Advanced Strategic Management: Corporate Strategy
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Questions and Answers

What does vertical integration entail?

  • Acquiring new companies for business expansion.
  • Focusing solely on production efficiency.
  • Becoming suppliers or customers of its own products. (correct)
  • Entering markets through product diversification.

What are the two types of forward integration?

  • Sales and Marketing.
  • Product Development and Market Research.
  • Distribution and Manufacturing.
  • Inputs and Outputs. (correct)

What is typically associated with conglomerate companies regarding their share prices?

  • Conglomerate advantage.
  • Conglomerate premium.
  • Conglomerate strength.
  • Conglomerate discount. (correct)

What is backward integration focused on?

<p>Developing activities that pertain to inputs. (A)</p> Signup and view all the answers

Which strategy involves improving a business’s existing market presence?

<p>Market Penetration. (D)</p> Signup and view all the answers

What is a major challenge in managing conglomerate businesses?

<p>Dealing with weak institutional contexts. (A)</p> Signup and view all the answers

Which of the following is NOT a type of diversification mentioned?

<p>Related Diversification. (D)</p> Signup and view all the answers

Which aspect is considered crucial for successful diversification within corporations?

<p>Dynamic capabilities. (B)</p> Signup and view all the answers

What does market development generally involve?

<p>Offering existing products to new markets (B)</p> Signup and view all the answers

Which of the following is an example of market development?

<p>Extending the use of aluminium to the automobile industry (A)</p> Signup and view all the answers

When a firm engages in unrelated diversification, what is it typically doing?

<p>Entering new markets with new products (A)</p> Signup and view all the answers

What is a primary risk associated with product development projects?

<p>Increased costs and delays (B)</p> Signup and view all the answers

What does the Ansoff Matrix primarily focus on?

<p>Strategic directions for growth (A)</p> Signup and view all the answers

Which strategy would NOT be considered market penetration?

<p>Expanding into international markets with existing products (C)</p> Signup and view all the answers

What characteristic is NOT commonly associated with market development efforts?

<p>Creating entirely new product categories (C)</p> Signup and view all the answers

Why is project complexity a crucial consideration in product development?

<p>It may lead to unexpected delays and costs (C)</p> Signup and view all the answers

What is a potential risk associated with the market penetration strategy?

<p>It may aggravate existing industry rivalry. (B)</p> Signup and view all the answers

Which strategy focuses on gaining a greater market share without entering new territories?

<p>Market Penetration (C)</p> Signup and view all the answers

What is a benefit of pursuing market penetration as a strategy?

<p>It builds on established strategic capabilities. (A)</p> Signup and view all the answers

Which of the following is a limitation of the market development strategy?

<p>It often requires a new business model. (C)</p> Signup and view all the answers

What is the primary role of a portfolio manager in corporate strategy?

<p>To identify and acquire undervalued assets or businesses (C)</p> Signup and view all the answers

What is a significant risk associated with a parental manager?

<p>Overestimating the value of parent capabilities (C)</p> Signup and view all the answers

Which strategy type involves both existing markets and new products?

<p>Product Development (B)</p> Signup and view all the answers

What advantage does gaining market share provide according to Porter's five forces?

<p>It increases power relative to buyers and suppliers. (A)</p> Signup and view all the answers

Which SBUs does the BCG Matrix classify as requiring high investments but yielding negative profits?

<p>Question marks (C)</p> Signup and view all the answers

Which risk is often heightened in mature markets when pursuing market penetration?

<p>Retaliation from competitors. (B)</p> Signup and view all the answers

What does a 'cash cow' represent in the context of the BCG Matrix?

<p>High market share in a mature market (D)</p> Signup and view all the answers

Which of the following strategies is used for allocating investments towards SBUs?

<p>Create a balanced portfolio using the BCG Matrix (A)</p> Signup and view all the answers

What is a consequence of excessive market power as a result of a market penetration strategy?

