8 - Week 8 Strategy

MGT.
5491
Session # 8
Strategic and
Global Management:
Corporate Strategies
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1
Corporate/Enterprise (Parent)
Level Strategies

The New Reality - #1
Firms must learn to compete differently if they are to

achieve strategic competitiveness in the 21st -century
competitive landscape. To provide an idea of what this
means, new ways of competing may include:
 bringing new good and services to market more
quickly
The use of new technologies (e.g., Amazon.com)
Diversifying the product line (e.g., Barnes and
Nobles into music as a catalyst for growth)
 Shifting product emphasis (e.g., U-Haul’s new focus

on accessory sales) (i.e., Dual Branding)
 Consolidation (e.g., the merger of Exxon and Mobil)
 Combining online selling with physical stores (e.g.,
CompUSA’s new strategy)

 Dell Model for Growth

Have New Business Model (maybe changes every 5
years?)
Identify Core Competencies and then improve the
four capabilities
Outsource non-core competencies
Create a “Brand Management Company”
Brief Overview of Corporate Strategy
• Those strategies concerned with the

broad and long-term questions of what
business(es) the organization is in and
what it wants to do with those businesses

Key Questions of Corporate/Firm-level
Strategies
1. What businesses should the
corporation/enterprise be in?
2. How should the corporate/G.O. office

manage the array of business units
(GBU’s/SBU’s/ Wholly owed subsidiaries)
Corporate Strategy is what makes the corporate whole

add up to more than the sum of its business unit parts
21st Century Organization Strategies for Growth and Profitability
Multi-International: One Consumer Products Company (Corporate Level)
Demand Side Strategies: Supply Chain Strategies:
Global Scope Streamline and obtain
A Seamless Supply Chain/
Consumer Promotion Driving Funding Demand Side (Value Chain)
Integration
3600 Marketing Growth (8) Growth (5)
Use of Technologies
Superior Knowledge of to create Cost Savings
Customers/Consumers
Creating the
IS/SAP/
Best Place Consolidated
Coverage of Trade
To Work (10) Partnership
Strong Alliances/ HPWS Move to “Global”
Partnerships Vision Direction: Guiding And “Local” Regional
with Customers Core Values, Philosophies, Principles, Business
Mission, & Others
Focus on
Acquisitions/JV’s Product
Shared Leadership, Coaching & Feedback
Quality
Lean & Flat
Structures Horizontal, Structures, Systems, & Processes:
Innovative New Integration/communication/coordination
Community
Products/Services
Involvement
Empower Stimulating
Regionalization Recognition & People Careers
With Local Control Financial Rewards
Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
Corporate (and International) Strategies
• Three directions for corporate strategy

– Growth
• M&A , JV, and SA (external growth)
• International (internal growth)
– Stability (internal growth)
– Renewal (internal growth)
• Retrenchment
• Turnaround
• Increase the four capabilities via core
competencies
How does it fit together?
Vision Direction and Strategies:
Vision External and Internal
1st Direction Strategies
(Corporate & Business)
Business Imperatives:
2nd Year 2009 Globalization

Success Factors (External Growth)
Capabilities: Strategic
Improvement in
Alliances
3rd the four Capabilities via Core
Competencies along (External and/or
Value Chain Internal Growth)
Future Work Trends

Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers,http://macy.ba.ttu.edu/5491/week8/Week
San Francisco, CA. (forthcoming) 8 Strategy.ppt Slide #10
Organizational Growth: External
and/or Internal
• External and Internal Growth Strategy
– One that involves the attainment of specific
growth objectives by increasing the level of
an organization’s capabilities
– Typical growth strategies include goals for:
• Increase in sales revenues
• Profits
• Other balanced scorecard performance
measures
Types of Growth Strategies
International Concentration
Organizational
Growth
Diversification Vertical Integration

•Related Businesses •Related Businesses
Horizontal
•Unrelated Businesses •Unrelated Businesses
Integration:
Along Value Chain
Concentration
Organization concentrates on its primary

lines of business and looks for ways to
meet its growth objectives through
increasing its level of capability in this
primary business

Concentration
Product(s)
Product-Market Product
Exploitation Development
Customers
Market Focused Product/Market

