Mgt 4335- Chapter 7 Flashcards
What are 3 key issues facing the corporation that corporate strategy deals with?
Directional strategy (orientation toward growth), portfolio analysis(coordination of CF among units), parenting strategy(building of corporate synergies through resource sharing and development).
What are 3 important questions that every corporation must decide its orientation toward growth ?
- Should we expand, cut back, or continue our operations unchanged?
- Should we concentrate our activities within our current industry, or should we diversify into other industries?
- If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances?
T-Directional strategy is composed of three general orientations (grand strategies):
Growth strategies expand the company’s activities.
Stability strategies make no change to the company’s current activities.
Retrenchment strategies reduce the company’s level of activities.
What is vertical growth meant?
Vertical growth can be achieved by taking over a function previously provided by a supplier or by a distributor.
T-What are 4 ways to vertically integrate?
- Backward: going backward in the industry’s value chain. For example, the purchase of Carroll’s Foods for its hog-growing facilities by Smithfield Foods, the world’s largest pork processor.
Forward: moving upstream toward the end product of service. For example, FedEx used forward integration when it purchased Kinko’s in order to provide store-front package drop-off and delivery services for the small-business market.
Balanced: doing both forward and backward at the same time(including taper)
Full: owning the entire .value/supply chain. For example, British Petroleum and Royal Dutch Shell are fully integrated. They own the oil rigs that pump the oil out of the ground, the ships and pipelines that transport the oil, the refineries that convert the oil to gasoline, and trucks that deliver the gasoline to franchised gas stations.
T-What are the advantages and disadvantages of vertical Integration?
Advantages: Better control + mgt of production; reduction of inventory costs; strategic independence; can create barriers to entry; reduction in transaction costs; secure source of materials; protection&control of assets.
Disadvantage: increased coordination costs; weak inactivation to be efficient; company is very vulnerable to changes in demand.
TT-What is diversification meant ?
Expanding across multiple different businesses outside of its current business.
Encompasses mergers & acquisitions.
TT-What are 5 reasons for horizontal integration ?
- Creating a more cost efficient of meaner, more competitive, larger org.
- Expanding geographically: banks, airlines.
- Expanding into new product categories.
- Gaining access to new technologies.
- Leading the convergence of industries where boundaries are blurred by changing technologies. “hedging”, “market response”
T-What is concentric diversification ?
Growth through concentric diversification into a related industry may be a very appropriate corporate strategy when a firm has a strong competitive position but industry attractiveness is low.
The search is for synergy.
The point of commonality may be similar technology, customer usage, distribution, managerial skills, or product similarity.
1. All products sold at same place.
2. Same communication channels along supply chain.
3. Same skills needed to do the business of all products.
4. All products have same distribution channel.
T-What is conglomerate diversification?
When management realizes that the current industry is unattractive and that the firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries. General Electric and Berkshire Hathaway used conglomerate diversification that managed by Warren Buffet.
T-What are advantages of concentric and advantages of conglomerate?
Advantages of concentric (related):
Economies of scope can save $ by sharing fixed costs; transfer distinctive competencies to new businesses; flip poor performers ( Bauer Hockey, Cole Haan, Umbro)
Advantages of conglomerate:
All eggs not in one basket; can turn around poor performers.
T-What are disadvantages of diversification?
Possible lack of knowledge/expertise (departure from core competence) coordination costs-management efforts too much “stuff” makes it hard to be really good at anything, hard to compete against firms who specialize. For example, Pepsi and Coca Cola.
When do you pursue diversification? Ask 3 questions:
- Is the anticipated return high? Do we think we’ll make it?
- Cost of entry what will it cost to get in? Is this price higher or lower than anticipated returns?
- Are we better off than going with another option?
T-What are 3 types of one core business/stability?
- Proceed with caution: uncertain time incremental improvements-spending some money.
- No Change: do nothing modestly competitive market position-no money.
- Profit strategy: conditions in market are worsening situation but instead to act as through the company’s problems are only temporary (reduce investments and short term expenditures).
what is the author trying to convey about this strategy?
A corporation may choose stability over growth by continuing its current activities without any significant change in direction.