<p>Legal constraints and regulatory scrutiny. (D)</p> Signup and view all the answers

What characteristic distinguishes 'dogs' in the BCG Matrix?

<p>Low market share in a declining market (B)</p> Signup and view all the answers

What does the term 'illusory synergies' refer to in corporate strategy?

<p>Perceived benefits of mergers that do not materialize (A)</p> Signup and view all the answers

Which risk is NOT associated with balancing SBUs portfolio?

<p>Declining market share of assets (A)</p> Signup and view all the answers

What is the primary aim of product development in the context of the Ansoff Matrix?

<p>To deliver modified or new products to existing markets (C)</p> Signup and view all the answers

Which strategy involves entering new markets with existing products?

<p>Market Development (D)</p> Signup and view all the answers

What are potential risks associated with the product development strategy?

<p>Mastering unfamiliar processes or technologies (D)</p> Signup and view all the answers

In the context of the Ansoff Matrix, what does market penetration focus on?

<p>Increasing sales of existing products in existing markets (B)</p> Signup and view all the answers

Diversification in the Ansoff Matrix is best defined as:

<p>Entering new markets with new product lines (C)</p> Signup and view all the answers

Which factor contributes to the high risk of project failures in product development?

<p>Significant investments in new technologies (B)</p> Signup and view all the answers

What similarity does Apple showcase in their corporate strategy regarding market segments and distribution?

<p>Maintaining the same distribution channels despite diversification (C)</p> Signup and view all the answers

What is a common challenge for firms pursuing market development?

<p>Marketing products to unfamiliar segments (B)</p> Signup and view all the answers

What does the assumption about mature industries suggest?

<p>They might experience growth again. (C)</p> Signup and view all the answers

What is a self-fulfilling prophecy in the context of cash cows?

<p>Inadequate investment can accelerate their decline. (A)</p> Signup and view all the answers

What is the main purpose of the GE-McKinsey Matrix?

<p>To evaluate the attractiveness of markets and competitive strength. (C)</p> Signup and view all the answers

Which strategy is applied to SBUs that are running at losses with uncertain cash flows?

<p>Divest. (C)</p> Signup and view all the answers

What does 'phased withdrawal' mean for a business unit?

<p>Gradual reduction of resources and focus. (C)</p> Signup and view all the answers

What characterizes a 'cash generator' in the SBU portfolio?

<p>It produces profits that should be invested elsewhere. (D)</p> Signup and view all the answers

What strategy is used for SBUs that require additional resources to improve their competitive position?

<p>Try harder. (D)</p> Signup and view all the answers

What is the main goal for 'growth' SBUs in the portfolio?

<p>To innovate and expand the market. (B)</p> Signup and view all the answers

Flashcards

Market Penetration

Focusing on selling existing products or services to existing customers to achieve greater market share.

Product & Services Development

Offering new products or services to existing customers.

Market Development

Targeting new customer segments with existing products or services.

Unrelated Diversification

Entering entirely new markets with new products or services.

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Ansoff Matrix

A strategic tool that helps businesses analyze growth opportunities based on existing or new products and markets.

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Increased Market Share

Gaining a higher percentage of customers in a specific market.

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Economies of Scale

Cost advantages achieved by producing goods or services on a larger scale.

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Experience Curve Benefits

Cost reductions achieved through repeated production and learning.

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Product Development

Introducing new products to existing markets.

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Diversification

Introducing new products in new markets.

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What are the risks of Product Development?

The strategy can be risky because it requires mastering new technologies and processes, which may require significant investments and potentially lead to project failures.

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What are the limitations of Market Development?

The strategy can be risky because the company needs to understand and adapt to the new market, which may require significant investments and potentially lead to project failures.

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How can Apple's diversification be explained?

Apple's diversification is an interesting case study because it started as a product development strategy to expand into different technological solutions within existing markets but slowly evolved into a diversification strategy by entering new markets with new products and services.

