Corporate-Level

Strategy

Lecture 6 – MBA
Prepared by: Loaloa Riad
The Nature of Long-Term
Objectives

• Objectives
• provide direction
• allow synergy
• assist in evaluation
• establish priorities
• reduce uncertainty
• minimize conflicts
• stimulate exertion
• aid in both the allocation of resources and
the design of jobs
Five Characteristics of Objectives

1. Quantitative: measurable
2. Understandable: clear
3. Challenging: achievable
Compatible: consistent vertically and
4. horizontally in a chain of command
5. Obtainable: realistic
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Financial Versus
Strategic Objectives

• Financial objectives include growth in revenues,

growth in earnings, higher dividends, larger
profit margins, greater return on investment,
higher earnings per share, a rising stock price,
improved cash flow, and so on.
• Strategic objectives include a larger market
share, quicker on-time delivery than rivals,
shorter design-to-market times than rivals,
lower costs than rivals, higher product quality
than rivals, wider geographic coverage than
rivals, achieving technological leadership,
consistently getting new or improved products
to market ahead of rivals, and so on.
Types of Strategies

• Most organizations simultaneously

pursue a combination of two or more
strategies, but a combination strategy
can be exceptionally risky if carried too
far.
• No organization can afford to pursue all
the strategies that might benefit the
firm.
• Difficult decisions must be made and
priorities must be established.
Levels of Strategies with Persons Most
Responsible

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Integration Strategies
• Forward Integration
• involves gaining ownership or
increased control over distributors or
retailers
• Backward Integration
• strategy of seeking ownership or
increased control of a firm's suppliers
• Horizontal Integration
• a strategy of seeking ownership of or
increased control over a firm's
competitors
 • When an organization’s present distributors are
Forward especially expensive
Integration • When the availability of quality distributors is so
Guidelines limited as to offer a competitive advantage
• When an organization competes in an industry that
is growing
• When an organization has both capital and human
resources to manage distributing their own
products
• When the advantages of stable production are
particularly high
• When present distributors or retailers have high
profit margins
Backward Integration
Guidelines
• When an organization’s present suppliers are
especially expensive or unreliable
• When the number of suppliers is small and the
number of competitors is large
• When the organization competes in a growing
industry
• When an organization has both capital and human
resources
• When the advantages of stable prices are
particularly important
• When present suppliers have high profit margins
• When an organization needs to quickly acquire a
needed resource
Vertical Integration
 Horizontal Integration Guidelines

• When an organization can gain monopolistic characteristics in a particular area or

region without being challenged by the government
• When an organization competes in a growing industry
• When increased economies of scale provide major competitive advantages
• When an organization has both the capital and human talent needed
• When competitors are faltering due to a lack of managerial expertise
Intensive Strategies

• Market Penetration Strategy

• seeks to increase market share for present
products or services in present markets
through greater marketing efforts
• Market Development
• involves introducing present products or
services into new geographic areas
• Product Development Strategy
• seeks increased sales by improving or
modifying present products or services
 Market Penetration Guidelines

When current markets are not saturated with a particular product or service

When the usage rate of present customers could be increased significantly

When the market shares of major competitors have been declining while total
industry sales have been increasing
When the correlation between dollar sales and dollar marketing expenditures
historically has been high
When increased economies of scale provide major competitive advantages
Market Development
Guidelines

• When new channels of distribution are available that are

reliable, inexpensive, and of good quality
• When an organization is very successful at what it does
• When new untapped or unsaturated markets exist
• When an organization has the needed capital and human
resources to manage expanded operations
• When an organization has excess production capacity
• When an organization’s basic industry is rapidly
becoming global in scope
Product Development
Guidelines

• When an organization has successful products that

are in the maturity stage of the product life cycle
• When an organization competes in an industry
characterized by rapid technological developments
• When major competitors offer better-quality
products at comparable prices
• When an organization competes in a high-growth
industry
• When an organization has strong research and
development capabilities
Why should companies even bother
with diversification initiatives?
Why should companies even bother
with diversification initiatives?

Synergy
Diversification
Strategies

• Related Diversification
• value chains possess competitively
valuable cross-business strategic fits
• Unrelated Diversification
• value chains are so dissimilar that
no competitively valuable cross-
business relationships exist
Related
diversification
A firm entering a different business
in which it can benefit from
leveraging core competencies,
sharing activities, or building
market power.
Related Diversification
Related diversification
• Pooled Negotiating Power: The improvement in bargaining
position relative to suppliers and customers.

• Vertical Integration: An expansion or extension of the firm

by integrating preceding or successive production processes.
The firm incorporates more processes toward the original
source of raw materials (backward integration) or toward
the ultimate consumer (forward integration).
Synergies of Related
Diversification

• Transferring competitively valuable expertise,

technological know-how, or other capabilities
from one business to another
• Combining the related activities of separate
businesses into a single operation to achieve
lower costs
• Exploiting common use of a known brand name
• Using cross-business collaboration to create
strengths
Related Diversification Guidelines

• When an organization competes in a no-growth or a slow-growth industry

• When adding new, but related, products would significantly enhance the sales of current
products
• When new, but related, products could be offered at highly competitive prices
• When new, but related, products have seasonal sales levels that counterbalance an
organization’s existing peaks and valleys
• When an organization’s products are currently in the declining stage of the product’s life cycle
• When an organization has a strong management team
Unrelated Diversification Guidelines

