theme 3 session 14 corporate level strategy

Strategy: Choices and Impact MN6005

Session 14 (w/c 14/01/13 -3b) Corporate Level Strategic

Choices

Lecturer: xxxxxxxxStrategy Theme 3: Strategy Directions and

Choices

What did we talk about last week?

Re-cap of session 13 : Business Unit Level Strategic Choice

Image source: http://www.accountingweb.co.uk/anyanswers/question/i-think-client-has-sacked-me

Objectives • Understand the difference between business

unit and corporate level strategies• Identify alternative corporate strategy options

and choices (Portfolio Analysis)• Consider the different roles of the corporate

parent

Today

Levels of strategy

• Corporate-Level Strategy is concerned with the overall purpose and scope of an organisation and how to add value to business units

• Business-Level Strategy is concerned with the way a business seeks to compete successfully in its particular market

• Operational Level Strategy is concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people

source: Johnson, Whittington and Scholes (2011) Exploring Strategy, 9 th Edition, Pearson Education, Chapter 1

The Corporate Parent manages the portfolio of business unitsExample Virgin – highly diversified

source: http://www.virgin.com/ accessed 1/1/13

http://www.virgin.com/

Strategic directions andcorporate-level strategy


Logic of the Portfolio


Portfolio matrices

Growth/Share (BCG) Matrix

Directional Policy (GE-McKinsey) Matrix


The growth share (or BCG) matrix


The growth share (or BCG)

• A star is a business unit which has a high market share in a growing market.

• A question mark (or problem child) is a business unit in a growing market, but it does not have a high market share.

• A cash cow is a business unit that has a high market share in a mature market.

• A dog is a business unit that has a low market share in a static or declining market.


BCG matrix/Boston box: the pros

• Simplicity • PIMS (profit impact of market share) research

provides some evidence to support BCG matrix

• Part of common business vocabulary• Allows for purposive approach rather than

following the vagaries of the market-place

BCG matrix/Boston box: limitations

• Limited two-dimensional (2 factors)• Its simplicity makes it prone to overuse• Arguably, a ‘self fulfilling’ strategy tool• May be reasons for keeping a ‘dog’ e.g.

complementary product

The directional policy(GE–McKinsey) matrix


Strategy guidelines based on the (GE–McKinsey) directional policy matrix


Indicators of Strategic Business Unit Strength and Market Attractiveness


Role of the Corporate Parent


Balancing Synergy and Responsiveness

Low parental control• Collection of businesses• Potentially unrelated

businesses• Focus on business unit

responsiveness• Centre allocates capital and

monitors performance• Low co-ordination between

business units• Simple to add new

businesses

High parental control• Common core business• Tightly related (focussed)

businesses• Focus on multi-business

synergy• Centre sets direction and

manages synergies• Highly integrated and inter-

dependent business units• New businesses require

integration

De Wit, B and Meyer, R (editors) (2010). 4th Edition Strategy: Process, Content, Context, Thomson International Business Press: London. chapter 6

Corporate rationales – role of ‘Head Office’

Original Source: Adapted from M. Goold, A. Campbell and M. Alexander, Corporate Level Strategy, Wiley, 1994


Corporate rationales

• The portfolio manager operates as an active investor in a way that shareholders in the stock market are either too dispersed or too inexpert to be able to do.

• The synergy manager is a corporate parent seeking to enhance value for business units by managing synergies across business units.

• The parental developer seeks to employ its own central capabilities to add value to its businesses.


Value-Adding Corporate Parents

Envisioning Strategic Intent Central Services and Resources

Focus

Clarity to external stakeholders

Clarity to business units

Investment

Scale advantages

Pool of management capabilities

Intervention at Business Level Expertise

Monitor performance

Action to improve performance

Challenge/develop strategic ambitions

Coaching/training

Achieve synergies

Provide expertise/services

Knowledge creation/sharing

Brokering linkages/accessing external networks


Value-Destroying Corporate Parents

• Bureaucracy– Adds cost– Hinders responsiveness

• Buffer from reality– Financial safety net

• Diversity and size– Lack of clarity on overall vision

• Managerial ambition– Empire building


Read the Case Study: Virgin Group

• What type of corporate parent is Virgin (portfolio manager, synergy manager or parental developer)?

• How does the Virgin Group, as a corporate parent, add value to its businesses?

• What’s the logic of the portfolio? Why do you think they are in mobile telephony, travel, financial services, leisure, music, holidays and health & wellness?

• What are the main risks facing the Virgin Group as a result of their strategy? How might they be reduced?

Summary

• Many corporations comprise several, sometimes many business units. Decisions and activities above the level of business units are the concern of the corporate parent.

• There are several portfolio models to help corporate parents manage their businesses, of which the most common are: the BCG matrix and the directional policy matrix

• Corporate parents may seek to add value by adopting different parenting roles: the portfolio manager, the synergy manager or the parental developer.


Task for your Learning Journal

1. In your own words and using referenced quotes describe the difference between ‘business unit level’ strategy and ‘corporate level’ strategy

2. Discuss the corporate parenting style of Virgin group.

Note: this should take you about an hour. As an indicative guide, based on student submissions from semester 1, this can be completed to a high standard in 300 to 500 words but of course the quality of what is written matters greatly. Use referenced quotes to demonstrate academic reading. Demonstrate that you have a good understanding of the content of the module, the models and theories in particular, and can apply this to a real-world organisation like Virgin. This should be completed within 7 days i.e. before your next class.

theme 3 session 14 corporate level strategy

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