Example: What corporate strategies are in use? (1)

1
Example What corporate strategies are in use? (1)
B

• Dell acquires Apple.
• Horizontal Intergration. Dell and Apple both
  make personal computers. If thats what you see,
  they are in the same industry and so this is
  horizontal integration like United Airlines
  acquiring American.
• Related Diversification. Dell makes PCs, Apple
  makes an operating system for PCs. From that
  perspective, this is related diversification
  where the synergy is likely using Dells
  marketing prowess to leverage Apples operating
  system technology.
• Obviously, from a business point of view this is
  a fairly silly scenario, as are many of the
  scenarios. Thats not the point, eh?
• Dell acquires Intel.
• Backwards vertical integration. Intel is a key
  supplier to Dell, of microprocessors.

2
Example What corporate strategies are in use? (2)
B

• Microsoft acquires Prentice-Hall.
• Unrelated diversification. Microsoft is in
  high-technology, Prentice-Hall is in publishing
  (they publish our textbook). There is no clear
  relatedness here.
• If this was an essay question, you might craft a
  plausible relatedness up and get credit. But
  these arent test questions, they are to make you
  think!
• Microsoft acquires Apple.
• Horizontal Integration or related
  diversification. Microsoft primarily does
  operating systems (Windows) and applications
  (Excel). Apple does primarily operating systems
  (Mac OS) and PCs (Macintosh). So they are in the
  same industry (operating systems) which means
  horizontal integration, and in related industries
  (PCs, PC applications) which means related
  diversification.

3
Example What corporate strategies are in use? (3)
B

• Intel acquires Dell.
• Forward vertical integration. Dell is one of
  Intels main customers.
• Microsoft dominates the PC operating system
  business.
• Concentration strategy build on your existing
  strengths.
• Gateway (PC company) closes 35 retail stores to
  restore profitability.
• Retrenchment.
• Intel discontinues selling PCs to avoid
  competing with customers.
• Exit. This actually happened and represents
  strategic exit (Intel was financially strong)
  rather than exit under duress.

4
Example What corporate strategies are in use? (4)
B

• Procter Gamble sells Tide detergent in Italy
• Global product strategy sell the same product
  everywhere. But maybe, Tide is not really Tide
  everywhere there are changes made to the
  formula but the brand is the same. That leans
  toward a multidomestic strategy.
• Procter Gamble sells Joy dishwashing liquid
  virtually worldwide and Salvo dishwashing liquid
  in Latin America.
• Joy alone is a Global strategy. But if combined
  with Salvo, the company is adjusting its strategy
  to conform to local preferences, and that means
  the overall corporate strategy looks
  multidomestic.

5
Corporate-Level Strategies

• Corporate strategies are dynamic
• Corporations enter and exit businesses
  simultaneously
• Growth Make the corporation larger. Grow each
  business. Enter more businesses and markets than
  you are exit.
• Stability Essentially sticking with the current
  businesses
• Retrenchment Make the corporation smaller.
  Prune unprofitable parts of each business. Exit
  more businesses than you are entering.
• Big Question Why should there be corporate-level
  strategies at all? Why shouldnt the businesses
  compete on their own?
• There must be a core competency that can be
  translated into competitive advantage within the
  different businesses

6
Corporate-Level Growth Strategies

• Concentration (focus on existing businesses)
• Grow existing business units, often by entering
  new markets
• Integration
• Vertical or horizontal
• Can be organic (own unit) or acquisition
• Diversification
• Related or unrelated
• Explicitly about acquisition
• International Expansion
• Existing business units enter new markets
• Can be organic (own unit) or acquisition

7
Growth through diversification

• Diversification is explicitly about acquiring or
  merging with other corporations or business
  units.
• Related diversification - grow by merging with or
  acquiring firms in different, but related,
  industries
• Goal strategic fit that allows synergy
• Synergy When two units produce additional value
  through operating together rather than
  separately.
• Unrelated diversification - grow by merging with
  or acquiring firms in different and unrelated
  industries
• Goal ? reduce cyclicality
• On average less successful than related
  diversification

8
Corporate TinkertoysDiversification and
Integration around the airline industry
Related Diversification
American Airlines
United Airlines
Unrelated Diversification
National Rent-a-Car
Boeing
Chrysler
.
9
Vertical Integration

• Vertical Integration
• A strategy that allows an organization to create
  value by producing its own inputs or distributing
  its own products.
• Backward vertical integration
• occurs when a firm seeks to reduce its input
  costs by producing its own inputs (generics).
• Forward vertical integration
• occurs when a firm performs functions its
  customers did, itself for example, distributes
  its outputs or products to lower distribution
  costs and ensure quality service to customers
  (Compaq vs. Dell).

10
Airline Industry ExampleDiversification and
Integration
Horizontal Integration
American Airlines
United Airlines
National Rent-a-Car
Boeing
Chrysler
.
11
International Expansion To customize or not to
customize?

• Global product strategy Same product, same
  marketing approach everywhere.
• Standardization provides for lower production
  cost.
• Ignores national differences that local
  competitors can address to their advantage.
• Multidomestic product strategy Customize
  products, marketing in each national market
• Helps gain local market share.
• Raises production costs.
• Which one? how much do national environments
  differ?

Multinational / Ethnocentric Transnational /
Polycentric
12
Retrenchment and Exit
BX

• Retrenchment action to address weaknesses that
  are leading to performance declines, to
• stabilize operations (shutting retail stores)
• revitalize organizational resources and
  capabilities
• prepare to compete effectively once again
• Exit shutting down or selling the business
• Often difficult for managers (e.g., steel, flag
  carriers)