• When revenues derived from an organization’s current products

would increase significantly by adding the new, unrelated products
• When an organization competes in a highly competitive or a no-
growth industry, as indicated by low industry profit margins and
returns
• When an organization’s present channels of distribution can be used
to market the new products to current customers
• When the new products have countercyclical sales patterns
compared to present products
• When an organization’s basic industry is experiencing declining
annual sales and profits
Unrelated Diversification Guidelines

• When an organization has the capital and managerial talent

needed to compete successfully in a new industry
• When an organization has the opportunity to purchase an
unrelated business that is an attractive investment opportunity
• When there exists financial synergy
• When existing markets for an organization’s present products
are saturated
• When antitrust action could be charged against an organization
that historically has concentrated on a single industry
Stability Strategies

continuing activities without any significant change in

direction

• Pause/Proceed with caution strategy- an

opportunity to rest before continuing a growth or
retrenchment strategy

• No change strategy- continuance of current

operations and policies

• Profit Strategies- to do nothing new in a

worsening situation but instead to act as though
the company’s problems are only temporary
Defensive
Strategies
• Retrenchment
• Regroups through cost and asset
reduction to reverse declining
sales and profits
• Divestiture
• Selling a division or part of an
organization
• Often used to raise capital for
further strategic acquisitions or
investments
• Liquidation
• Selling all of a company’s assets,
in parts, for their tangible worth
 Retrenchment Guidelines
• When an organization has a distinctive competence but has failed consistently to
meet its goals
• When an organization is one of the weaker competitors in a given industry
• When an organization is plagued by inefficiency, low profitability, and poor
employee morale
• When an organization fails to capitalize on external opportunities and minimize
external threats
• When an organization has grown so large so quickly that major internal
reorganization is needed
 It can be used to help a firm reverse an
earlier acquisition that didn’t work out
as planned

Enabling managers to focus their efforts

Divestment: The more directly on the firm’s core
businesses.
Other Side of the Providing the firm with more resources
“M&A Coin” to spend on more attractive
alternatives

Raising cash to help fund existing

businesses.
Types of Divestiture

Spin-off Split-off Carve-out Trade Sale

 Divestiture Guidelines
• When an organization has pursued a retrenchment strategy and failed to
accomplish improvements
• When a division needs more resources to be competitive than the company can
provide
• When a division is responsible for an organization's overall poor performance
• When a division is a misfit with the rest of an organization
• When a large amount of cash is needed quickly
• When government antitrust action threatens a firm
Defensive
Strategies
• Liquidation
• Selling all of a company’s assets,
in parts, for their tangible
worth
• can be an emotionally difficult
strategy
 Liquidation Guidelines
• When an organization has pursued both a retrenchment strategy and a divestiture
strategy, and neither has been successful
• When an organization’s only alternative is bankruptcy
• When the stockholders of a firm can minimize their losses by selling the
organization’s assets
Strategy Definition Example

Gaining ownership or increased control over distributors Amazon began rapid delivery services in some U.S.
Forward Integration
or retailers cities.

Seeking ownership or increased control of a firm’s Starbucks purchased a coffee farm.

Backward Integration
suppliers

Seeking ownership or increased control over competitors T&T acquired Susquehanna Bancshares.
Horizontal Integration

Seeking increased market share for present products or Under Armour signed tennis champion Andy Murray
Market Penetration services in present markets through greater marketing to a 4-year, $23 million marketing deal.
efforts

Introducing present products or services into new Gap opened its first five stores in China.
Market Development
geographic area

Seeking increased sales by improving present products Amazon just began offering its own line of baby
Product Development
or services or developing new ones diapers and wipes.

Alternative Strategies Defined and Exemplified

Alternative Strategies Defined and Recent Examples Given
Strategy Definition Example
Adding new but related products or services Facebook acquired the text-messaging firm
Related Diversification
WhatsApp for $19 billion.
Adding new, unrelated products or services Kroger and Whole Foods Market are cooking
Unrelated Diversification
meals, becoming restaurants.
Regrouping through cost and asset reduction to Staples closed 250 stores and reduced by 50%
Retrenchment
reverse declining sales and profit the size of other stores.
Selling a division or part of an organization Sears Holdings divested its Lands’ End division
Divestiture
to Sears’ shareholders.
Selling all of a company’s assets, in parts, for their The Trump Taj Mahal in Atlantic City, New
Liquidation tangible worth Jersey, faces liquidation.

Alternative Strategies Defined and Exemplified

Mergers and Acquisitions

AT&T’s purchase of Time Warner for $85 billion.

Facebook’s acquisition of WhatsApp for $19.4 billion.

Disney’s purchase of 21st Century Fox for $71 billion.

Alphabet, Google’s parent corporation, has

undertaken over 170 acquisitions in the last decade.
Limitations of Mergers and Acquisitions
Benefits of Mergers and Acquisitions
Six Benefits of a Firm Being the First Mover

Secure access and commitments to rare resources.

Gain new knowledge of critical success factors and issues.
Gain market share and position in the best locations.
Establish and secure long-term relationships with customers,
suppliers, distributors, and investors.
Gain customer loyalty and commitments.
Gain patent protection early.
Strategic
1 2 3
Alliances
and Joint
Entering New Reducing Developing and
Markets Manufacturing (or Diffusing New
Other) Costs in the Technologies
Value Chain

Ventures
Thank you