7 - Corporate strategy Flashcards
(47 cards)
business strategy is concerned with
how a firm competes within a particular market
corporate strategy is concerned with
where a firm competes, i.e. the scope of its activities
dimensions of scope
– vertical scope
– geographical scope
– product scope
Product scope
– How wide a range of products does the firm supply?
Vertical scope
– What range of vertically linked activities does the firm encompass?
Geographical scope
– What is the geographical spread of the firm’s activities? Does it compete locally or globally?
key concepts for analysing firm scope
- economies of scope
- transactional costs
- the costs of corporate complexity
Economies of scope:
cost economies from spreading costs over multiple products
Transaction costs:
the costs of market transactions. When the costs of administering transactions within the firm are lower than the costs of market transactions, the firm grows in size and scope.
The costs of corporate complexity:
impose limits to the firm’s growth in size and scope
specialization VS integration
integrated firm: there is an administrative interface between the different vertical units (V), product units (P), and country units (C).
specialized firm: each unit is a separate firm linked by market interfaces.
Which arrangement is more efficient depends upon economies of scope, transaction costs and costs of complexity
growth VS development
Growth: Increase size (assets, sales, output, profit etc.)
Development: Definition o redefinition of scope of activity
2 core issues in development
- development directions: change in scope; where to develop
- development method: how to develop; organic or external (mergers, takeovers and alliances)
draw Ansoff matrix
.
Market penetration
Occurs when a company penetrates a market in which current products already exist.
The best way to achieve this is by gaining competitors’ customers (part of their market share).
Other ways include attracting non-users of your product or convincing current clients to use more of your product/service (by advertising etc.).
A market development strategy targets
non-buying customers in currently targeted segments. It also targets new customers in new segments.
Market development strategy entails
expanding the potential market through new users or new uses.
New users can be defined as: new geographic segments, new demographic segments, new institutional segments or new psychographic segments.
Another way is to expand sales through new uses for the product
Product development is
the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief).
WHY DEVELOP?
Joint development of 2 businesses provides a better result than the sum of each one of them separately
Additional earnings are generated thanks to the relationship between businesses
THEN ONLY IF WE CREATE SYNERGIES:
- Share resources and capabilities
- Transferring knowledge or capabilities from one business to another
- Financial issues
Motives for diversification
- risk spreading
- saturation of traditional market
- growth
- value creation
Risk spreading:
Diversification tends to reduce fluctuations in profits; but this does not necessarily create value for shareholders
Growth:
a powerful motive for managers - but growth without profitability does not create value for shareholders
Value creation (synergies):
For diversification to create shareholder value it must exploit some linkage (“synergy”: marketing, operating, financial, managerial) between the different businesses, e.g. by:
• Exploiting economies of scope
• Operating an efficient internal capability market
• Operating an internal labour market
