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Corporate level strategies

Strategy formulation at the corporate level will defines the Growth, Stability and Retrenchment. This phase includes the Directional Strategies, Corporate Portfolio Analysis and Corporate Parenting

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Corporate level strategies

  1. 1. Strategy Formulations Strategies Corporate Strategies Prof. Vijay K S, MBA Programme`-BIET, Davangere
  2. 2. Corporate Strategy Talks about …..  Growth, Stability and Retrenchment – Directional Strategies  The Industries or markets in which the firm competes through its products and business units - Portfolio Analysis  Coordination of activities and transfers resources and cultivates capabilities among product lines and business units – Corporate Parenting Prof. Vijay K S, MBA Programme`-BIET, Davangere
  3. 3. Directional Strategies  Expand , Cutback, Continue, Unchanged  Concentrate on existing or Diversifying  Expand nationally or globally Prof. Vijay K S, MBA Programme`-BIET, Davangere
  4. 4. Corporate Directional Strategies (Three Grand Strategies) Growth Strategies expand the company’s activities Stability Strategies make no change to the company’s current activities Retrenchment Strategies reduce the company’s level of activities Growth Concentration • Vertical Growth • Horizontal Growth Diversification • Concentric • Conglomerate Stability Pause/Proceed with Caution No Change profit Retrenchment • Turnaround • Captive Company • Sell-out/Divestment • Bankruptcy/Liquidation Prof. Vijay K S, MBA Programme`-BIET, Davangere
  5. 5. Directional Strategies Growth Strategies:  Most widely pursued strategies  External mechanisms:  Mergers • Transaction involving two or more firms in which stock is exchanged but only one firm survives.  Acquisition • Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.  Strategic Alliance • Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial. Prof. Vijay K S, MBA Programme`-BIET, Davangere
  6. 6. Mergers and Acquisition Merger Two firms agree to integrate their operations on a relatively co-equal basis Acquisition One firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio Takeover Special type of acquisition strategy wherein the target firm did not solicit the acquiring firm's bid Unfriendly acquisition Directional Strategies Prof. Vijay K S, MBA Programme`-BIET, Davangere
  7. 7. Reasons To increase market power firms use Overcoming entry barriers Cost of new product development and increased speed to market Lower risk compared to developing new products Increased diversification Reshaping firm’s competitive scope Learning and developing new capabilities Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  8. 8. Mergers and Acquisition Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  9. 9. Basic Growth Strategies:  Concentration - Current product line in one industry  Vertical growth  Horizontal growth  Diversification - Into other product lines in other industries  Concentric Diversification  Conglomerate Diversification Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  10. 10. Basic Growth Strategies:  Concentration - Current product line in one industry  Vertical growth  Vertical integration  Full integration. • Completely controls its distributors.  Taper integration. • Internally produces less than half of its requirements.  Quasi-integration. • Purchases most of its requirements from outside.  Long-term Contract. • Backward integration • Forward integration Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  11. 11. Basic Growth Strategies:  Concentration - Current product line in one industry  Vertical growth  Vertical integration • Backward integration • Forward integration Full Integration Taper Integration Quasi Integration Long-Term Contract 100% Makes it internally, Shell and BP Less than a half Apple sales - Best Buy Purchases most of its requirements and Partial control Contract for a specified period Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  12. 12. Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  13. 13. Basic Growth Strategies:  Concentration - Current product line in one industry  Horizontal growth / Horizontal Integration  Exporting  Licensing  Franchising  Joint Venture  Acquisitions  Green-field Development  Production sharing - Outsourcing  Turnkey operations  BOT Concept (Build, Operate, Transfer)  Management Contracts Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  14. 14. Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  15. 15. Basic Growth Strategies:  Diversification Strategies – When the attractiveness of industry is low  Concentric (Related) Diversification  Growth into related industry  Search for synergies Bombardier: 1980s the company expanded beyond snowmobiles into making light rail equipment, 1986 it entered into aircraft business by purchasing Canadair. Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  16. 16. Basic Growth Strategies:  Diversification Strategies – When the attractiveness of industry is low  Conglomerate (Unrelated) Diversification  Growth into unrelated industry  Concern with financial considerations General Electric and Berkshire Hathaway: BH has interests in furniture retailing, razor blades, airlines, paper, broadcasting, soft drinks and publishing. Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  17. 17. Stability Strategies: - Proceed with caution Stability Strategies An organisation may choose stability over growth by continuing its current activities without any significant change indirection  Pause/Proceed with caution  No change  Profit strategies Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  18. 18. Retrenchment Strategies: - Proceed with caution  Turnaround • Indian Railways  Captive Company Strategy - Giving up independence in exchange of security • Simpson Industries agreed to let a special team from GM inspect its engine parts facilities and books and interview its employees. In return nearly 80% of the company’s production was sold to GM through long- term contracts.  Selling out/Divestment Strategy • In 2008 Ford sold its Jaguar and Land Rover units to Tata Motors in 2008 for $2 billion.  Bankruptcy / Liquidation Prof. Vijay K S, MBA Programme`-BIET, Davangere Directional Strategies
  19. 19. Corporate Strategy: 1. Directional Strategy 2. Portfolio Analysis 3. Parenting Strategy Prof. Vijay K S, MBA Programme`-BIET, Davangere
