Podcast
Questions and Answers
Concentric diversification is aimed at developing products that are ______ related to existing ones.
Concentric diversification is aimed at developing products that are ______ related to existing ones.
closely
Conglomerate diversification involves entering into markets that are ______ different from the existing ones.
Conglomerate diversification involves entering into markets that are ______ different from the existing ones.
entirely
Stability strategies focus on maintaining ______ rather than pursuing aggressive growth.
Stability strategies focus on maintaining ______ rather than pursuing aggressive growth.
current operations
Retrenchment strategies may involve cutting back operations to improve ______ and focus on core competencies.
Retrenchment strategies may involve cutting back operations to improve ______ and focus on core competencies.
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Strategic management controversies often arise from differing opinions on ______ in an organization.
Strategic management controversies often arise from differing opinions on ______ in an organization.
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Portfolio analysis can raise the issue of ______ availability for expansion and growth.
Portfolio analysis can raise the issue of ______ availability for expansion and growth.
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One limitation of portfolio analysis is the difficulty in defining product/market ______.
One limitation of portfolio analysis is the difficulty in defining product/market ______.
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Establishing an alliance management ______ supports the tasks of multi-alliance management.
Establishing an alliance management ______ supports the tasks of multi-alliance management.
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Concentric diversification involves growth into a ______ industry when a firm has a strong competitive position.
Concentric diversification involves growth into a ______ industry when a firm has a strong competitive position.
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Conglomerate diversification refers to diversifying into an industry that is ______ to the current one.
Conglomerate diversification refers to diversifying into an industry that is ______ to the current one.
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The Pause/Proceed with caution strategy provides an opportunity to rest before continuing a ______ or retrenchment strategy.
The Pause/Proceed with caution strategy provides an opportunity to rest before continuing a ______ or retrenchment strategy.
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A No-change strategy represents a decision to do ______ new and continue current operations.
A No-change strategy represents a decision to do ______ new and continue current operations.
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Retrenchment strategies are used when a firm has a weak competitive ______ in some or all of its product lines.
Retrenchment strategies are used when a firm has a weak competitive ______ in some or all of its product lines.
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The concept of synergy suggests that two businesses will generate more ______ together than they could separately.
The concept of synergy suggests that two businesses will generate more ______ together than they could separately.
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Strategic management controversies include questions like whether vertical growth is better than ______ growth.
Strategic management controversies include questions like whether vertical growth is better than ______ growth.
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In a worsening situation, profit strategies involve doing ______ new while addressing the company’s problems.
In a worsening situation, profit strategies involve doing ______ new while addressing the company’s problems.
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__________ diversification involves entering markets with related products or services.
__________ diversification involves entering markets with related products or services.
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__________ diversification occurs when a company enters markets that are unrelated to its existing business lines.
__________ diversification occurs when a company enters markets that are unrelated to its existing business lines.
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Stability strategies are designed to make ________ changes to the company’s current activities.
Stability strategies are designed to make ________ changes to the company’s current activities.
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Retrenchment strategies aim to ________ the company’s level of activities.
Retrenchment strategies aim to ________ the company’s level of activities.
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Strategic management controversies often revolve around the discussions of ________ versus control in managing diversified firms.
Strategic management controversies often revolve around the discussions of ________ versus control in managing diversified firms.
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In corporate strategy, the choice of direction of the firm as a whole is referred to as ________ strategy.
In corporate strategy, the choice of direction of the firm as a whole is referred to as ________ strategy.
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The firm’s overall orientation toward growth, stability or ________ is included in directional strategy.
The firm’s overall orientation toward growth, stability or ________ is included in directional strategy.
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_____________ strategies aim to expand the company’s activities and market presence.
_____________ strategies aim to expand the company’s activities and market presence.
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Study Notes
Corporate Strategy
- Corporate strategy is the choice of direction for a firm as a whole, managing the business or product portfolio and concerns.
Learning Objectives
- Understand three aspects of corporate strategy.
- Apply growth, stability, and retrenchment strategies.
- Understand distinctions between vertical and horizontal growth, and concentric and conglomerate diversification.
- Identify strategic options for foreign market entry.
- Apply portfolio analysis to multiple-product and business companies.
- Develop a parenting strategy for multi-business corporations.
Directional Strategy
- The firm's overall orientation towards growth, stability, or retrenchment.
Portfolio Analysis
- Industries or markets the firm competes in via products and business units.
Parenting Strategy
- Management method for coordination of activities, resource transfer, and building capabilities across product lines and business units.
