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4. Chapter 9-10 Corporate Level Strategy

5. Beverages Foods Snack Foods Frito-Lay North America Frito-Lay International Quaker North America Pepsi-Cola North America Gatorade/Tropicana North America PepsiCo Beverages International

6. Snack Foods Frito-Lay North America Funyuns Sunchips Cracker Jack Chester’s popcorn Grandma’s cookies Munchos Smartfood Baken-ets fried pork skins Oberto meat snacks Lay’s Ruffles Doritos Santitas Fritos Cheetos Rold Gold

7. Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks

8. Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks

9. Beverages Pepsi-Cola North America Pepsi-Cola Mountain Dew Slice Mug Sierra Mist FruitWorks Lipton Dole Aquafina Frappuccino SoBe AMP

10. Beverages Gatorade/Tropicana North America Gatorade Propel Tropicana Dole juices

11. Beverages PepsiCo Beverages International Loóza juices and nectars Copella juices Frui’Vita juices Tropicana 100 juices

12. Foods Quaker North America Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal

13. How are we going to compete and gain a competitive advantage in each of our businesses? Foods Business Level Strategies Quaker North America Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal

14. Snack Foods Beverages Foods Corporate Level Strategy 1) What businesses do we want to compete in? 2) How do manage effectively across businesses

15. Where did they go?

16. Goals of Corporate Strategy Moves to enter new businesses Boosting combined performance of the businesses Capturing synergies and turning them into competitive advantages Establishing investment priorities and steering resources into business units

17. 4 Corporate Level Strategies • Vertical Integration • Strategic Outsourcing • Horizontal Integration • Diversification – two or more different businesses with distinct operations

18. 1) Vertical Integration • Forward or backwards • Full integration • Taper integration • Benefits • Build barriers to entry • Facilitates investment in specialized assets • Protecting product quality • Improved scheduling • Risks • Costs • Rapid technological changes • Demand predictability

19. Alternatives to Vertical Integration • Competitive bidding • Long term contracts or strategic alliances Form of Relationship Markets & Competitive Bidding Hybrid & Contracts/Alliances Vertical Integration

20. 2) Outsourcing • Cost reduction and differentiation • Hold-ups, scheduling and hallowing out

21. 3) Horizontal Integration • Acquiring or merging with industry competitors • Reduce cost and economies of scale • Increasing value through wider product line or product bundling • Manage industry rivalry • Increase buyer and supplier power

22. 4) How to Diversify? 1) Internal Development - corporate entrepreneurship or internal venturing • able to appropriate a larger portion of wealth • avoids complexities of multiple partners • time consuming and requires diversity of organizational capabilities

23. 4) How to Diversify? 2) Strategic Alliances and Joint Ventures • entering a new market via the combination of complementary resources - do more together • cost reduction & sharing • development/diffusion of technology Problems • appropriate partners - skills and compatibility • trust and commitment • communication

24. Who Makes a Geo? Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse. Geo Prizm = Toyota Corolla Geo Tracker = Suzuki Sidekick Geo Metro = Suzuki Esteem or Swift w/hatchback No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

27. 4) How to Diversify? 3) Mergers & Acquisition

28. Mergers & Acquisitions Reasons of Acquisitions Increase Market Power Overcome Entry Barriers Increased Speed Lower Risk Avoid Competition

29. Acquisitions Reasons of Acquisitions Increase Market Power Overcome Entry Barriers Increased Speed Lower Risk Avoid Competition Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation

30. Acquisitions Reasons of Acquisitions Increase Market Power Overcome Entry Barriers Increased Speed Lower Risk Avoid Competition Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation Results Poor Performance Who Wins? Acquired Firm Shareholders

31. Monday October 27th WSJ • Bank of American – Boston Fleet Financial • BoA down $8.29, or 10%, BFF rose 23% • Anthem – WellPoint Health Networks • Anthem down 8.2%, WellPoint up 8.8% • United Health – MidAtlantic Med Services • UH down 4.9%, MAMS up 9.7%

32. Failures of Acquisitions 30 - 40% average acquisition premium Acquiring firm’s value drops 4% in the 3 months following acquisitions 30 - 50% of acquisitions are later divested Acquirers underperform S&P by 14%, peers by 4% 3 month performance before and after • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns

33. Why, then, do executives acquire? Often, for personal reasons Firm size and executive compensation are related When do executives loss their jobs? • 1) Acquired - larger firms harder to acquire • 2) Performing poorly - employment risk is reduced as returns are less volatile

36. Related Diversification at Disney Entertainment/Production Theme Parks Resorts Entertainment/Broadcasting Retailing Cruise Lines

37. Levels of Diversification Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizonal relationships across businesses - synergies Advantages of related diversification include: • Leveraging Core Competencies • Sharing Activities • Market Power

39. Tyco Electronics Tyco Telecommunications Tyco Fire and Security Tyco Safety Products Tyco Healthcare Tyco Plastics Tyco Adhesives Tyco Flow Control Tyco Electrical and Metal Products Tyco Fire and Building Products Tyco Infrastructure Services

40. Tyco Limits itself to businesses that can be held strictly accountable for a few key financial measures Mature, stable, low-tech industries which face certain environments and little R&D investments

41. Levels of Diversification (cont.) Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses Conglomerate Diversification - no relatedness between businesses

42. When/Why to Diversify? To create shareholder value Porter’s Three Point Test 1) Attractiveness Test 2) Cost of Entry Test 3) Better off Test Should pass all 3

43. Portfolio analysis • BCG Growth-Share Matrix • question marks, dogs, cash cows, stars • GE- Nine Cell Matrix