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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,Corporate Level Strategy,Dr Ita ODonovan,Lecture Six,1,Key Considerations,We are looking at the issue of corporate strategy from the perspective of what is the multi-business scope of the organisation.,What is the optimal number of businesses for the firm,Should we stay in this business,How should our businesses be managed,How is the corporation going to operate as a whole,2,The sources of superior profitability,RATE OF,RETURN,ABOVE THE COST OF CAPITAL,How do we make Money?,INDUSTRY ATTRACTIVENESS,Which industries should we be in?,CORPORATE,STRATEGY,COMPETITIVE,ADVANTAGE,How should we compete?,BUSINESS STRATEGY,3,Strategies,Diversification two broad types:,Related diversification is development beyond the present product and market, but still within the broad confines of the industry. For Example Unilever is a diversified corporation, but virtually all its interests are in the consumer goods industry.,(a) Backward integration,refers to inputs into the current business further back in the value system e.g. Raw materials, machinery, labour,(b) Forward integration,refers to activities which are concerned with the companys outputs e.g. Transport, distribution, repairs, and servicing. These are further forward in the value system,(c) Horizontal integration,refers to activities which are competitive with or directly complementary to a companys present activities,Unrelated diversification refers to activity development beyond the present industry into products/markets, which at face value, may bear no clear relationship with present products/markets.,4,Related developments; related and unrelated diversification,5,Some Reasons for related Diversification,Possible advantages,Examples /Comments,1. Control of supplies,Quantity,Quality,Price,Tea Processors own plantations to secure continuity of Supply.,Components for motor cars may need to be manufactured by the company,Printing facility can be cheaper in -house,2. Control of markets,UK shoe manufacturers own retail outlets to gain guaranteed distribution,3. Access of information,Manufacturers are involved in machinery development companies to keep abreast of development,4. Cost savings,Fully integrated steel plants save cost on reheating and transport,Building on: Expertise,Technology,Accountancy Firms moving into tax advice or corporate recovery,Transfer to similar technical requirements in another field,6. Spreading Risk,Avoid overreliance on one product/market, but build on related experience,7. Resource Utilisation,Under-utilised manufacturer acquires company with compatible products to fill capacity,6,Some reasons for unrelated diversification,Possible Advantages,Examples/Comments,Need to use excess cash or,safeguard profits,Buying a tax loss situation,2. Personal values or objectives of powerful figures,Personal image locally or nationally may be a strong motive,Exploiting underutilised resources,Farmers use fields for camp sites, festivals,Companies hire their conferences facilities,4. Escape from present business,A companys products may be in decline and unrelated diversification is the only escape,5.Spreading risk,Some companies believe it is good sense to have all their eggs in one basket.,6. Even out cyclical effects in a given sector,Toy manufacturers make a subcontract for plastic mould products for industry.,7. Benefits from synergistic effects,Positive cash flow from one business used to funding requirements of another,7,Strategies for Development,Withdrawal: this option needs to be considered by organisations when complete or partial withdrawal needs to be considered.,Assets can change over time, may need to dispose, acquire others etc.,Entrepreneur may have achieved goals wishes to move on acquire different things.,Consolidation:,In growing market, company expands with market to maintain share of market,In mature market more difficult challenges, tendency is for emphasis on cost, quality of product or service. Competitors are all seeking to consolidate there positions,8,Strategies continued,Consolidation,In declining markets;,need to consider significant changes e.g. Buying up the order books of those leaving the market, distributors may need to find new suppliers. New internal agreements to main competitive edge.,During a transition form a mature to a declining market, they might consider harvesting i.e. gaining maximum pay off from strong position.,e.g. Licensing of technology, or distribution rights, or leasing facilities.,Difficult decision whether to remain in market where there is product decline but chance of recovery,9,Strategies Continued,Market Penetration:,how easy this is depends on nature of the market and position of competitors. In general easier in growing markets, than static markets or mature markets.,Product development:,a firm might think consolidation is not sufficient in itself. No special strategy for this but the following factors in firms have been shown to have influenced their success.,They are more market focused in selecting opportunities for product development and in tailoring them to market needs,They concentrated on developing products which built on their core competences and skills,The communicated the new products well within the firm thus avoiding disruptions to the new developments,They used cross-disciplinary teams, as well as skills and views form outside the firm, including suppliers and customers.,10,Strategies Continued,Market Development:,in the case of market development the organisation maintains the security of its present products while venturing into new market areas.,These may include,New market segments; exploiting new uses of the product or new geographical areas,Option of product development and market development together or separately,Export drive,Outsourcing to other countries for costs of labour, transport supplies.,11,Portfolio Analysis,Market Power,and,Market Share,are important concepts for a strategic business unit to consider.,Relative market share,means the amount of market share a firm has relative to it competitors,There is an established relationship between market power and performance in commercial organisations.,Useful to break down market share by segments and to examine market share within those segments,What is important is to see which market segments are important from corporate/profit point of view.,Segment may be more competitive or growing more or bigger,12,Growth Share Matrix,Market Share,COMPETITIVE POSITION,High Low Strong Average Weak,High High,Market Stars ?s Industry,Growth Attractiveness,Low Cash Dogs MED,Cows,Low,The original Boston Consulting,Group matrix (BCG),13,Growth Share Matrix continued,A star is an SBU,which has a high market share in a growth market.,The firm may be spending heavily to gain that share , but experience curve benefits should mean that costs are reducing over time and at faster rate than competitors,The question mark is an SBU,with high grow but does not have a high market share.,Firm could be spending heavily but not reducing costs and not making inroads on competition,The Cash Cow,has a high market share in a mature market.,Low growth market conditions stable,need to spend is less. High relative market share means SBU able to maintain unit cost levels below competitors.,Dogs,have low share in static or declining markets,worst of all combinations, may drain cash and use disproportionate amount of time and resources.,14,Market attractiveness and business,strength,Indicators of SBU Strength,Indicators of market attractiveness,Market share,Market size,Sales force,Market growth rate,Marketing,Cyclicality,Customer service,Competitive structure,R & D,Barriers to entry,Manufacturing,Industry profitability,Distribution,Technology,Financial resources,Inflation,Image,Regulation,Workforce availability,Breadth of product line,Social Issues,Quality/reliability,Environmental issues,Managerial Competence,Political issues,Legal issues,15,Issues to consider,Difficulties of exactitude,What exactly is the market position, what are the growth rates, what are the dominant positions.?,What evidence are managers using to take decisions, are they indulging in over optimistic assessments,Dogs may be written off without sufficient consideration, withdrawal from a market can have consequences as well as benefits.,Power given to others who may be competitors in another market also.,16,Exercise Lecture Six.,Essential Reading Chapter Six ; de Wit and Meyer. Please remember to read all the readings within this chapter.,Individual Exercise to be handed and signed.,Use both the Market Attractiveness and Business Strength Matrix and the Growth Share Matrix, to undertake an analysis of the relative competitive position of either :,Case Eleven: Nestles in 2008 or,Case Twelve: Aditya Birla Group. In de Wit and Meyer Text Book,17,
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