Corporate Strategy

Question 1

What is the main point of corporate strategy?

Answer 1

What the scope of the organisation should be (what markets/products etc.)

&

How value is added to the constituent businesses of the organisation as a whole.

Question 2

What are the four main corporate strategy directions and describe them?

Answer 2

1) Market penetration - existing products/services in an existing market

2) Market development - existing products/services in a new market

3) Product/Service developement - New product/services in an existing market

4) Unrelated diversification - New product/services in a new market

Question 3

How do corporations deicde on organisational scope?

Answer 3

Through related and unrelated diversification

• Related - diversifying into products or services with relationships to the existing business.
• Unrelated - diversifying into products or services with no relationships to the existing businesses.

Question 4

What are the risks with product/service devlopment strategies?

Answer 4

• involves varying degrees of related diversification;
• can be an expensive and high risk activity:
• may require new resources and strategic capabilities;
• typically involves project management risks.

Question 5

What does market development mean?

Answer 5

• new segments of existing markets
• new geographic markets
• new strategic capabilities (e.g. in marketing).

Question 6

What does market penetration mean?

Answer 6

• Builds on established strategic capabilities
• The organisation’s scope is unchanged.
• Provides greater economies of scale and experience curve benefits.

Question 7

What are the drivers for diversification?

Answer 7

• Exploiting economies of scope – efficiency gains through applying the organisation’s existing resources or competences to new markets or services.
• Stretching corporate management competences
  (‘dominant logics’)
• Exploiting superior internal processes
• Increasing market power via mutual forbearance or cross subsidisation.

Question 8

What are the ways a company can add or destroy value with certain activities?

Answer 8

Value-add : Coaching, Central services/resources, Facilitating synergies between different departments

Value-destroy: Mgmt costs, bureaucratic processes, Obscuring financial performance

Question 9

What are the different business integration options?

Answer 9

• Vertical integration describes entering activities where the organisation is its own supplier or customer.
• Backward integration refers to development into activities concerned with the inputs into an organisation’s current business.
• Forward integration refers to development into activities concerned with the outputs of an organisation’s current business.

Question 10

What are the factors that are taken into account when deciding whether to outsource or not?

Answer 10

1) Relative strategic capabilities - Does the subcontractor have the potential to do the work significantly better?

2) Risk of opportunism - Is the subcontractor likely to take advantage of the relationship over time?

Question 11

What is divestment, reasons for and types of it?

Answer 11

Divestment occurs when an organization decides to pull out of one or more of its businesses.

Reasons: poor performance; investor pressure; cost of strategic business unit (SBU) is more than the value generated.

Two types:
1) Sell-off: SBU sold to another company.
2) Spin-off: SBU shares distributed to parent company shareholders.

Question 12

What are the different corporate rationales?

Answer 12

• 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.