It is computed as:

where again, N is the number of firms in the market, and H is the usual Herfindahl Index, as

above.

RELATIVE Bargaining power

• A competitive analysis of an industry focuses on a key variable: Relative Bargaining Power • Relative bargaining power is the ability to get others to do what you want, to bargain hard for

higher prices or lower costs • Power accrues to firms when they have something of value to others and they can maintain their

added value

Substitutes are about the size of the pie Other four forces are about division of pie


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Things to remember about using Five Forces…

• Framing is vital – About the industry, not the firm – Definition of industry is subjective, but important

• Not all forces are created equal – Relevance of each force will change from industry to industry: dig into the ones that matter

• Buyers and suppliers can go multiple levels deep • Fill out the framework, but use the lists as a starting point for analysis

What is the main point of the Five Forces Model? - You can’t make money in an industry where the five forces are strong

What do industry concentration measures like CR4 and HHI have to do with the Five Forces Model? Industry concentration measures quantify intensity of rivalry

Note: Price is not a valid axis for strategic group analysis


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Resource Based View (RBV) –

Note: In a perfect competition, profit ~ 0. Resources and capabilities interface between strategy and the firm.

Resources and capabilities are the source of Sustainable competitive advantage (SCA). http://smallbusiness.chron.com/difference-between-value-chain-analysis-resourcebased-analysis-50113.html What are Resources? Resources can be broadly defined as all assets, capabilities, organizational processes, firm attributes, information, & knowledge that enables a firm to conceive of and implement strategies that improve its efficiency and effectiveness. [Barney] Resources can be specifically classified as – 1. Tangible Assets ( e.g. financial resources, real estate, plant and equipment) 2. Intangible Assets ( e.g. IP, research capabilities, culture, brand) 3. Human resources

Capabilities can be specifically classified as –

The ability to do something productive with the resources a. Ability of organization to perform some complicated task that involves the combination and

co-ordination of multiple resources. b. Organizational level abilities involving interactions among multiple people as well as

machines, systems etc. What is Resource Based View (RBV)? Seeing the resources and capabilities of the firm as the fundamental “fact” of the firm. a. Not (primarily) about the markets or customers (Marketing) b. Not (primarily) about the competitors or industry (Porter’s 5 forces)

Managers should focus on building and managing strategic resources and capabilities. Resources and capabilities can confer advantage in a wide variety of markets and contribute to a wide variety of end product benefits.


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To analyze resource based view we can use the framework provided by Prahalad and Hamel


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When do strategic resources or capabilities create sustainable competitive advantage (SCA)?

When they are –

1. Valuable – Resources that enable a firm to conceive or implement strategies for efficiency or effectiveness

2. Rare – Resources possessed by many other firms cannot be sources of SCA 3. Inimitable – Because of unique historical conditions, causal ambiguity, and/or social complexity 4. Non-Substitutable – No strategically equivalent substitutes that other firms can use to implement

the same strategy. Note: Cash Reserves are never a strategic resource. Summary – 1. Resources and capabilities offer a different perspective that can solve some mysteries in analyzing

companies. Some firms don’t have a real structural advantage, and do not have secret processes that provide advantage, but succeed year after year.

2. Frame work to think for Sustainable Competitive advantage – VRIN 3. Resources and capabilities are building blocks for diversification (corporate strategy)

a. Apple started as PC manufacturer, what is it now? b. If you were Toyota, what business areas would you expand into? – Process Consulting

4. Provides a way to evaluate first mover (dis)advantages. 5. Be careful that resources don’t turn into rigidities.

Levels of Strategy

1. Corporate-level Strategy – Where to compete 2. Business-level Strategy – How to compete in particular markets, Strategic business units (SBU)


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3. Operational Strategy – How subunits and functions of SBUs contribute to business level strategy Note: The distinction between business and corporate strategy – Corporate strategy is concerned with where a firm competes; business strategy is concerned with how a firm competes with a particular area of business. Corporate strategy ( Can be visualized as):

Corporate Strategy: (BOUNDRIES ) Where do you draw the line around the firm?

