COM 442
CHAPTER TWO
Corporate
Strategy
Decisions
DECISIONS ABOUT THE ORGANIZATION’S SCOPE OR MISSION,
ITS OVERALL GOALS AND OBJECTIVES,
AVENUES OF FUTURE GROWTH,
RESOURCE DEPLOYMENTS AND POTENTIAL SOURCES OF SYNERGY
ACROSS BUSINESS UNITS
ARE THE ESSENTIAL COMPONENTS OF CORPORATE STRATEGY
1. SCOPE / MISSION/INTENT

CLEARLY STATED

ANSWERS TO FUNDAMENTAL QUESTIONS
o WHAT IS OUR BUSINESS?
o WHO ARE OUR CUSTOMERS?
COMM 442…1
o WHAT KINDS OF VALUE CAN WE PROVIDE TO THEM?
o WHAT SHOULD OUR BUSINESS BE IN THE FUTURE?
PEPSICO
”MARKETING SUPERIOR QUALITY FOOD AND BEVERAGE PRODUCTS FOR
HOUSEHOLDS AND CONSUMERS DINING OUT.”
DIVEST PIZZA HUT & TACO BELL
“THE WORLD WIDE MARKETING OF SUPERIOR BEVERAGE PRODUCTS.”
FACTORS INFLUENCING
THE CORPORATE MISSION
A MISSION SHOULD REFLECT ITS INTERNAL CHARACTERISTICS,
RESOURCES AND COMPETENCIES AND ITS EXTERNAL OPPORTUNITIES
AND THREATS.
COMM 442…2
SOCIAL VALUES & ETHICAL PRINCIPLES
A UNIQUE CORPORATE CULTURE = A REFLECTION OF INTERNAL
CHARACTERISTICS, HISTORICAL ACCOMPLISHMENTS, MANAGERIAL
PREFERENCES, SHARED VALUES, MYTHS & SYMBOLS =
DEFINE THE SOCIAL & ETHICAL BOUNDARIES OF THEIR STRATEGIC
DOMAIN.
CULTURAL SPECIFICITY OF SOCIAL & ETHICAL CONDUCT
CODES MAKES THIS A PHILOSOPHICAL CHALLENGE FOR GLOBAL
ORGANIZATIONS.
USA – PROPRIETORY INFO
CDN – CONSERVATION
EURO – WORKPLACE SAFETY
THE MISSION STATEMENT SHOULD REFLECT

INTERNAL RESOURCES, COMPETENCIES & SYNERGIES

PROVIDE DIRECTION FOR POSITIVE PRODUCT-MARKET
ASSOCIATIONS.
DIMENSIONS FOR DEFINING
THE CORPORATE MISSION
COMM 442…3
STRATEGIC SCOPE
(GET IT RIGHT!)
PENN CENTRAL RR
“THE RAILROAD BUSINESS”
BURLINGTON NORTHERN
“TO PROVIDE LONG-DISTANCE TRANSPORTATION FOR LARGE VOLUME
PRODUCERS OF LOW VALUE, LOW DENSITY PRODUCTS, SUCH AS COAL
OR GRAIN.”
FOCUS ON:

THE FUNCTIONAL CUSTOMER NEED
AND

THE PHYSICAL MEANS OF SATISFYING THEM
VISION
OR STRATEGIC INTENT:
A MOTIVATIONAL VIEW OF THE CORPORATE
MISSION
COMM 442…4
STRATEGIC INTENT OR VISION

GET THE TROOPS MOVING
“BEAT BENZ!”

SET AN ENDURING GOAL WORTHY OF EMPLOYEE COMMITMENT

KEEP THE MEANS FLEXABLE
COMM 442…5
2. CORPORATE OBJECTIVES
FORMAL OBJECTIVES PROVIDE DECISION CRITERIA THAT GUIDE AN
ORGANIZATION’S BUSINESS UNITS AND EMPLOYEES TOWARD SPECIFIC
DIMENSIONS & LEVELS OF PERFORMANCE.
EACH OBJECTIVE SHOULD CONTAIN
FOUR COMPONENTS:

A PERFORMANCE DIMENSION OR ATTRIBUTE SOUGHT

A MEASURE OR INDEX FOR EVALUATING PROGRESS

A TARGET OR HURDLE LEVEL TO BE ACHIEVED.

A TIME FRAME WITHIN WHICH THE TARGET IS TO BE
ACCOMPLISHED.
COMM 442…6
THE ULTIMATE OBJECTIVE:
ENHANCING SHAREHOLDER VALUE

MEASURED BY DIVIDENDS

MUST ALSO PLACATE THE REMAINING CORPORATE
CONSTITUENCIES (EMPLOYEES, CUSTOMERS, SUPPLIERS,
DEBTHOLDERS & STOCKHOLDERS).