Development Diversification

Another Possible Way for
Growth

The “Right” People or the “Right” Organization?
A Values-Based View of Strategy
Fundamental Values or Beliefs • What are our basic Principles, Philosophies

and Core Values?
• What do we believe in?
Design Management Practices • What policies and practices are consistent

That Reflect and Embody with these Values and Philosophies?
These Values
Use These to Build Core •What can we do for the customer better
Capabilities than our competitors?
Invent a Strategy That is Consistent • Given our core capabilities, how can we deliver
with the Values and Uses the value (EVA) to customers in a way our
Talents & your four Capabilities to competitors cannot easily imitate?
Compete in
New and Unusual Ways
• Senior management “manages” the values
and culture of the firm.
Senior Management’s Role http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #16
Possible Strategic Focus
Trust: Is it Valuable, Rare, Costly to
Imitate, and Nonsubstitutable?
The following examples are provided as evidence that the trust
structures contribute to the above average performance of each
firm.
 Anderson & Associates practices open-book management,
meaning that all financial data are readily accessible on the
firm’s Intranet. The company’s CEO claims that this practice
contributes to employee loyalty.
 Radius, a French restaurant in Boston, relies upon trust to
sustain one of its competencies – excellent teamwork.
 MTW Corp., a software and Internet applications provider,
relies upon “expectation agreements” among the boss , an
employee, and his or her work team.
What is the value of a friend who can be trusted compared to
one who cannot be trusted?
 Would you be willing to loan your car to the less-than-
trustworthy acquaintance if they were going to need it for a few
hours?
 Would you trust them at all?
For firms, trust relationships can easily make the difference
between a deal getting done or not, or it can impact the size of
the deal that is done. Trust carries a great deal of weight,
especially in an environment where it is in short supply. AND
Today’s deal that is based on trust can lead to a sustainable edge
when future deals are considered.
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #18 3-18
Trust and organizational success are closely linked.
Trust benefits the organization in that it reduces the
overall transaction costs.
There are many attributes to trust, the most prominent
of which is risk. This risk can be divided into two
categories:
 Managerial Risk – the general risk of management decisions
 Organizational Risk – characteristic of forms with volatile
income streams
Davis, Schoorman, Mayer and Tan define trust as “the willingness of a party (trustor) to be
vulnerable to the actions of another party (trustee) based on the expectation that the trustee
will perform an action important to the trustor, regardless of the trustor’s ability to monitor
or control the trustee.”
Trust between general manager and employees may be a source
of competitive advantage. This trust rests upon the trustor’s
perception of the trustees:
 ability – skills and competencies by which trustee may
influence outcomes
 benevolence – degree to which trustor believes trustee acts for
the good of the trustor
 integrity – belief that the trustee will follow a set of principles
that are desired by the trustor
The Davis, et al. study suggests that these three factors of trust
can contribute to competitive advantage of the firm. We can
conclude that trust satisfies at least three of the four (and
conceivably all four) criteria for sustainable competitive
advantage.
 Valuable – the study demonstrated that trust increased
profitability and reduced turnover.
 Rare – this relationship dynamic is uncommon.
 Costly to imitate – trust is an intangible social construct that
cannot easily be replicated.
 Nonsubstitutable – possibility, since trust is difficult to observe
Another Way: Diversification
Value Chain Capabilities/

Core Competencies
Product Distribution
Similarities Related Channels
Diversification
Similar Customer
Technology Use

Diversification
• Level
– Horizontal
• Anti-trust laws prohibit a lot of these
– Vertical
• Suppliers buying buyers (or vice versa)
• Two Types
– Related Businesses
– Unrelated Businesses

Related Diversification and Competitive
Advantage
• Competitive advantage can result from related
diversification if opportunities exist to
– Transfer expertise / capabilities / technology
– Combine related activities into a single operation and
reduce costs
– Leverage use of firm’s brand name reputation
– Conduct related value chain activities in a
collaborative fashion to create valuable competitive
capabilities

What is Unrelated Diversification?
• Involves diversifying into businesses with

– NO strategic fit
– NO meaningful value chain relationship
– NO unifying strategic theme
• Approach is to venture into “any business in
which we think we can make a profit”
• Firms pursuing unrelated diversification are
often referred to as conglomerates

