Corporate Level
Strategy and Long
Term Profitability
Concentrating on a Single Industry
 The acquisition of additional business
activities at the same level of the value chain
is referred to as horizontal integration. This
form of expansion contrasts with vertical
integration by which the firm expands into
upstream or downstream activities. Horizontal
growth can be achieved by internal expansion
or by external expansion through mergers
and acquisitions of firms offering similar
products and services.
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Advantages of Horizontal Integration

Economies of scale - achieved by selling more
of the same product, for example, by geographic
expansion.

Economies of scope - achieved by sharing
resources common to different products.
Commonly referred to as "synergies."

Increased market power (over suppliers and
downstream channel members)

Reduction in the cost of international trade by
operating factories in foreign markets.
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Disadvantages of Horizontal
Integration

Horizontal integration by acquisition of a
competitor will increase a firm's market share.
However, if the industry concentration increases
significantly then anti-trust issues may arise.

Aside from legal issues, another concern is
whether the anticipated economic gains will
materialize.

Finally, even when the potential benefits of
horizontal integration exist, they do not
materialize spontaneously.
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BCG Growth-Share Matrix
 The BCG Growth-Share Matrix is a
portfolio planning model developed by
Bruce Henderson of the Boston
Consulting Group in the early 1970's. It is
based on the observation that a
company's business units can be
classified into four categories based on
combinations of market growth and
market share relative to the largest
competitor, hence the name "growthshare".
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 Market growth serves as a proxy for
industry attractiveness, and relative
market share serves as a proxy for
competitive advantage. The growth-share
matrix thus maps the business unit
positions within these two important
determinants of profitability.
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BCG Growth-Share Matrix
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Stars

High Market Share / High Market Growth

The company is well-established, and growth is
exciting! There should be some strong
opportunities here, and you should work hard to
realize them.

For example, Apple Computer has a large share
in the rapidly growing market for portable digital
music players.
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Cows


High Market Share / Low Market Growth
The company is well-established so it's easier to
get attention and exploit new opportunities.
However it's only worth expending a certain
amount of effort, because the market isn't
growing, and your opportunities are limited.
Example: Microsoft Softwares
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Question Marks

Low Market Share / High Market
Growth
These are the opportunities no one
knows what to do with. They aren't
generating much revenue right now
because you don't have a large
market share. But, they are in high
growth markets so the potential to
make money is there.

Hewlett-Packard’s small share of
the digital camera market, behind
industry leader Canon. However,
this is a rapidly growing market.
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Dogs


In these areas, the company’s market presence is
weak, so it's going to take a lot of hard work to get
noticed. The company won't enjoy the scale
economies of the larger players, so it's going to be
difficult to make a profit. And because market
growth is low, it's going to take a lot of hard work to
improve the situation.
Example is RC Cola
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Business Strategy Choices to
Complement the Company’s
Competitive Approach
 Strategy considerations in rounding out
the company’s overall business
strategy include
 Whether to enter into strategic alliances or
partnerships
 Whether to pursue mergers or acquisitions
 Whether to integrate backward or forward
into more stages of the industry value chain
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Business Strategy Choices to
Complement the Company’s
Competitive Approach
 Whether to outsource certain value chain
activities
 Whether and when to initiate offensive
strategies to improve the company’s market
position
 Whether and when to employ defensive
strategies to protect the company’s market
position
 Choosing when to undertake strategic
moves—whether to be a first-mover, fast
follower or a late-mover
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Strategic Alliances and
Collaborative Partnerships
 Strategic Alliance - formal collaborative
arrangements where two or more companies join
forces to achieve mutually beneficial strategic
outcomes
Strategically relevant collaboration
 joint contribution of resources
shared risk
shared control
mutual dependence
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Merger and Acquisition Strategies

An attractive strategic option for
achieving operating economies,
strengthening competencies, and
opening avenues to new market
opportunities
 Merger -- the combining of two or more
companies into a single entity, with the newly
created company often taking on a new name
 Acquisition -- is a combination in which one
company, the acquirer, purchases and
absorbs the operations of another, the
acquired
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Vertical Integration: Operating
Across More Industry Value Chain
Segments
 Extend a firm’s competitive scope
within the same industry
 Backward into sources of supply
 Forward toward end-users of final
product
 Can aim at either full or partial
integration
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
Crude oil deposits

Drilling and extracting crude

Transporting it around the world


Refining it into petroleum products such as
petrol/gasoline
Distributing to company-owned retail stations
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Outsourcing Strategies: Narrowing
the Boundaries of the Business
 Outsourcing is a consideration when
 Activity can be performed better or
more cheaply by outside specialists
 Activity is not crucial to achieve a
sustainable competitive advantage
 It improves firm’s ability to innovate
 Firm can concentrate on core value chain
activities and leverage its resource strengths
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Strategic Options to Improve a
Company’s Market Position—The
Use of Strategic Offensives
 Strategic offensives are called for
when a company
 Spots opportunities to gain profitable
market share at the expense of rivals or
 Has no choice but to try to whittle away
at a strong rival’s competitive advantage
 The best offensives use resource
strengths to attack rivals where
they are weak
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Choosing the Basis for Competitive
Attack
Primary offensive strategy options

Attack the competitive weaknesses of rivals

Offer a lower price for an equally good or
better product

Pursue continuous product innovation

Leapfrog competitors by being the first to
market with next generation technology or
products
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Choosing the Basis for Competitive
Attack

Adopt and improve on good ideas of other
companies

Attack market segments where a key rival
make big profits

Maneuver around competitors to capture
unoccupied or less contested market territory

Using hit-and-run or guerilla warfare tactics to
grab sales and market share from complacent or
distracted rivals
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Choosing the Basis for Competitive
Attack

Capture a rare opportunity or secure an
industry’s limited resources
 Secure the best distributors in a particular
geographic region or country
 Secure the most favorable retail locations
 Tie up the most reliable, high-quality
suppliers via exclusive partnerships, longterm contracts, or even acquisition
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Blue Ocean Strategy—A Special
Kind of Offensive

Blue ocean strategies offer growth in revenues
and profits by discovering or inventing new
industry segments that create altogether new
demand
 Cirque du Soleil has attracted 10 million
people annually to its shows by “reinventing
the circus” - its audience typically doesn’t
attend circus events
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Strategic Options to Protect a
Company’s Market Position—The
Use of Defensive Strategies

Defensive strategies help fortify a competitive
position
 Lower the risk of being attacked
 Weaken the impact of any attack that occurs
 Influence challengers to aim their efforts at
other rivals

Good defensive strategies help protect
competitive advantage but rarely are the basis
for creating it
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Timing A Company’s Strategic
Moves

When to make a strategic move is often as
crucial as what move to make:

First-mover advantages arise when
 Pioneering helps build a firm’s image and
reputation with buyers
 Early commitments produce an absolute cost
advantage over rivals
 First-time customers remain strongly loyal in
making repeat purchases
 Constitutes a preemptive strike, making imitation
extra hard or unlikely
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Late-Mover Advantages and FirstMover Disadvantages

Moving early can be a disadvantage (or fail to
produce an advantage) when
 When pioneering leadership is more costly than
imitation
 When innovators’ products are primitive, not living
up to buyer expectations
 When the demand side of the market is skeptical
about the benefits of new technology/product of a
first-mover
 When rapid technological change allows followers
to leapfrog pioneers
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