HENCE THE REQUIREMENT TO GENERATE ADEQUATE CASH

MANAGEMENT’S PRIMARY OBJECTIVE SHOULD BE
o TO PURSUE CAPITAL INVESTMENTS,
o ACQUISITIONS & BUSINESS STRATEGIES THAT WILL PRODUCE
SUFFICIENT FUTURE CASH-FLOWS TO RETURN POSITIVE
VALUE TO ITS SHAREHOLDERS = TARGET RETURN ON
SHAREHOLDER EQUITY

ECONOMIC OR MARKET VALUE ADDED (MVA) = DEBT + MARKET
VALUE OF STOCK – CAPITAL INVESTED IN THE COMPANY (+ #’s =
WEALTH CREATED)
PURSUE MULTIPLE OBJECTIVES

SOME ASPECT OF PROFITABLY

GROWTH OR MARKET SHARE

NEED TO ENSURE COMPATIBILITY OF OBJECTIVES
COMM 442…7
BUSINESS UNIT
&
PRODUCT-MARKET OBJECTIVES

NEED TO BE CONSISTENT

YET REFLECT THEIR PARTICULAR MARKET
CHARACTERISTICS EG. COMPETITIVE POSITION, STAGE
IN LIFE CYCLE, ETC.
3. CORPORATE DEVELOPMENT
STRATEGY
WHERE WILL FUTURE GROWTH COME FROM?
SENIOR MANAGEMENT NEEDS TO DEVELOP A STRATEGY
TWO BASIC CHOICES:
EXPANSION
OR
DIVERSIFICATION
a. EXPANSION
MARKET PENETRATION
a) IMPROVE EXISTING MARKET SHARE THRU:

PRODUCT / SERVICE IMPROVEMENTS

OUTSPEND COMPETITION

PROMOTIONAL ACTIVITY (CONSUMER, TRADE,
PRICE)
COMM 442…8
b) INCREASE PRODUCT USEAGE:
1) MORE,
2) MORE OFTEN,
3) DIFFERENT OCCASIONS
PRODUCT DEVELOPMENT
a) PRODUCT LINE EXTENSIONS:

ARM & HAMMER FROM BKING SODA TO
LAUNDRY DETERGENT, OVEN CLEANER, and
CARPET CLEANER – BASED ON IMAGE AS AN
EFECTIVE DEODERIZER.
b) MARKET DEVELOPMENT (LARGEST POTENTIAL)
o ENTER NEW MARKETS GO GLOBAL
b. DIVERSIFICATION

RISKER REQUIRES LEARNING NEW CORE COMPETENCIES & NEW
CUSTOMER NETWORK
A. VERTICAL INTEGRATION

FORWARD INTEGRATION: FIRM EXPANDS DOWN STREAM
IN TERMS OF PRODUCT FLOW (DOWN THE DISTRIBUTION
CHANNEL – TOWARD THE CONSUMER)

BACKWARD INTEGRATION: UP THE DISTRIBUTION
CHANNEL (TOWARD INGREDIANT SUPPLIERS)

MORE EGGS ($) IN ONE BASKET (INDUSTRY)
COMM 442…9
B. REALATED DIVERSIFICATION

NEW PRODUCT & CUSTOMERS

COMPLEMENTS INTERNAL SYNERGIES (MKTING, PROD, R&D,
ETC.)
C. UNRELATED DIVERSIFICATION

FINANCIALLY MOTIVATED NOT OPERATIONAL

HAVE CASH SURPLUS OR EXISTING INDUSTRY IS IN THE
DECLINING STAGE

BRAND NEW UNRELATED BUSINESS VENTURE
D. DIVERSIFICATION THRU ORGANIZATIONAL
RELATIONSHIPS OR PARTNERSHIPS
THE ULTIMATE ‘BUSINESS COOP’
KIERETSU OR CHAEBOL

OFTEN BASED AROUND A LARGE TRADING COMPANY (TO
ACCESS GLOBAL MARKETS)

COALITION MEMBERS PROVIDE SPECIFIC GOODS OR SERVICES
COMPLEMENTING THE TOTAL PRODUCT-MIX OFFERING
COMM 442…10
4. CORPORATE RESOURCE
ALLOCATION

TREAT EXISTING SBU’s AS A PORTFOLIO OF INVESTMENT
OPPORTUNITIES

NEED TO EVALUATE IN TERMS OF

SBUs’ FINANCIAL ATTRACTIVENESS (MARKETSHARE GROWTH RATE)

INDUSTRY POTENTIAL (MARKET GROWTH RATE)
GROWTH-SHARE MATRIX MODELS
USED TO FACILITATE ASSESSING AND COMPARING SBU POTENTIALS
(ATTRACTIVENESS)
GRAPH QUADRANTS

QUESTION MARKS: HIGH GROWTH MARKET / SBU – LOW
MARKETSHARE

STARS: HIGH GROWTH MARKETS / LEADING SHARE (NET
USERS OF CASH NEEDED TO FUEL & MAINTAIN PERFORMANCE)

CASH COWS: LOW GROWTH MARKET (STABLE) / HIGH SHARE
(PRIMARY GENERATORS OF PROFIT & CASH FOR QUESTION
MARKS & STARS0

DOGS: LOW SHARE / LOW GROWTH (HARVEST OR DIVEST)
COMM 442…11
LIMITATIONS OF MATRIX MODELS

ONLY CAPTURES TWO VARIABLES

MAY NOT TELL THE WHOLE INDUSTRY STORY (LOW ENTRY
COSTS, BUBBLE PERFORMANCE, GATEWAY TO…)

MARKETSHARE REFLECTS HISTORY NOT FUTURE

USING THE CORRECT MEASUREMENT CRITERIA IS KEY
(GARBAGE IN, GARBAGE OUT) MUST NOT BIAS SBU
COMPARISONS

PROVIDES DIRECTION BUT NO KEY ON HOW TO GET
THERE.