1. Vertical Scope (Integration) : What range of value adding activities should the firm encompass? Nike (Vertically Specialized) vs Disney (Vertically Integrated) or ZARA (Vertically Integrated)

2. Product Scope (diversification) : How specialized should a firm be in its offerings e.g. GE vs Gap

3. Geographic Scope – What is the optimal spread of activities e.g. Popeyes vs McDonalds Vertical Integration Vertical integration refers to a firm’s ownership of vertically related activities. The greater a firm’s ownership extends over successive stages of the value chain for its product, the greater is the degree of vertical integration. The extent of vertical integration is indicated by the ratio of a firm’s value added to its sales revenue : The more the firm makes rather than buys, the greater its value added relative to its sales revenue. Vertical integration can be –

6. Backward – firm takes ownership and control of producing its own components or inputs. 7. Forward – firm takes ownership and control of activities previously undertaken by its cutomers 8. Full – Fully integrated i.e. produce their own without any external supplement 9. Partial – Partially integrated i.e. they supplement along with their own grown/created products.


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Understanding Transaction cost Markets are not costless: making a purchase or sale involves search costs, the costs of negotiating and drawing up a contract, costs of monitoring to ensure that other party’s side of the contract is being fulfilled and enforcement costs of arbitration or litigation should a dispute arise. All these are transaction costs Now, if we find the transaction costs associated with organizing across markets (e.g. outsourcing etc) are greater than the administrative costs of organizing within the firms, we can expect the coordination of productive activity will be internalized within the firms. Vertical integration and Transaction Cost Economics (TCE) Markets vs Hierarchy (i.e. firms) Interplay The questions that come in the interplay – a. Is it cheaper (better) to buy vs make. b. How strategically different are the stages in Value Chain c. What benefits accrue from long term secure relationship Middle ground – a. Joint Ventures b. Long term contracts c. Alliances d. Franchising Examples:

• Whole Foods and Safeway have made different strategic choices But copying Safeway is not necessarily easier than copying Whole Foods – both are difficult and there are a number of operational choices that make each effective

• Nordstrom and Kohl’s have made different strategic choices. Additionally, Nordstrom would find it almost impossible to be like Kohl’s, or vice versa

a. Investments in locations, equipment, etc. b. Abilities and training of employees c. Branding, etc.

Notes :

1. The firm’s chosen strategy is relevant, but that decision isn’t enough by itself – the firm must support that decision

2. Positioning is important, but we also need to consider the set of activities that a firm uses to deliver this value


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Fitness- There are 2 types of fit – Internal and External. Strategy about achieving both types of “fit” – 1. External Fit - The fit with the external environment i.e. Industry forces and positioning (5-forces,

generic strategies & strategic groups) a. Do our products and services allow us to meet consumers’ desires? b. Do our products and services offer value that is superior to that of our competitors?

2. Internal fit – The fit of internal activities with chosen strategy, Resources (RBV & core competence) and Value chain

a. View products and services as consisting of a chain of distinct and separable activities b. Consider the consistency and interrelationship among these choices of activities

Value Chain Analysis ( by Gina Dokko) A value chain analysis is used to analyze the choices and activities of the firm, and assess the extent to which they fit together and with the strategy. Value chain analysis views the organization as a sequential process of value-creating activities that transform inputs into outputs that customers value. ( Where is value created in organization?. Where costs are incurred in organization?) Goal is to break down product or service into multiple activities that go into its creation and delivery. -‐ A framework of systematic analysis of choices that support a strategic position. -‐ Helps you understand drivers of both

a. Cost (relative emphasis in spending) and b. Willingness to pay (sources of benefits to customer)

-‐ Identify key distinctions from competitors By focusing on the strategically important activities that a firm performs, drivers of cost and differentiation can be clearly identified and evaluated for strategic fit. A firm gains competitive advantage by performing strategically important activities better or more cheaply than competitors do. There are two types of activities considered in a value chain analysis:

• Primary: – Contribute to physical creation of the product/service, its sale and transfer to the buyer,

and its service after the sale. – Outline the direct value adding activities of the firm. – Traces flow of goods, services and customer/supplier contact through the process – (Note) : Think creatively and generally about the process – inbound logistics can include

R&D (for a pharma company)

• Support: – Add value by themselves or add value through important relationships with both primary

and other support activities. – Support activities address corporate investments – Generally represent investments that support one or more primary activities and increases

ability to add value. – Often indirect investments.


