CS_07_Corporate_Advantage_HS2023.pdf

Session 7: Creating Corporate Advantage Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 1 Discussion Disney Case © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 2 Discussion Disney Case Question 1: Do you b...

Session 7: Creating Corporate Advantage Prof. Dr. Artur Baldauf © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 1 Discussion Disney Case © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 2 Discussion Disney Case Question 1: Do you believe Disney produces a corporate advantage? Answers Ilias: Yes … © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 3 Discussion Disney Case Question 2: Briefly explain in what ways you believe Disney does or does not create a corporate advantage. Answers Ilias: … © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 4 Discussion Disney Case Question 2: Briefly explain in what ways you believe Disney does or does not create a corporate advantage. Answers Ilias: strong key resources, through the characters they build corporate advantage, reputation and the brand name is unique, create synergies, ongoing innovation, positive image and has a loyal customer base, diverse portfolio, different markets etc. © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 5 Chapter 7: Creating Corporate Advantage Learning Goals: Recognize and understand the meaning of the interaction between the elements in the „Triangle“. Understand the meaning of competitive advantage, control and coherence – considering consistency. Evaluate the success/failure of a corporate strategy. © Artur Baldauf l Department of Management l University of Bern VISION GOALS STRUCTURE SYSTEM PROCESS Corporate Advantage Corporate Strategy 6 Chapter 7: Contents Introduction System of „Value Creation“ Competitive Advantage – Control – Coherence Continuum of Effective Corporate Strategies Practice: Evaluating Corporate Strategy Vision Consistency (internal & external) Productivity Corporate Advantage Summary © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 7 Introduction Regulation and Coordination Mechanisms Corporate Strategy: “The way a company seeks to create value through the configuration and coordination of its multimarket activities.” (Collis & Montgomery, 2005, p. 193) Center Control SBU1 Control Coordination … © Artur Baldauf l Department of Management l University of Bern SBU2 … Control Coordination SBU3 … Corporate Strategy 8 Introduction Scope of the Firm output-products Prod./Ind. B Sales Prod./Ind. C Sales Distrib Distrib Distrib Manuf. Manuf. Manuf. Prod./Ind. A Sales... Input-products Vertical Scope Horizontal Scope Sales Sales Sales Distrib Distrib Distrib Manuf. Manuf. Manuf.... © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 9 Introduction Scope of the Firm: Unilever output-products Input-products Vertical Scope Horizontal Scope Prod./Ind. B Sales Prod./Ind. C Sales Distrib Distrib Distrib Manuf. Manuf. Manuf. Sales Sales Sales Distrib Distrib Distrib Manuf. Manuf. Manuf. Prod./Ind. A Sales...... © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 10 Introduction Scope of the Firm: Wal-Mart output-products Prod./Ind. B Sales Prod./Ind. C Sales Distrib Distrib Distrib Manuf. Manuf. Manuf. Prod./Ind. A Sales... Input-products Vertical Scope Horizontal Scope Sales Sales Sales Distrib Distrib Distrib Manuf. Manuf. Manuf.... © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 11 Introduction Scope of the Firm: General Electric output-products Prod./Ind. A Sales Prod./Ind. B Sales Prod./Ind. C Sales Distrib Distrib Distrib Manuf. Manuf. Manuf.... Input-products Vertical Scope Horizontal Scope Sales Sales Sales Distrib Distrib Distrib Manuf. Manuf. Manuf.... © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 12 A „Value-Creating“ System Critical Linkages Competitive Advantage Internal Consistency: Effective Corporate Strategy: Each strategy element should depend upon and support each of the others, working in a way that is mutually reinforcing. An integrated system in which all elements of the strategy are aligned. VISION GOALS STRUCTURE SYSTEM Coherence Scale and Synergy Effects (Scale, Scope) “Guardian” of Resources © Artur Baldauf l Department of Management l University of Bern Corporate Advantage PROCESS Control Outcome, Behavior, Clan Controls Policies, Rules Corporate Strategy 13 A „Value-Creating“ System A “Fit” Must be Created between: Resources and Businesses (Competitive Advantage) Competitive advantage in respective businesses Evaluation according to key success factors “Strengthen” and upgrade resources Businesses and Organizational Structure, Systems and Processes (Control) Can individual businesses be effectively monitored and controlled under corporate infrastructure? A firm’s primary operating principles and systems, as well as the experience and capabilities of corporate executives, should apply across the set of businesses in its portfolio. Organization and the Resources (Coherence) Scope economies (e.g. Share of value-chain activities; leverage of valuable resources, transfer of corporate capabilities) Minimum of “corporate” intervention © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 14 Corporate Advantage: Resource Continuum Strategy is a Question of Size … The resources that provide the basis for corporate advantage range along a continuum – from the highly specialized at one end to the very general at the other. A corporation’s location on the continuum constrains the set of businesses it should compete in and limits its choices about the design of its organization along