Chapter 9 Corporate Strategy:
Shaping the Portfolio
Katy Lovett, CJ Baker, and Matt
Snowden
Strategy: A View from the Top
What is your strategy?
• GE’s key values- leaders, global business
integration, skillful acquisitions (rather than
specific businesses)
• Focus on actions that shape the corporate
portfolio of businesses
Economies of Scale
• Cost per unit decreases as scale of activity
increases
• Economics of learning increase as more efficient
process are found
Economies of Scope
• Unit cost of an activity falls because the asset is
shared with some other activity (ex. Frito Lay
with chips + dips)
• Horizontal scope- GE appliances
• Geographical scope- McDonalds
• Vertical scope- IBM
What is “core”?
• Define it
• Invest in it continuously
• Ex. GE vs Colgate
Growth Strategies
• SWOT analysis
• Price-valued? Dell/Wal-mart
• Performance value? Intel/Genetech
Growth Strategies
• Organic or internal growth-Wal-Mart/Dell
• Growth through acquisition-GE
• Growth through alliance-based initiativesAmazon.com
Concentrated Growth Strategies
• Increase the number of users of the product
• Increasing product usage by developing new
applications
• Increase the frequency of products use
• 4 conditions as listed in book
Vertical Integration
•
4 reasons to enter
1.
2.
3.
4.
Market is too risky
Another company has more market power
Barriers to entry and Price discrimination
When companies forward-integrate
Vertical Integration
• Are highly integrated businesses more or less
profitable?
• Likely to be profitable?
• Benefits and risks?
Diversification
• Why would you?
• Forms of Relatedness
• Categories of Relatedness
Diversification
• Core competency?
• What assets are needed?
• Can we catch them?
• Player or Winner?
• Can we learn by diversifying?
Mergers and Acquisitions
1. Successful acquisitions are usually part of a
well-developed strategy.
2. Requires patience
3. Disciplined strategic analysis
4. Can add value in only a few ways
5. Objectivity is essential
6. Strategies should be formulated before
acquisition
Cooperative Strategies
• Types
▫ Joint Ventures, Strategic Alliances, etc…
• Benefits
▫
▫
▫
▫
Risk Sharing
Funding Limitations
Market Access
Technology Access
Strategic Logic of Alliances
• Alliances are chosen based on the different
needs during the product lifecycle.
• Example:
▫ Microsoft vs. Dell
Four Alliance Models
• Two important questions:
▫ 1. What role does the alliance play in the
company’s corporate strategy?
▫ 2. How is the alliance leadership structured?
• Alliance determined by the answers:
▫
▫
▫
▫
1. Franchise – Easily replicable alliances
2. Portfolio – “Hub and Spoke”
3. Cooperative – No single partner dominates
4. Constellation – Aggressive and complex
Boston Consulting Group
•
•
•
•
Expertise Alliances
New-Business Alliances
Cooperative Alliances
M&A-Like Alliances
• The type of Alliance is categorized according to
who takes part and the scope of the alliance.
Growth and Strategic Risk
• “Strategic risk can be measured in terms of far a
growth initiative takes a company away from the
established strengths of its core business.”
• FIVE dimensions of distance
▫
▫
▫
▫
▫
Shared Customers
Shared Costs
Shared Channels
Shared Competitors
Shared Capabilities/Technologies
Disinvestments
• Sell-Offs – The parent corporation sells a
business unit or company to another corporate
portfolio.
• Spin-Offs – An undesirable business unit is
carved out or sold. Afterward it becomes it’s
own company.
• Liquidations – The business is more valuable as
parts on eBay than as part of your strategy.