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Michael Porter’s depiction of a value chain looks like this:

ITEM DEFINITION EXAMPLES Inbound Logistics

Receiving, storing, and distribution inputs to the product • Includes warehousing,

inventory control, scheduling, etc.

• JIT (Just In Time) delivery systems • Location of facilities to minimize shipping times • IT investments to control warehouses • Data acquisition strategies (for data-driven

businesses) • Partnership or alliance strategies • Supplier-specific investments

Operations Activities to transform inputs to outputs

• Efficient, most-advanced plant systems • Automation level • Quality control systems • Environmental impact decisions • Outsourcing decisions

Outbound Logistics

Activities to collect, store and distribute outputs

• Shipping processes and partners • Finished goods warehousing • Shipping lot sizes

Marketing & Sales

Activities to inform buyers and induce them to purchase

• Sales force and incentives • Advertising and promotion (4 P’s, etc.) • Distribution channels • Customer segmentation

Service After-sales activities • Training options for customers • Installation, repair and warranty • Customer feedback solicitation

General Administration

Physical (offices, structure) and intangible (general management, culture, planning, etc.) organization

• Leadership style and culture • Organizational structure and design • Headquarters location • Access to working capital

Human Dealing with employees of the • Recruiting and hiring policies


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Resources Management

firm • Promotion and retention policies • Internal training investments • Union relations • Reward and incentive programs • Work environment

Technology Development

Both IT and “technology” (transformation of inputs to outputs) investments to support operational activities

• IT Investment levels and aggressiveness of upgrading

• R&D activities • Collaboration on new development across

divisions • External technology acquisition

Procurement Refers to the purchasing of inputs, not the actual acquisition of the inputs (which is Inbound Logistics)

• Quality v. cost v. speed tradeoffs • Pricing negotiation • Partner relationships (single-sourcing versus

multi-sourcing) • Lease-versus-buy decisions

Note that a firm’s value chain can differ significantly from those of other firms in the same industry, depending on the firm’s vertical integration choices. Some firms choose to outsource activities, while other firms prefer to do things in house. For example, Nike outsources all production, while New Balance manufactures in house. Drawing an industry level value chain can also be instructive in helping a firm understand where its activities differ from the overall industry’s and may help in understanding competitive advantage. Using a value chain framework to analyze a firm entails:

• Allocating total cost and value added associated with each stage of the value chain • Identifying activities that drive cost and value within each stage of the value chain • Identifying linkages between activities that might affect the cost or benefit of activities, e.g., high

costs in service might be a result of complex product design. Simplifying design might reduce service cost. On the other hand, simplifying design might reduce willingness-to-pay if it makes the product less differentiated.

• Identifying opportunities for cost reduction (for a cost leadership firm) or differentiation (for a differentiation firm). Note that opportunities for differentiation might entail finding linkages between your value chain and the value chain of your buyers. For example, having a quick response to customer orders might allow your customers to reduce inventory costs, thereby increasing your value to them.

The following is a sample value chain analysis for a company that has a cost leadership strategy:


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And a similar example for a company that has a differentiation strategy:


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Diversification What are the essential tests for diversification? Porter proposed three “essential tests” to be applied in deciding whether diversification will truly create shareholder value-

a. The attractiveness test – The industries chosen for diversification must be structurally attractive or capable of being made attractive.

b. The cost of entry – The cost of entry must not capitalize all future entries c. The better of test – Either the new unit must gain competitive advantage from its link

with the corporation or vice versa i.e. Synergies and Spillovers a. Economies of scope ( The key difference is that the economies of scale relate to

cost economies from increasing output of a single product; economies of scope are cost economies from increasing the output of multiple products) through deployment of resources and capabilities

b. Internal capital markets c. Internal labor markets

How diversified are the businesses ?

a. Strategic and operational relatedness b. Unrelated diversification the conglomerate (GE, Berkshire Hathaway)