DOESN’T ACCOUNT FOR INTERNAL SYNERGIES (DOG
SUPPLIES STAR, ETC.)
ALTERNATIVE PORTFOLIO MODELS
‘INDUSRTY ATTRACTIVENESS-BUSINESS DECISION MATRIXES’
OR
‘DIRECTIONAL POLICY MATRIXES’

ATTEMPT TO MEASURE MORE VARIABLES (MULTIFACTORS)

BECOMES SUBJECTIVE & AMBIGUOUS

EVALUATE DIFFERENT INDUSTRIES WITH THE SAME NORMS?
COMM 442…12
TECHNOLOGY MATRIX: USES FIRM’S DEVELOPMENT LEVEL VISA-VIE
TOTAL TECHNOLOGY FIELD
AN ALTERNATIVE TO PORTFOLIO MATRIXES:
VALUE-BASED PLANNING:
ASSESSING THE SHAREHOLDER
VALUE A GIVEN STRATEGY IS
LIKELY TO CREATE.
BY
1. ASSESSING THE CASHFLOWS LIKELY TO BE GENERATED
2. SUBTRACT FROM CAPITAL REQUIRED (RISK-FACTORED) TO
FINANCE THE STRATEGY
3. = AN ECONOMIC VALUE ADDED (MVA) MEASURE (+ IS GOOD)
COMM 442…13
DISCOUNTED CASH FLOW MODEL
(USED MOST OFTEN)
THE SHAREHOLDER
VALUE THAT A STRATEGY CREATES IS
DETERMINED BY:

THE CASHFLOW THAT IT GENERATES

THE FIRM’S COST OF CAPITAL

THE MARKET VALUE OF THE ASSIGNED DEBT

FUTURE CASHFLOWS IMPACTED BY:
o SIX ‘VALUE DRIVERS’
1. RATE OF SALES GROWTH
2. OPERATING PROFIT MARGIN
3. TAX RATE
4. INVESTMENT LEVEL OF WORKING CAPITAL (DAY TO
DAY)
5. INVESTMENT LEVEL OF FIXED CAPITAL (FULL TIME
PERIOD)
6. DURATION OF VALUE GROWTH (YRS. WITH A + MVA)

NEED TO ALSO FACTOR IN
o THE LENGTH OF TIME STRATEGY WILL BE USED
o RESIDUAL VALUE OF STRATEGY ACTIVITY
LIMITATIONS OF VALUE-BASED PLANNING
 AS GOOD AS THE FORECASTING USED IN THE PLANNING
ASSUMPTIONS
 FORECASTED NUMBERS TAKE ON A ‘LIFE’ (ASSUMED
VALIDITY) OF THEIR OWN.
COMM 442…14
REALITY CHECK
A. MANAGERS MUST FULLY CONSIDER THE COMPETITIVE CONTEXT OF
CASH FLOWS AND ENSURE THAT CASH FLOW PROJECTIONS ARE
DIRECTLY TIED TO COMPETITIVE ANALYSIS PROJECTIONS.
B. THEY MUST QUESTION WHETHER THE CASH FLOWS CONTRIBUTE
TO COMPETITIVE ADVANTAGE, AND TO WHAT EXTENT CASH FLOWS
ARE DEPENDENT ON THOSE ADVANTAGES.
C. SPECIFICALLY,
I. THEY SHOULD BROADEN THE RANGE OF STRATEGY
ALTERNATIVES,
II. CHALLENGE THE INHERENT SOUNDNESS OF EACH
ALTERNATIVE,
III. TEST THE SENSITIVITY OF EACH ALTERNATIVE TO CHANGES IN
CASH INFLOWS AND OUTFLOWS.
5. SOURCES OF SYNERGY
A. KNOWLEDGE BASED: TRANSFER OF COMPETENCIES, R&D,
BRAND EQUITY, ETC.
B. OPERATIONAL RESOURCES: MATERIALS HANDLING,
PROCESSING, ADMINISTRATION.
COMM 442…15
KEY ELEMENTS OF CORPORATE STRATEGY CONSIDERATIONS
1. SCOPE / MISSION/INTENT
2. CORPORATE OBJECTIVES
3. CORPORATE DEVELOPMENT STRATEGY
4. CORPORATE RESOURCE ALLOCATION
5. SOURCES OF SYNERGY
COMM 442…16