  20. 20. Portfolio Analysis Portfolio Analysis How much of our time and money should we spend on our best products to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which will never be successful? Prof. Vijay K S, MBA Programme`-BIET, Davangere
  21. 21. Portfolio Analysis Techniques:  BCG (Boston Consulting Group) Matrix (One of largest strategic consulting companies in U.S)  GE Business Screen Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  22. 22. BCG Share - Growth Matrix Product life cycle and funding decisions: • Question marks • Stars • Cash cows • Dogs Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  23. 23. BCG Matrix ? Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  24. 24. Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  25. 25. BCG Matrix  Question Marks ? • Low Market share, Hi Growth  Use intensive strategies such as market penetration, market development, product development  Stars • High Industry Growth Rate  Use backward and forward integration, horizontal integration, market penetration, market development, product development and joint ventures  Cash Cows • High Market Share, Low Industry Growth Rate  Use Product Development or Diversification  Dogs • Low industry Growth Rate, and Low Market Share  Use retrenchment, liquidation, divestment Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  26. 26. BCG Matrix  Question Marks ? • Low Market share, Hi Growth  Use intensive strategies such as market penetration, market development, product development  Stars • High Industry Growth Rate  Use backward and forward integration, horizontal integration, market penetration, market development, product development and joint ventures  Cash Cows • High Market Share, Low Industry Growth Rate  Use Product Development or Diversification  Dogs • Low industry Growth Rate, and Low Market Share  Use retrenchment, liquidation, divestment Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  27. 27. Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  28. 28. Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  29. 29. Portfolio Analysis Long-term industry attractiveness Business strength/competitive position GE Business Screen Prof. Vijay K S, MBA Programme`-BIET, Davangere
  30. 30. Portfolio Analysis GE Business Screen A Winners Winners B C Question Marks D F Average Businesses E Winners Losers G Losers H Losers Profit Producers Strong Average Weak Low Medium High Business Strength/Competitive Position Prof. Vijay K S, MBA Programme`-BIET, Davangere
  31. 31. GE Business Screen To Plot Product line on the GE Business Screen, follow these our steps: Select criteria to rate the industry for each product line or business unit. Asses overall industry attractiveness for each product line on a scale of 1 (very unattractive) to 5 (very attractive) Select the key factors needed for success in each product line. Assess business strength/competitive position for each product line on a scale of 1(VW) to 5 (VS) Plot each product line’s current position on a matrix Plot the firm’s future portfolio, assuming that present corporate and business strategies remain unchanged. Is there a performance gap between projected and desired portfolio? If so, gap should serve as a stimulus to seriously review the corporation’s mission, objectives, strategies and policies. Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  32. 32. GE Business Screen Business Strengths / Competitive Position Strong Average Weak Growth Market/product Development Concentration via Vertical Integration Growth Market/product Development Concentration via Horizontal Integration Retrenchment Turnaround Stability Pause or Proceed with Caution Growth Concentration via Horizontal Integration Stability No Change in Profit Strategy Retrenchment Captive Company or Divestment Growth Concentric Diversification Growth Conglomerate Diversification Retrenchment Bankruptcy or Liquidation High Medium Low IndustryAttractiveness Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  33. 33. International Portfolio Analysis Two Factors: Country’s attractiveness • Market size, Rate of growth, Regulation Competitive strength • Market share, Product fit, Contribution margin, Market support Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  34. 34. Portfolio Matrix for Plotting Products by Country Harvest/Divest Combine/License Invest/Grow Dominate/Divest Joint Venture High Low Competitive Strengths Selective Strategies Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  35. 35. Portfolio Analysis Advantages:  Top management evaluates each of firm’s businesses individually.  Stimulates use of externally-oriented data to supplement management judgment.  Raises issue of cash flow availability for use of growth and expansion.  Its graphic depiction facilitates communication Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  36. 36. Portfolio Analysis Disadvantages:  Difficult to define product/market segments  Standard strategies can miss opportunities  Illusion of scientific rigor  Value-laden terms such as cash cow and dog can lead to self-fulfilling. Prof. Vijay K S, MBA Programme`-BIET, Davangere Portfolio Analysis
  37. 37. Corporate Strategy: 1. Directional Strategy 2. Portfolio Analysis 3. Parenting Strategy Prof. Vijay K S, MBA Programme`-BIET, Davangere
  38. 38. Parenting Strategy Creating value in the multibusiness company, contend that corporate strategist must address two crucial questions: • What businesses should this company own and why? • What organizational structure, management processes, and philosophy will foster superior performance from the company’s business units? Prof. Vijay K S, MBA Programme`-BIET, Davangere
  39. 39. Corporate Parenting Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units. Prof. Vijay K S, MBA Programme`-BIET, Davangere Parenting Strategy
  40. 40. Three analytical steps involves in developing a corporate parenting strategy: 1. Estimate each business unit in terms of the strategic factors. • Center of excellence – explicitly recognized as am important source of value creation. 2. Examine each business unit in terms of areas in which performance can be improved. 3. Analyze how well the parent corporation fits with the business unit. Prof. Vijay K S, MBA Programme`-BIET, Davangere Parenting Strategy

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Strategy formulation at the corporate level will defines the Growth, Stability and Retrenchment. This phase includes the Directional Strategies, Corporate Portfolio Analysis and Corporate Parenting

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