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Chapter 9: Corporate-level strategies(Master Strat or grand strat) -…
Chapter 9: Corporate-level strategies(Master Strat or grand strat)
Corporate-level strategy is about identifying the industry or industries in which an orgs should
participate to maximise
its
long-term profitability
the general comprehensive strat that will guide the orgs actions
Deals with:
How many and in which industries do they want to operate in
Building synergy and a competitive advantage within and among the different business or industries
Purpose of Corporate-level strategy:
the 2 reasons orgs focus on and apply CLS
Firstly, it leads to the creation of shareholder value
Secondly, it has to do with maximizing long-term profitability and value
balance between profitability(cost efficiency and value adding) and profit growth(Sale in existing markets or new markets)(pg 202)
Options for orgs when it comes to industries:
orgs can choose industry and focus on that industry through internal growth strategies and business-level strats to improve it competitive position
An org can enter new industries in adjacent stages of its value chain through vertical integration
an org can choose to enter new industry through diversification
An orgs can choose to exit some of the businesses or industries it which it currently operates, though restructing or downsizing
Four categories of corporate-level strats
Growth strategies
Internal Growth
Market penetration(Concentrated growth)
:
Seeks to
increase the market share
of an org through
concentrated marketing efforts
Stays
focused on present market
and present product/services.
Tries to
increase the usage rate of present customers
,
attract non-users
to buy the product, and/or
attract competitor's customers
and convince them to switch brands
2 perks l
ow-risk approach and less expensive
Market Development
,
involves
expanding the portfolio of markets
that the orgs serves.
Existing products/ services(new markets)
Product development:
improving and modifying
the products and services of the orgs in order to increase sales
Existing markets(
New Product
)
External strats
Diversification strats:
adding new, but related products and services to the products line(
related diversification or concentric diversification
)
it refers to business diversifying into related markets or industries
unrelated or conglomerate diversification
, involves adding new, unrelated products or services in an effort to reach and penetrate new markets
Why Diversification is a high-risk strat:
new tech, skills
and
new market are unknown and uncertain
.
resulting in
inadequate knowledge about the new market
and the
customers' needs, the org can be inefficient and ineffective
Why orgs dont diversify:
Economies of scale
(Sharing activities or transferring core competencies)
Market power
(blocking competitors vs vertical integration)
Financial economies(efficient internal capital allocation or business restructuring)
reasons for
value-neutral diversification
are for example, antitrust regulations, tax laws, low performance or risk reduction.
reasons for
value-reducing diversification
are
mainly diversifying managerial employment risk or increasing managerial compensation
Integration strategies:
Gaining control over suppliers, distributors or competitors in a particular industry to enhance the effectiveness and efficiency of the org
Happens through acquisition and amalgamation(mergers) of competitors
Horizontal and vertical integration
Integration
Integration Strategies(Types):
Horizontal integration
, mergers, acquisitions and takeovers.
ABSA,
Benefits and risks
Vertical integration
Backward vertical integration
Forward vertical integration
Balanced integration - (pg 212)
Advantages and disadvantages
Cooperative or combination strategies
:
Join efforts and working together to achieve goals
Create value for customers
Are successful in orgs that
operate in global, dynamic and technologically driven industries
.
Outsourcing
is one approach in implementing a
cooperative strategy
- orgs will abandon the performance of certain value chain activities rather than outsource them out.
Joint ventures,
A
separate entity formed by 2 or more orgs
with the purpose of
capitalizing on a particular opportunity
Partners contribute own skills and resources
Partners share equal ownership
Orgs usually enter into joint ventures
to obtain a degree of vertical integration and therefore cost benefits,
to
acquire a partnering orgs unique competence or skill in a value-creating activity
to
develop new tech
that may influence an industry's future direction
An
attractive strategy
when the distinct competencies of 2 or more orgs c
omplement each other.
A joint venture extends the
supplier-consumer relationship
.
Strategic alliances;
strategic alliances is an endeavor in which
orgs combine some of their resources and capabilitie
s to create a
competitive advantage
.
Org may share resources, info, capabilities and risks to achieve this.
gives orgs the chance to
leverage existing resources and capabilities
, while working with partners to
develop additional resources and capabilities
as a foundation for** new competitive advantage.
A
strategic alliance
can be, in some instances,
synonymous with a licensing agreement
Ideal in a new market or venture
Consortia
consortium
is an
association of 2+ indies companies, orgs or governments
with the
primary objective of participating in a common activity
or pooling their resources for achieving a
common goal.
Large interlocking
relationships between orgs in a s
pecific industry
represent the most sophisitcated form of
Strat alliances
as it involves multi-partner alliances and highly complex linkages between groups of orgs.
the relationships include the
complex sharing of tech, resources or value creating activities and financial linkages.
Stability or turnaround strategies
can occur due to
recession, inefficiencies and non-competitiveness
are some of the
external and internal factors leading
to the need for a stability or turnaround strat
stability or turnaround strategies can also be implemented in orgs to reduce the scope of the org by exiting certain business areas.
the aim of implementing these strategies is to improve efficiency and effectiveness
Stability strats,
Stability refers to a situation where orgs cannot afford further growth as a result org problems
Turnaround strats
,
are aimed at transforming orgs into more significant competitors
This strat is implemented in an org where
deterioration
in the business or business units is leading to a
decrease in profitability
(org losing its competitive advantage)
no value can be created anymore and the shareholders are starting to question the existence of the org.
This leading to downsizing or retrenchment
The next stage in turnaround strat is the recovery response, this follows the stabilisation of the org through restructuring and downsizing during the retrenchment stage
The problems that an org encounters, leading to downsizing or restructuring, can be externally or internally induced.
in applying these activities, the orgs downsizes or restructures its total architecture.
orgs that are not in a severe situation can achieve stability through applying cost retrenchment.
Exit or disinvestment strat
imply withdrawal from the market
Strategies in this category are liquidation, harvesting and bankruptcy.
A disinvestment strat, involves selling the business or business unit of the org to the highest bidder.
A Harvest strat involves investing in a business unit to maximise short-to-medium term cash flow
A Liquidation strategy involves shutting down the operations of a business unit and selling its assets for its tangible worth
Link with chapter 8:
Cost leadership
Forward integration, horizontal integration, joint venture, strat alliances
Differentiation
Product development, market development, diversification, horizontal integration
Focus
Product development, horizontal integration, diversification, joint venture, strat alliance