Framework for Corporate level Business Portfolio - Boston Matrix (BCG Growth share matrix) Market Share and Market Growth To understand the Boston Matrix, you need to understand how market share and market growth interrelate. Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control. The Boston Matrix assumes that if you enjoy a high market share you will be making money. (This assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that give you an advantage). The question it asks is, "Should you be investing additional resources into a particular product line just because it is making you money?" The answer is, "not necessarily." This is where market growth comes into play. Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable. By contrast, competition in low growth markets is often bitter, and while you might have high market share now, it may be hard to retain that market share without aggressive discounting. This makes low growth markets less attractive. Understanding the Matrix The Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:


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These groups are explained below: Question Marks (Problem Child): Low Market Share / High Market Growth (ipad) These are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there. Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted. Stars: High Market Share / High Market Growth (iphone) Here you're well-established, and growth is exciting! There should be some strong opportunities here, and you should work hard to realize them. Cash Cows: High Market Share / Low Market Growth (ipod) Here, you're well-established, so it's easier to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing, and your opportunities are limited.


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Dogs: Low Market Share / Low Market Growth (Mac) In these areas, your market presence is weak, so it's going to take a lot of hard work to get noticed. You won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit. And because market growth is low, it's going to take a lot of hard work to improve the situation. How to Use the Tool: Step One: Plot your products on the worksheet according to their market share and market growth. Step Two: Classify them into one of the four categories. If a product seems to fall right on one of the lines, take a hard look at the situation and rely on past performance to help you decide which side you will place it.

Tip1: There’s nothing “magical” about the position of the lines between the quadrants. There may be very little real difference, for example, between a Problem Child with a market share of 49%, and a Star with a market share of 51%. It’s also not necessarily true that the line should run through the 50% position. As ever, use your common sense. Tip 2: A similar (and equally powerful) tool is the Action Priority Matrix, which helps you pick projects which legitimately give you the quickest and highest value returns. By using the BCG Matrix and Action Priority Matrix together, you get the best of both worlds!

Step Three: Determine what you will do with each product/product line. There are typically four different strategies to apply:

1) Build Market Share: Make further investments (for example, to maintain Star status, or to turn a Question Mark into a Star).

2) Hold: Maintain the status quo (do nothing). 3) Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star or

a Cash Cow). 4) Divest: For example, get rid of the Dogs, and use the capital you receive to invest in Stars and

Question Marks. Tip 3: From a personal perspective, you can evaluate the opportunities open to you by substituting the dimension of Market Share with one of Professional Skills. Plot the options open to you on the personal version of the BCG Matrix, and take action appropriately. Key Points The Boston Matrix is an effective tool for quickly assessing the options open to you, both on a corporate and personal basis. With its easily understood classification into Dogs, Cash Cows, Question Marks and Stars, it helps you quickly and simply screen the opportunities open to you, you – and identify where best to invest the finite amount of money, time, and effort you have available.


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Value of Corporate Parenting “…we embarked on a field research project to assess the state of corporate strategy…A harsh truth emerged from this research: In more than half of the companies we studied, corporate management could not effectively articulate how their firms added value to the businesses in their corporate portfolio.” - Collis and Montgomery, 1997 Benefits of Corporate Parenting

• Intra-, inter-, and extra-industry power from size – Reduce rivalry/competition, increase barriers to entry – Political and social control over government, labor, communities, etc. – Ease of entry into more attractive/profitable industries given resources and other power

• Move resources from an unattractive to attractive industry (e.g., Westinghouse to CBS; GE under Jack Welch; Microsoft into Xbox, etc.)

• The dream of synergy – At least one business should have increased SCA

Mechanisms for managing positive spillovers/synergies

• Financial capital – Specifying allocation of funds among business units – Specifying and monitoring expenditures made – Acquisitions and divestitures

• Human capital – Rotating managers through business units – Creating broad internal labor markets

• Organizational design – Matrix structures – Steering committees and cross-SBU working groups

Lessons: Diversification • The key issue in corporate strategy is how does the corporation add value to each of its

businesses? – It always adds cost – how, specifically, does it add value?

• Resource allocation and organizational design are key tools for managing diversified firms – Identifying, encouraging, and managing positive spillovers

notes strategy frameworks and models

Documents

e w o r

n o t e s o n s t r

t e g y f r

organization strategy

introduction strategy

crafted strategy

viable strategy

successful business