Attractive Merger/Acquisition
Targets
• Companies with undervalued assets
– Capital gains may be realized
• Companies in financial distress
– May be purchased at bargain prices and turned
around
• Appeal of Unrelated Diversification Strategy
– Business risk scattered over different industries
– Financial resources can be directed to those industries
offering the best profit prospects
– If bargain-priced firms with big profit potential are
bought, shareholder wealth can be enhanced
Drawbacks of Unrelated Diversification
• Difficulties of competently managing many
diverse businesses
• Lack of strategic fits which can be leveraged
into competitive advantage
– Consolidated performance of unrelated businesses
tends to be no better than sum of individual
businesses on their own (and it may be worse)
• Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3
– Promise of greater sales-profit stability over business
cycles seldom realized
Combination Related-Unrelated
Diversification Strategies
• Dominant-business firms
– One major core business accounting for 50 –
80 percent of revenues, with several small
related or unrelated businesses accounting for
remainder
• Narrowly diversified firms
– Diversification includes a few (2-5) related or
unrelated businesses

Combination Related-Unrelated
Diversification Strategies (cont.)
• Broadly diversified firms

– Diversification includes a wide ranging
collection of either related or unrelated
businesses or a mixture
• Multi-business firms
– Diversification portfolio includes several
unrelated groups or related businesses

Diversification and Corporate Strategy
• A company is diversified when it is in two or

more lines of business
• Strategy-making in a diversified company is a
bigger picture exercise than crafting a strategy
for a single line-of-business
– A diversified company needs a multi-industry, multi-
business strategy
– A strategic action plan must be developed and
implemented for several different businesses
competing in diverse industry environment
Levels and Types of Diversification
Low Levels of Diversification
Single business > 95% of revenues from a single A
business unit
Dominant business Between 70% and 95% of A
revenues from a single business
B
unit
Moderate to High Levels of Diversification
A
Related constrained < 70% of revenues from dominant
business; all businesses share product, B C
technological and distribution linkages
Related linked (mixed) < 70% of revenues from dominant A

business, and only limited links exist
B C
Very High Levels of Diversification A

Unrelated-Diversified Business units not closely related B C
When to Diversify
• Some companies do EXCELLENTLY and are
not diversified
– McDonald’s, SWA, Coca-Cola, Domino’s Pizza,
Wal-Mart, FedEx, Timex, Gerber
– Why stay single business
• Clear understanding of who we are/what we do
• No Dilution of management’s attention
– Risks of a single business strategy
• Putting all the “eggs” in one industry basket
• Unforeseen changes can undermine a single
business firm’s prospects
Adding Value by Diversification
Diversification most effectively adds value
by either of three mechanisms:
By developing economies of scope between
business units in the firms which leads to
synergistic benefits
By developing market power which leads to
greater returns
ECR (Efficient Consumer Response)
• Efficient Assortment
• Efficient Product Introduction
• Efficient Replenishment
• Efficient Promotion
• TOTAL ECR SCORE = Sum of 4 above

Alternative Diversification Strategies
Sharing Activities
Assumptions:
Strong sense of corporate identity
Clear corporate mission that emphasizes the

importance of integrating business units
Incentive system that rewards more than just

business unit performance (balanced scorecard)

Related Diversification Strategies
Sharing Activities (Shared Global Services)

Transferring Core Competencies
Unrelated Diversification Strategies
Efficient Internal Capital Market Allocation

Restructuring
Sharing Activities
Key Characteristics:
Sharing Activities often lowers costs or
raises differentiation
Example: Using a common physical distribution system
and sales force such as Procter & Gamble’s disposable
diaper and paper towel divisions
Sharing Activities can lower costs if it:

Achieves economies of scale
Boosts efficiency of utilization
Helps move more rapidly down Learning Curve
Example: General Electric’s costs to advertise, sell and
service major appliances are spread over many different
products http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #36
Sharing Activities
Sharing Activities can enhance potential for or
reduce the cost of differentiation
Example: Shared order processing system may allow new
features customers value or make more advanced remote
sensing technology available
Must involve activities that are crucial to

competitive advantage
Example: Procter & Gamble’s sharing of sales and
physical distribution for disposable diapers and paper
towels is effective because these items are so bulky and
costly to ship
Transferring Core Competencies
Exploits Interrelationships among divisions
Start with Value Chain analysis
Identify ability to transfer skills or

expertise among similar value chains
Exploit ability to transfer activities

Summary Model of the Relationship Between Firm
Performance and Diversification
Capital Market
Intervention and
Market for
Resources
Managerial Talent
Incentives Diversification Firm

