Corporate Strategy Quiz

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)

• 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

• Vertical growth: Taking over a function previously handled by a supplier or distributor.

  • 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.
    • 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.

• 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

• 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.

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.