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Corporatestrpart 1

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104 views15 pages

Corporatestrpart 1

Uploaded by

api-228377429
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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How do we sustain competitive advantages in our

current business? What new businesses or industries


do we wish to enter?
Corporate-Level Strategy
Corporate strategy is used to identify:
1. Businesses/industries firm should be in
2. Value creation activities firm should perform
3. Methods to enter/exit businesses/industries
to maximize long-run profitability

Companies must adopt a long-term perspective
in formulating a corporate-level strategy.
Corporate-Level Strategy
and Multi-Business Model
Multi-Business
Company Must Construct:
1) Business model & strategies for each
business unit/division in every
industry it competes
2) Higher-level model- justifies
entry into different
businesses & industries
o Horizontal Integration- acquiring/merging with
industry competitors
o Vertical Integration- expanding operations
backward into industry that produces inputs
for company or forward into industry that
distributes companys products
o Strategic Outsourcing- letting some value
creation activities within business be
performed by independent entity
Repositioning &
Redefining A Business Model
Horizontal Integration:
Single-Industry Strategy
o Focus resources- resources
devoted to competing successfully
in one area
o Stick to the knitting- company
stays focused on what it does best
Staying in single industry allows firm to:
Benefits of Horizontal Integration
Profits/profitability increase if horizontal integration:
1.Lowers cost structure
2.Increases product differentiation
Product bundling
Cross-selling
3.Replicates business model
4.Reduces industry rivalry
5.Increases bargaining power
Problems with
Horizontal Integration
Data suggests the majority of mergers/acquisitions DO
NOT create value and many may DESTROY value.
o Implementing horizontal integration not easy task
Problems with merging different company cultures
High management turnover in acquired when
acquisition is hostile
Managers tend to overestimate benefits of merger
Managers tend to underestimate problems in merging
o Merger may be blocked if perceived to:
Create dominant competitor
Create too much industry consolidation
Have potential for future abuse of market power
Vertical Integration:
Entering New Industries
o Backward Vertical- expands into
industry that produces inputs to
company
o Forward Vertical- company
expands into industry that uses,
distributes, sells companys products

Increasing Profitability
Through Vertical Integration
1. Facilitates investments in specialized assets-
lowers cost structure or better differentiation.
2. Enhances product quality- strengthens its
differentiation advantage through either forward
or backward integration
3. Improved scheduling
Easier & more cost-effective to plan, transfer of
product in value-added chain
Enables company to respond better to changes
in demand
Problems with Vertical Integration
o Increased Cost Structure
Company-owned suppliers develop higher
cost structure than independent suppliers
Bureaucratic costs of solving transaction
difficulties
o Technological Change
May lock into old/inefficient technology
Prevent company from changing to new
technology that could strengthen business
model
o Unpredictable Demand
o Creates risk in vertical integration
investments
Vertical Integration Limits
! Company-owned suppliers
lack incentive to reduce costs
! Changing demand/technology
reduces ability to be competitive
Alternatives to Vertical Integration:
Cooperative Relationships
o Short-term contracts/competitive bidding- lack of
commitment to supplier
o Strategic alliances/long-term contracting
Enables creation of stable long-term relationship
Becomes substitute for vertical integration
Avoids problems of managing additional company
o Building long-term cooperative relationships
Hostage taking creating mutual dependency
Credible commitments believable promise/pledge
Maintaining market discipline
Periodic contract renegotiation
Parallel sourcing policy
Strategic Outsourcing
o Focus on fewer value-creation activities
o Goal to outsource noncore/nonstrategic
activities
o Virtual Corporation- companies that pursue
extensive strategic outsourcing
Allows one or more of companys value-chain activities/
functions to be performed by independent specialized
companies to focus all skills/knowledge on one activity.
Strategic Outsourcing of
Primary Value Creation Functions
Benefits of Outsourcing
1. Lower cost structure- specialist cost is less
than performing activity internally
2. Enhanced differentiation- quality of activity
performed by specialist is greater than if
activity were performed by the company
3. Focus on the core business
Distractions are removed
Company can focus attention/resources
on activities important for value creation/
competitive advantage
Risks of Outsourcing
" Holdup company becomes
too dependent on specialist
provider
" Loss of information
company loses important
customer contact or competitive
information

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