Strategy Performance
Managerial
Motives Strategy
Implementation
Performance Diversification and Firm Performance
Dominant Related Unrelated

Business Constrained Business
Level of http://macy.ba.ttu.edu/5491/week8/Week
Diversification 8 Strategy.ppt Slide #40
How does it fit together?
Vision Direction and Strategies:
Vision External and Internal
1st Direction Strategies
(Corporate & Business)
Business Imperatives:
2nd Year 2009 Globalization

Success Factors (External Growth)
Capabilities: Strategic
Improvement in
Alliances
3rd the four Capabilities via Core
Competencies along (External and/or
Value Chain Internal Growth)
Future Work Trends

Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers,http://macy.ba.ttu.edu/5491/week8/Week
San Francisco, CA. (forthcoming) 8 Strategy.ppt Slide #41
Questions for Strategy
to Consider
Competitive Dynamics

Strategic Actions and
Organizational Size - 1
An organization’s size affects the
likelihood that it will take competitive
actions as well as the types of action it
will take and their timing. Small firms
are more likely to launch competitive
actions and tend to be quicker in doing
so.
Large firms are likely to initiate more
competitive actions as well as strategic
actions during a given time period. Thus,
the competitive actions a firm will likely
ecounter from larger competitors will be
different than the competitive actions it
will encounter from smaller firms.
Large organizations often have the
slack resources required to launch a
larger number of total competitive
actions, and thus do. However, smaller
firms have the flexibility needed to
launch a greater variety of competitive
actions.
Factors Leading to More Complex Rivalry
Declining emphasis on single, domestic markets

and increasing emphasis on global markets
Advances in communication technology make

coordination easier across multiple markets
Advances in technology and innovation have

increased competitiveness of small and medium
sized firms
National barriers are falling due to the number and
scope of trade agreements (GATT, NAFTA, EEC)

Competitive Dynamics
Results from a series of competitive actions and
competitive responses among firms competing
within a particular industry
Competitive Rivalry
Exists when two or more firms jockey with one
another in the pursuit of better market position

A firm’s
strategic conduct
is dynamic in
nature
Competitive
Actions taken
responses lead
by one firm Competitive to additional
elicit responses
from Dynamics actions from the
firm that acted
competitors
originally
Actions and
responses shape the
competitive positions
of each firm’s
business level
strategy
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Do managers understand
Awareness the key characteristics of
Motivation competitors?
Capability

Drivers of
Competitive
Behavior
Awareness
Does the firm have
Motivation appropriate incentives to
Capability attack or respond?

Drivers of
Competitive
Behavior
Awareness
Motivation
Does the firm have the
Capability necessary resources to
attack or respond?

Competitor
Analysis
Market Do firms compete with each
Commonality other in multiple markets?
Resource
Similarity

Competitor
Analysis
Market Multipoint competition tends to
reduce competitive interactions, but
Commonality
increases the likelihood of response
where interaction occurs
Resource
Similarity For example, airlines price flights
similarly but respond quickly when
competitors introduce promotional
prices

Competitor
Analysis
Market
Commonality
Resource Do competitors possess similar

Similarity types or amounts of
resources?

Competitor
Analysis
Market
Firms are less inclined to attack a
Commonality firm that is likely to retaliate
Resource Firms with similar resources are
Similarity more likely to be aware of each
other’s competitive moves
Firms with dissimilar resources

are more likely to attack
Interfirm Rivalry:
Attack & Response
Likelihood of Attack First Mover advantage
First Mover Incentives can be substantial
Likelihood of Response
Type of Competitive
Action
Actor’s Reputation
Dependence on the
Market
Resource Availability
First Mover
Firms that take an initial competitive action
Generally possess the resources and capabilities that
enable them to be pioneers in new products, new
markets or new technologies
Can earn above average profits until competitors

respond
Gain customer loyalty, helping to create a barrier to
entry by competitors
Advantage depends upon difficulty of imitation
Second Mover
Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success
Should evaluate customers’ response before moving