Corporate Directional Strategies (Figure 7-1)
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Growth:
- Concentration: Vertical and Horizontal growth
- Diversification: Concentric and Conglomerate
- Stability: Pause/Proceed with Caution; No Change; Profit
- Retrenchment: Turnaround; Captive Company; Sell-Out/Divestment; Bankruptcy/Liquidation
Growth Strategies
- Merger: Transaction involving two or more corporations where stock is exchanged, resulting in only one surviving corporation.
- Acquisition: 100% purchase of another company.
Concentration Strategies
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Vertical growth: Taking over a function previously handled by a supplier or distributor.
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Vertical integration: The degree to which a firm operates vertically across multiple locations on an industry's value chain (from raw materials to retail).
- Backward integration: Assuming a function previously provided by a supplier.
- Forward integration: Assuming a function previously provided by a distributor.
- Transaction cost economics: Vertical integration is more efficient than contracting for goods/services when open-market transaction costs are high.
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Vertical Integration Continuum (Figure 7-2): Full Integration, Taper Integration, Quasi-Integration, Long-Term Contract
- Full integration: Firm internally handles 100% of key supplies, controlling distributors.
- Taper integration: Firm internally produces less than half of its needs, buying the rest from external suppliers.
- Quasi-integration: Firm doesn't produce key supplies, but purchases most from suppliers under partial control.
- Long-term contracts: Agreements between firms for goods/services over a specific period.
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Vertical integration: The degree to which a firm operates vertically across multiple locations on an industry's value chain (from raw materials to retail).
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Horizontal growth: Expanding operations to new geographic locations and/or increasing the range of products/services in existing markets.
- Horizontal integration: The degree to which a firm operates in multiple geographic locations at the same point on an industry's value chain.
International Entry Options for Horizontal Growth
- Exporting, Licensing, Franchising, Joint Venture
- Acquisitions, Green-Field Development, Production Sharing
- Turn-Key Operations, BOT Concept, Management Contracts
Diversification Strategies
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Concentric/Related diversification: Expanding into a related industry when a firm has a strong competitive position but attractiveness is low.
- Synergy: Two businesses generating more profits together than separately.
- Conglomerate/Unrelated diversification: Expanding into an unrelated industry when the current industry is unattractive, and the firm lacks transferable skills/abilities.
Controversies in Directional Strategies
- Is vertical growth better than horizontal growth?
- Is concentration better than diversification?
- Is concentric diversification better than conglomerate diversification?
Stability Strategies
- Pause/Proceed with caution strategy: An opportunity for a temporary rest before continuing a growth or retrenchment strategy.
- No-change strategy: Decision to maintain current operations/policies for the foreseeable future.
- Profit strategies: Decision to maintain the status quo despite worsening conditions, acting as though the problems are temporary.
Retrenchment Strategies
- Used when the firm has a weak competitive position in some or all product lines from poor performance.
- Turnaround strategy: Emphasizes improving operational efficiency when problems are pervasive but not critical.
- Contraction: Efforts at quickly stopping loss across the board while reducing size and costs, to quickly cut losses across the board.
- Consolidation: Stabilizing the smaller, leaner corporation.
- Captive company strategy: Company gives up independence in exchange for security.
- Sell-out strategy: Management can still obtain a good price for shareholders, and employees can keep jobs by selling the company to another firm.
- Divestment: Sale of a division with low growth potential.
- Bankruptcy: Company gives up management to courts to settle obligations.
- Liquidation: Management terminates the firm.
Portfolio Analysis
- Management considers product lines/business units as investments expecting a profitable return.
BCG Growth-Share Matrix (Figure 7-3)
- Stars: Market leaders near peak product life cycle. Generate enough cash for maintaining high market share.
- Cash cows: Generate far more than needed to maintain market share
- Question marks: New products with potential, needing high investment.
- Dogs: Low market share, little cash potential.
BCG Matrix (limitations)
- Use of high/low categories is too simplistic
- Link between market share and profitability is debatable.
- Growth rate is only one aspect of industry attractiveness
- Product lines/business units evaluated in relation to only one competitor.
- Market share only one aspect of competitive positioning.
Developing a Corporate Parenting Strategy
- Examine each business unit in terms of its strategic factors and areas of performance improvements.
- Analyze how well the parent corporation fits with the business unit.
Horizontal Strategy and Multipoint Competition
- Horizontal strategy: Cuts across business unit boundaries to create synergy and enhance a competitive position in one or more business units.
- Multipoint competition: Large multi-business corporations competing with other large multi-business firms in numerous markets.
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Description
Test your understanding of corporate strategy concepts including growth, stability, and retrenchment strategies. This quiz will cover portfolio analysis, directional strategies, and parenting strategies essential for managing multi-business corporations. Perfect for students and professionals looking to deepen their knowledge of corporate direction.