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What is the Ansoff Matrix?

A marketing tool that helps companies analyze growth opportunities by considering new and existing products and markets. It outlines four distinct growth strategies: Market Penetration, Product Development, Market Development, and Unrelated Diversification.

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What is the Risk of Project Delays?

Product development projects are often subject to delays and cost increases. This is due to complexity, changing specifications, and unforeseen challenges.

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Example of Market Development

Expanding the use of aluminum to the automobile industry is an example of market development. This strategy involves selling existing products to new customer segments.

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Example of Market Development (Geography)

Extending a product's market to new geographical areas, such as international markets, is another example of market development.

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Conglomerate Discount

A phenomenon where the share prices of conglomerate companies often underperform compared to their individual parts. This suggests that investors perceive less value in conglomerates compared to specialized companies.

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Vertical Integration

A corporate strategy where a company expands its operations to control different stages of the value chain, becoming its own supplier or customer.

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Backward Integration

A type of vertical integration where a company moves into activities involved in supplying inputs for its existing business.

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Forward Integration

A type of vertical integration where a company moves into activities involved in distributing its existing products or services.

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Why might conglomerates experience a discount?

Conglomerates often face challenges with management complexity, coordination, and a potential lack of clear synergies between their diverse businesses, which can lead to lower valuations compared to specialized companies.

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When might diversification be beneficial?

Diversification can be beneficial when a company has strong dynamic capabilities, implying strong management skills and efficient resource allocation across diverse businesses, particularly in weak institutional contexts where diversification can provide structural advantages.

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Corporate Parent Advantage

The benefits a parent company gains from managing its subsidiaries effectively, leading to increased value for the overall organization.

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Portfolio Manager

A corporate parent that identifies and acquires undervalued businesses or assets, improving them to increase their value. Focuses on finding hidden gems and polishing them.

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Synergy Manager

A corporate parent that seeks to enhance value by managing synergies across its business units. Capitalizes on the combined strength of its subsidiaries.

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Parental Manager

A corporate parent that utilizes its own central capabilities to add value to its businesses. Acts as a source of expertise and guidance.

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BCG Matrix

A framework used to analyze a company's portfolio of business units based on market share and market growth rate. Categorizes SBUs into: Stars, Question Marks, Cash Cows, and Dogs.

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Star (BCG Matrix)

A business unit with a high market share in a growing market. Requires high investments, which are typically repaid by its market share dominance - a promising future.

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Question Mark (BCG Matrix)

A business unit with a low market share in a growing market. Requires high investments, but profits are negative - a gamble with potential.

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Cash Cow (BCG Matrix)

A business unit with a high market share in a mature market. Requires low investments, generates profits that sustain other units, a stable source of income.

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Industry Lifecycle Assumption

The assumption that mature industries will not experience growth again, ignoring the possibility of revitalization or new market opportunities.

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Self-Fulfilling Prophecy (Cash Cows)

When a company focuses solely on milking cash cows without investing in them, they may become dogs faster than expected.

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Synergies and Dog Divestment

The assumption that a dog business unit can be easily divested ignores potential interdependencies with other business units, which might suffer if the dog is eliminated.

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GE-McKinsey Matrix

A framework for analyzing a company's business portfolio by assessing the attractiveness of the market and the competitive strength of the business unit within that market.

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Divest

Strategy for business units operating at a loss with uncertain cash flows. Recommended action: sell or close the business.

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Phased Withdrawal

Strategy for business units with a weak competitive position in a declining market with little potential for cash flow. Gradual withdrawal is recommended.

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Double or Quit

Strategy for potentially strong business units operating in a promising market. Option: invest heavily to exploit the market potential or exit the market.

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Custodial

Strategy for cash cow business units, focusing on maximizing profits without significant further investments.