“Fast” Second Movers can capture some of initial
customers and develop some brand loyalty
Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate
Types of Competitive Actions
Significant commitments of specific and
Strategic distinctive organizational resources
Actions Difficult to implement
Difficult to reverse
Example Major Acquisition
Undertaken to “fine tune” strategy

Tactical
Actions Relatively easy to implement
Relatively easy to reverse
Example Price cuthttp://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #59
Ability for
Action and
Response
Firm size can have
Relative Size opposing effects on
competitive dynamics
Speed
Innovation
Quality
Ability for
Large firms may exert market power
Action and over rivals and erect barriers to
Response entry against smaller competitors
Relative Size However, smaller competitors

may be more nimble and
Speed innovative
Innovation “Think and act big and we’ll get

smaller. Think and act small
and we’ll get bigger.”
Quality -- Herb Kelleher,
CEO, Southwest Airlines
Ability for
Action and
Response
Relative Size Quick response is

crucial to both the
Speed
first mover and the
Innovation fast second mover
Quality
Ability for
Action and
Response
Relative Size
Speed Consistent innovation
is required for market
Innovation
leadership in many
dynamic industries
Quality
Ability for
Action and
Response
Relative Size
Speed
Innovation Exceeding customer
expectations is a necessity
Quality to compete in the 21st
century
Outcomes
Competitive Market Types Slow cycle markets are
Slow, Standard or Fast Cycle frequently shielded by
monopoly power or very
Competitive Outcomes strong brand loyalties
Sustained Competitive
Advantage This market outcome and
Temporary Advantage lack of interfirm rivalry
may lead to sustained
Evolutionary Outcomes
competitive advantage
Evolutionary Actions
Growth-Oriented Actions
Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #65
Outcomes
Standard cycle markets
Competitive Market Types often lead to highly
Slow, Standard or Fast Cycle competitive pressures
Competitive Outcomes despite world class
products
Sustained Competitive
Advantage Firms with multimarket
Temporary Advantage competition may dampen
Evolutionary Outcomes rivalry somewhat
Evolutionary Actions Sustained competitive
Growth-Oriented Actions advantage is a possible
outcome in8this
Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week instance
Strategy.ppt Slide #66
Outcomes
Fast cycle markets are
Competitive Market Types
intensely dynamic and a
Slow, Standard or Fast Cycle first mover advantage is
Competitive Outcomes often unsustainable
Sustained Competitive Firms may cannibalize
Advantage older generation products
Temporary Advantage while introducing new
Evolutionary Outcomes innovative premium
products
Evolutionary Actions
Growth-Oriented Actions Sustainable competitive
Market-Power Actions http://macy.ba.ttu.edu/5491/week8/Week
advantage is unilkely
8 Strategy.ppt Slide #67

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MGT.

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #2

Firms must learn to compete differently if they are to

 Shifting product emphasis (e.g., U-Haul’s new focus

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #4

 Dell Model for Growth

• Those strategies concerned with the

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #6

2. How should the corporate/G.O. office

Corporate Strategy is what makes the corporate whole

• Three directions for corporate strategy

2nd Year 2009 Globalization

Future Work Trends

Diversification Vertical Integration

Organization concentrates on its primary

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #13

Market Focused Product/Market

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #14

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #15

Fundamental Values or Beliefs • What are our basic Principles, Philosophies

Design Management Practices • What policies and practices are consistent

Value Chain Capabilities/

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #22

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #23

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #24

• Involves diversifying into businesses with

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #25

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #28

• Broadly diversified firms

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #29

• A company is diversified when it is in two or

Related linked (mixed) < 70% of revenues from dominant A

Very High Levels of Diversification A

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #33

Strong sense of corporate identity

Clear corporate mission that emphasizes the

Incentive system that rewards more than just

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #34

Related Diversification Strategies

Sharing Activities (Shared Global Services)

Unrelated Diversification Strategies

Efficient Internal Capital Market Allocation

Sharing Activities can lower costs if it:

Must involve activities that are crucial to

Exploits Interrelationships among divisions

Start with Value Chain analysis

Identify ability to transfer skills or

Exploit ability to transfer activities

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #38

Incentives Diversification Firm

Dominant Related Unrelated

2nd Year 2009 Globalization

Future Work Trends

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #42

Declining emphasis on single, domestic markets

Advances in communication technology make

Advances in technology and innovation have

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #46

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #47

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #49

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