CORPORATE STRATEGY

BUSINESS UNIT STRATEGY
within a single industry

CORPORATE STRATEGY: many companies
growth in several different industries

STRATEGY

VERTICAL INTEGRATION
same value chain

Backward: do what the supplier does

Forward: do what the buyer does

HORIZONTAL DIVERSIFICATION
different value chain

Alliance

Acquisition

  • value screen
  • due diligence audit
  • how much to pay (30% more)
  • integration

Greenfield or Organic entry: use their own resources

LEVELS of DIVERSIFICATION

Single Business: 95% revenues from 1 line

Dominant vertical business: 70%

Related-constrained firm: <70%

Related-linked: <70% with fewer links businesses

Unrelated/Conglomerates (GE,3M)

ADD VALUE
Adiacent markets

Deploy/Exploiting:

  • Front-end: more customer base, better service
  • Back-end: economies of scope, use production capacity, new technology platforms

Develop/Expanding:

  • Front-end: new market, new brands, new trends
  • Back-end: improve quality, productivity, patents, process and product innovation R&D

8S
CREATE VALUE

Speading Human and financial capital: move them from one company to the other

Stopping/Slowing competitors

Similar models for success

Stay ahead of technology: Corporate Venture Capital

Shared knowledge: core competencies for the entire business/branches

Synergy: "the whole ecceds the sum of its parts"

Employing Slack: use the unused capacity (economy and scale of scope) + management skills

Stepping Stone to new industry

DESTROY VALUE

Imitative diversification

Poor governance and incentives

Sunk cost fallacy: keep putting more money

Lack of commonality between the lines of business

Excessive pride/Hubris: base decision not on analysis, but feelings

INTEGRATION STRATEGY

Blend

Bolt on: keep it separate

Build a new entity/marger

Bury/takeover

GEOGRAPHIC EXPANSION

BCG Growth-share Matrix:

Matrix

  • Cash Cow: high market share, low growth
  • Dog: low market share, low growth
  • Quest Mark: low market share, high growth
  • Start: High market share, high growth

Benefits:

  • easy, simple, versatile
  • all business unit in one matrix
  • choose which product to keep

Weaknesses:

  • only 2 dimensions
  • not relation with other factors in the company
  • dogs can be good some times
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