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Chapter 9 Corporate Strategy: Shaping the Portfolio. Katy Lovett, CJ Baker, and Matt Snowden Strategy: A View from the Top. What is your strategy?. GE’s key values- leaders, global business integration, skillful acquisitions (rather than specific businesses)
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Chapter 9 Corporate Strategy: Shaping the Portfolio Katy Lovett, CJ Baker, and Matt Snowden Strategy: A View from the Top
What is your strategy? • GE’s key values- leaders, global business integration, skillful acquisitions (rather than specific businesses) • Focus on actions that shape the corporate portfolio of businesses
Economies of Scale • Cost per unit decreases as scale of activity increases • Economics of learning increase as more efficient process are found
Economies of Scope • Unit cost of an activity falls because the asset is shared with some other activity (ex. Frito Lay with chips + dips) • Horizontal scope- GE appliances • Geographical scope- McDonalds • Vertical scope- IBM
What is “core”? • Define it • Invest in it continuously • Ex. GE vs Colgate
Growth Strategies • SWOT analysis • Price-valued? Dell/Wal-mart • Performance value? Intel/Genetech
Growth Strategies • Organic or internal growth-Wal-Mart/Dell • Growth through acquisition-GE • Growth through alliance-based initiatives- Amazon.com
Concentrated Growth Strategies • Increase the number of users of the product • Increasing product usage by developing new applications • Increase the frequency of products use • 4 conditions as listed in book
Vertical Integration • 4 reasons to enter • Market is too risky • Another company has more market power • Barriers to entry and Price discrimination • When companies forward-integrate
Vertical Integration • Are highly integrated businesses more or less profitable? • Likely to be profitable? • Benefits and risks?
Diversification • Why would you? • Forms of Relatedness • Categories of Relatedness
Diversification • Core competency? • What assets are needed? • Can we catch them? • Player or Winner? • Can we learn by diversifying?
Mergers and Acquisitions • Successful acquisitions are usually part of a well-developed strategy. • Requires patience • Disciplined strategic analysis • Can add value in only a few ways • Objectivity is essential • Strategies should be formulated before acquisition
Cooperative Strategies • Types • Joint Ventures, Strategic Alliances, etc… • Benefits • Risk Sharing • Funding Limitations • Market Access • Technology Access
Strategic Logic of Alliances • Alliances are chosen based on the different needs during the product lifecycle. • Example: • Microsoft vs. Dell
Four Alliance Models • Two important questions: • 1. What role does the alliance play in the company’s corporate strategy? • 2. How is the alliance leadership structured? • Alliance determined by the answers: • 1. Franchise – Easily replicable alliances • 2. Portfolio – “Hub and Spoke” • 3. Cooperative – No single partner dominates • 4. Constellation – Aggressive and complex
Boston Consulting Group • Expertise Alliances • New-Business Alliances • Cooperative Alliances • M&A-Like Alliances • The type of Alliance is categorized according to who takes part and the scope of the alliance.
Growth and Strategic Risk • “Strategic risk can be measured in terms of far a growth initiative takes a company away from the established strengths of its core business.” • FIVE dimensions of distance • Shared Customers • Shared Costs • Shared Channels • Shared Competitors • Shared Capabilities/Technologies
Disinvestments • Sell-Offs – The parent corporation sells a business unit or company to another corporate portfolio. • Spin-Offs – An undesirable business unit is carved out or sold. Afterward it becomes it’s own company. • Liquidations – The business is more valuable as parts on eBay than as part of your strategy.