the other dimensions below. general wide nature of resources scope of business specialized narrow Companies with specialized resources will compete in a narrower range of businesses than companies with more general resources. transferring coordination mechanisms sharing The more general the resource, the more likely the company can effectively deploy it through transfer rather than sharing. Source: Creating Corporate Advantage, Collis & Montgomery, HBR, 1998, p. 73 © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 15 Corporate Advantage: Resource Continuum Strategy is a Question of Size … financial control systems operating As resources become more specialized, the value of moving from financial to operating controls increases. small corporate office size large The more general the resource and the less the need for sharing, the smaller the corporate office should be. Source: Creating Corporate Advantage, Collis & Montgomery, HBR, 1998, p. 73 © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 16 Corporate Strategies „Unrelated“ Resources „Related“ Firm Resources Businesses Role of Corporate Office Structure, Systems and Procedures Corporate reputation World-class management Learning organization Merchandising „Operating excellence“ Reputation Product development Foldable screens Market leaders Attractive industries Staple products for volume merchandisers Consumer electronics Outcome control Resource allocation Transfer skills Shared activities Coordination Top- down financial control Pay for performance Decentralized business responsibility Variable budgeting Uniform compensation Cross-divisional meetings Functional organization Formal integrative devices © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 17 Evaluating Corporate Strategy How is Corporate Advantage Created? How is corporate advantage created? External Sources? Internal Sources? Shifts in customer demand Shifts in prices Shifts in technology … Valuable Resources Portfolio of businesses in attractive industries Organizational Design (not too bureaucratic) Resource heterogeneity between firms means: differentiation potential Some firms can exploit changes faster and more efficient © Artur Baldauf l Department of Management l University of Bern Some firms have larger and more innovative skills Corporate Strategy 18 Evaluating Corporate Strategy Sources of Corporate Advantage – Issues to consider External Sources Internal Sources What does the target market demand? What are sources of strategic innovation? Who are the customers? Mostly connected with new entry into industry (e.g., IKEA – How well does the decision unit understand? Owners Influencers Subordinates Create a balance between conflicting performance goals What „values“ do decision units seek? Value Chain reconfigurations Are there differences in decision units (e.g., segmentation)? © Artur Baldauf l Department of Management l University of Bern office furnishing)? (e.g., Toyota’s lean production as trade-off between quality and costs) (Nike: Production and distribution system of shoes is very different from traditional shoe manufacturing) Corporate Strategy 19 Evaluating Corporate Strategy Managing “Linkages” between Businesses Central Question — Which added value does a corporate center provide? “Business Linkages” — Sharing and Transfer of resources and capabilities. Resource-”sharing” takes place at two levels: Corporate level — e.g., similar corporate services (law service) Business level — e.g., sharing resources, transfer of skills Analysis of “Business Linkages” Portfolio management — “Parent” creates value through internal capital market Restructuring — “Parent” creates value through acquisition and restructuring of inefficiently managed businesses Transferring skills — “Parent” creates value through transfer of skills between businesses (e.g. job rotation) Sharing activities — “Parent” creates value through resource sharing between businesses (e.g. agents) DOMINANT LOGIC — important is, how managers experience „linkages“ © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 20 Evaluating Corporate Strategy Managing “Linkages” between Businesses Portfolio Management: Utilization of better information and analysis skills in order to acquire businesses in attractive industries for low prices (e.g., Berkshire Hathaway). Minimization of the cost of capital (e.g., GE) Creation of efficient internal systems of capital allocation (e.g., Exxon-Mobil) Efficient performance monitoring of businesses (e.g., BP-Amoco). Restructuring: Intervention in order to reduce costs or sell units with bad performance (e.g. GE: “low 10 % were asked to leave”) Transfer of Skills: Transfer of best practices (e.g., Hewlett-Packard) Transfer of innovations (e.g., Samsung) Transfer of key staff between businesses (e.g., Sony) Sharing activities: Shared corporate services (e.g., 3M) Share of operational resources and functions (e.g., sales, production plants). © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 21 Evaluating Corporate Strategy Why Strategies Fail … Weaknesses in individual elements of the strategy: Firm may lack valuable resources Portfolio of businesses may be in unattractive industries Organizational design my be too interventionist und bureaucratic Weaknesses in the coherence of strategic elements (alignment) Resources may not make an important contribution to achieving a competitive advantage Organizational design may prevent the sharing of valuable resources across businesses Goals and objectives may not lead to the fulfillment of the company’s vision © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 22 Evaluating Corporate Strategy 5 Central Criteria for Qualitative Design Vision Is there a clear and well-articulated corporate vision? Are there SMART goals? Internal Consistency Are the elements of the firm’s corporate strategy aligned with one another? Do they form a coherent whole? External Consistency Does the Strategy fit with the external environment? Is the strategy sustainable against changing environmental and competitor strategies? Feasibility Corporate Advantage Is the organization being asked to do too much in too short time? Is the strategy too risky? Does the strategy truly produce a corporate advantage? Is value creation from that advantage ongoing? © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 23 Evaluating Corporate Strategy Corporate Advantage: Timing: Value Creation Value Creation Value is generated in a short time: e.g. through restructuring (turnarounds) Ongoing value generation: critical resources are exchanged between SBUs, economies of scope „Window of Value Creation“ What is the path of value creation? When is it (most) positive? Is it onetime or ongoing? © Artur Baldauf l Department of Management l University of Bern Time Corporate Strategy 24 Value Creating System Willingness to Pay Value captured by customer Price Corporation Value captured by firm Cost Value captured by supplier Supplier Value Drivers Customer Technology Innovation Brand Reputation Network Externalities Complements … Cost Drivers Allocation of “Value” Economies of Scale Economies of Scope Learning Curve Vertical Integration Org. Practices … Supplier Opportunity Cost © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 25 Value Creating System Strategic Management Investment budgeting Strategic analyses Investment Earnings opportunity Increase in value Financial management Income management Liquidity Income Finance accounting Income Statement Operative Management © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 26 Creating Corporate Advantage Disney and Danaher https://www.youtube.com/watch?v=vv4CPI2LcPg © Artur Baldauf l Department of Management l University of Bern https://www.youtube.com/watch?v=DtjS2Z5yKy8 Corporate Strategy 27 Creating Corporate Advantage Disney Storyline First Appearance of Mickey Mouse 1923 First fully animated movie First animated film in Opening of theaters Disneyland Founding of Disney 1928 Taking over Marvel 1937 1955 Opening of Disney World 1971 © Artur Baldauf l Department of Management l University of Bern Introducing Streamingplatform Disney+ Buying of Pixar 1995 2006 100 years Disney 2009 2019 2023 Corporate Strategy 28 Creating Corporate Advantage Disney News © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 29 Creating Corporate Advantage Disney Structure (Corporate) Disney Parks, Experiences and Products Adventures by Disney Disney Cruise Line Walt Disney World Resort Disneyland Resort Disney Golden Oak Reality Disney Institute Disney PhotoPass Service Disney Vacation Club Disney Books & Magazines shopDisney National Geographic Partners Disney Media & Entertainment Distribution Disney+ ESPN+ Disney Consumer Products and Interactive Media Studios Content © Artur Baldauf l Department of Management l University of Bern Buena Vista Catalogue Co. Disney Family Movies Disney on Ice and Disney Live El Capitan Theatre Searchlight Pictures Inc. Hollywood Records Lucasfilm (Star Wars) Marvel Twentieth Century Film Corporation Twentieth Century Home Entertainment, LLC Walt Disney Pictures Walt Disney Records Walt Disney Studios Home Entertainment General Entertainment Content ABC Entertainment & ABC News Freeform KABC KFSN KGO KTRK … Disney ABC Home Entertainment and Television Distribution Disney Channels & DisneyNOW FX Networks Radio Disney ESPN and Sports Content ESPN Corporate Strategy 30 Creating Corporate Advantage Disney Disney Parks, Experiences and Products Media Networks © Artur Baldauf l Department of Management l University of Bern Studio Entertainment General Entertainment Corporate Strategy ESPN 31 Creating Corporate Advantage Disney Profits Source: Statista © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 32 Creating Corporate Advantage Disney Revenues Source: Statista © Artur Baldauf l Department of Management l University of Bern Source: Business Model Analyst Corporate Strategy 33 Creating Corporate Advantage Disney The Disney Characters - The Foundation of its Corporate Advantage RESOURCES Tangible Infrastructure: parcs Intangible Knowledge about acquisitions Brand value Creativity / Human Resources BUSINESSES Media Networks Disney Parks, Experiences and Products Studio Entertainment Direct-to-Consumer and International VISION GOALS STRUCTURE SYSTEM PROCESS STRUCTURE, SYSTEM, PROCESS Designed to enhance interdivisional cooperation, creativity and synergies © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 34 Creating Corporate Advantage Danaher © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 35 Creating Corporate Advantage Danaher – Company Background © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 36 Creating Corporate Advantage Danaher The Danaher Business System - The Foundation of its Corporate Advantage RESOURCES Intangible DBS Knowhow Knowledge about market Brand value Talent / Human Resources Tangible: Factories BUSINESSES Life Sciences Diagnostics Env. & Applied VISION GOALS STRUCTURE SYSTEM PROCESS STRUCTURE, SYSTEM, PROCESS DBS: Policy Deployment Review (Control System), People & Training assure performance and strive for excellence © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 37 Creating Corporate Advantage Comparing Disney & Danaher Structural characteristics Disney Danaher Main Resource Characters DBS System Type of Strategy Related Unrelated Type of Structure Cooperative multidivisional (M-Form) Unrelated (H-Form) Degree of Centralization Centralized at Corporate Headquarters Decentralized on the Divisional Level Utilization of Integration Mechanisms Extensive Synergies Limited Synergies Performance Appraisal Subjective / Strategic (behavior-oriented) Financial (outcome-oriented) Division Incentive System Connected to Corporate Success Connected to Divisional Success © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 38 APPENDIX: © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 39 Evaluating Corporate Strategy Alignment: Organization and (Generic) Strategies Cost Leader Skills, Resources Organizational Characteristics Success Factors Differentiation Cost leadership and differentiation skills Skill for e.g. targeted at a certain customer group (segment) Intensive control of the staff Process/ production skills Cost reduction Low-cost goods and services Frequent, detailed control Clear allocation of responsibility Incentives based on attaining quantitative goals Strict production controls Rigorous control of budgets Few product differentiation and segmentation Productivity improvement Cost inspection without endangering differentiation High coordination between functional areas Incentives based on attainability of customer satisfaction High quality of the employees Broad production line Many differentiations Establishment of brand loyalty Cost leadership, differentiation structures, incentives, etc. address a certain target group A specific market niche is being served Products are offered that a „larger“ rival can not offer Efficiency in all functional areas Service offering addresses „average“ customers Functional areas and activities are aligned towards fulfilling special needs Differentiated market cultivation Specific market is served © Artur Baldauf l Department of Management l University of Bern High marketing/R&D activities Creativity Reputation for high quality High customer orientation Focus Corporate Strategy 40 Evaluating Corporate Strategies Finally the “Bottom Line” counts Linking Value Drivers and Performance Goals Sales Goals Margin Primary cost per unit sold R&D cost per unit sold Increase of Shareholder Value ROCE Inventory turnover Economic Profit Capital Turnover Capacity utilization CashTurnover CEO Corporate Divisions © Artur Baldauf l Department of Management l University of Bern Functions EXAMPLES: Order Size Customer Segments Number Sales/ Number of Customers Rate of negative Complaints Defection Rate Cost per Delivery Maintenance Costs Durability of new product development Direct / Indirect Employees Production Downtime ø – Durability of Debts ø – Durability of Accounts Receivable Departments / Teams Corporate Strategy 41 Key Value Drivers Example: Du Pont Value driver tree based on Du Pont scheme (see e.g., Brigham/Houston) Volume Revenue x Price EBT + Profitability margin (Employees) Profit (value-added) (Input material) + (Expenses) + (Other resources) (Taxes) (Depreciation/amortisation) (Capital structure) (Interest) x (Cost of capital) (negative numbers) © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 42 Summary: Evaluating Corporate Strategies Synergies: Analytical Approaches High Low 0 Value chain analysis and the creation of: ‘strategic cement that can be leveraged” High Support Activities “Linkages” – Relatedness Approaches Firm Infrastructure Question Marks Cash Cows Dogs 1 0 X Market share-/Market growth matrix (and other approaches) Life cycle approaches Stars 1 X Portfolio Methods – Financial Synergies and Cash Flow Optimization Relative Market Share Low Human Resource Management Technology Development Procurement Inbound Logistics OperationsOutbound Marketing Service Logistics & Sales Supplier Value Chain Organization’s Value Chain Distributor Value Chain Customer Value Chain Core Competence Approaches Collective learning © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 43 Summary: Corporate Strategy Triangle (1/2) Competitive Advantage Provides direction Discussion of corporate strategy begins with vision Assets Skills Capabilities Segments/industries in which the company operates Vision Coordination Organization Control Structure: The way the corporation is divided into units Systems: Set of formal policies and routines that govern organizational behavior (especially measurement and reward systems) Processes: Informal elements of the organization's activities (e.g., personal relationships) © Artur Baldauf l Department of Management l University of Bern Corporate Strategy 44 Summary: Corporate Strategy Triangle (2/2) Great corporate strategies result from Competitive Advantage Strength in each element of corporate strategy – High-quality resources – Strong market positions of the businesses in attractive industries – Efficient administrative organization Tight fit and integration Vision of the elements Organization Coordination Control Source: Collis and Montgomery, 1998 © Artur Baldauf l Department of Management l University of Bern – Resources that are critical to the success of the businesses result in competitive advantage – An organization configured to leverage those resources into the businesses leads to synergies and coordination – Fit between measurement and reward systems and the businesses produces strategic control Corporate Strategy 45