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Study Notes

Advanced Strategic Management - Corporate Strategy

  • Covering sessions 13-14
  • Focuses on the strategic choices businesses make regarding their corporate strategy.
  • Corporate strategy describes how to compete across different business lines.
  • Includes how to pursue different strategies.
  • Corporate strategy analyzes diversification degree and drivers.

Introduction to Corporate Strategy

  • Business strategy is about competing in the market
  • Corporate strategy is about competing across business lines
  • Strategy methods describe how to pursue strategies.
  • Corporate strategy looks at issues such as expansion into related and unrelated markets.

Diversification and Scope of the Organization

  • Diversification drivers are reasons to diversify (expand into multiple markets).
  • Diversification direction (horizontal/vertical)
  • Companies must balance value creation and portfolio strength.

Corporate Strategy Examples and Models

  • Shows examples like Alphabet, IKEA, Berkshire Hathaway, Barilla, GE and Meta.
  • Charts displaying single business vs dominant business, related vs unrelated.
  • Sharing value chain is discussed.

Why Firms Diversify

  • Opportunistic motivations (e.g., hybris, incentives)
  • Financial reasons for diversification
  • Operational reasons for diversification
  • Strategic reasons for diversification

Diversification: Financial Reasons

  • Capitalizing opportunities in related and unrelated markets
  • Reducing firm volatility

Diversification: Operational Reasons

  • Exploiting scope economies (efficiency gains from applying existing resources to new markets).
  • Stretching corporate management capabilities (e.g., marketing).
  • Improving coordination between businesses.

Diversification: Strategic Reasons

  • Increasing market power (e.g., cross-subsidizing price wars, being in the dominant market position).
  • Raising rival costs.
  • Mutual forbearance (reducing incentive to fight).
  • The importance of increasing market power over rival competitors.

Ansoff Matrix

  • A strategic tool to determine business strategy directions.
  • Categorizes strategies based on market penetration (existing products, existing markets)
  • product and services development (new products, existing markets)
  • market development (existing products, new markets),
  • diversification (new products, new markets)
  • Examples of firms that apply these strategies such as Apple.
  • Discuss how diverse products or services are offered to diverse markets.
  • Includes a discussion of the risks involved in some strategies, relating to resources required and implementation challenges.
  • Explains the limits of each strategy (retaliation, legal constraints, etc.)

Corporate Strategy- Vertical Integration

  • Vertical integration: firms enter activities where they're also suppliers or customers.
  • Backward integration: entering into the supplier side
  • Forward integration: entering into the customer side
  • Includes discussions of factors such as coordination, control, costs and risks involved, and strategic independence

Corporate Strategy - Corporate Parent Advantage

  • Envisioning: Provide an overall vision
  • Facilitating synergies
  • Coaching: Providing central support services, investments, treasury operations.
  • Intervening in business units to guarantee performance.
  • Managing costs and complexity.
  • obscuring financial performance

Corporate Strategy - Portfolio Management

  • Portfolio management looks at under-valued assets
  • Synergy management aims to enhance value across the business units.
  • Parental managerial approach considers capabilities and adding value.
  • Different approaches to managing parent-business units (portfolio manager, synergy manager, parental manager, parental developer)
  • Discussions of risks.

Corporate Strategy - Portfolio Balancing

  • Considering the different categories of business units (e.g., stars, question marks, cash cows, dogs).
  • Using frameworks such as the BCG Matrix and the GE-McKinsey Matrix.
  • Ways to allocate resources across different business units.

Corporate Strategy - Parenting Matrix

  • Defining "Feel" and "Benefit" - Two key dimensions of fit.
  • Importance of understanding the fit between the business unit and the parent company.
  • Discussing potential value creation and issues connected to mismatches regarding company needs.

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Corporate Strategy PDF

Description

This quiz covers sessions 13-14 of Advanced Strategic Management, focusing on corporate strategy and strategic choices businesses face across various lines. Topics include diversification, competitive methods, and notable corporate strategy examples. Test your understanding of how companies balance value creation and portfolio strength.

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