Chapter 6

Strategy Formulation:
Corporate Strategy
Dr.Vijaya Kumar
Skyline College

Prentice Hall, 2002

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Corporate Strategy
Three Key Issues:

Firms directional strategy

Firms portfolio strategy
Firms parenting strategy

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Corporate Directional
Strategies

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Corporate Strategy
Directional Strategy:
Orientation toward growth
Expand, cut back, status quo?
Concentrate within current industry,
diversify into other industries?
Growth and expansion through internal
development or acquisitions, mergers, or
strategic alliances?
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Corporate Strategy

Directional Strategy:
Three Grand Strategies:
Growth strategies
Stability strategies
Retrenchment strategies

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Corporate Strategy
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.
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Corporate Strategy
2 Basic Growth Strategies:
Concentration
Current product line in one industry

Diversification
Into other product lines in other industries

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Corporate Strategy
Basic Concentration Strategies:
Vertical growth
Horizontal growth

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Concentration:
Vertical growth
Vertical integration
Full integration
Taper integration
Quasi-integration

Backward integration
Forward integration

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Concentration:
Horizontal Growth
Horizontal integration

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Corporate Strategy

Basic Diversification Strategies:

Concentric Diversification
Conglomerate Diversification

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Corporate Strategy
Diversification:
Concentric:
Growth into related industry
Search for synergies

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Corporate Strategy
Diversification:
Conglomerate:
Growth into unrelated industry
Concern with financial considerations

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Corporate Strategy

International
Entry
Options

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Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing
Turnkey Operations
BOT Concept
Management Contracts

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Corporate Strategy
Stability Strategies:
Pause/proceed with caution
No change
Profit strategies
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Corporate Strategy
Retrenchment Strategies:
Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation
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Corporate Strategy
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?

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Corporate Strategy
Portfolio Analysis
BCG (Boston Consulting Group) Matrix
Product life cycle and funding
decisions

Question marks
Stars
Cash cows
Dogs

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BCG Matrix

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GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

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General Electrics Business Screen

High

Winners
A

Winners

C
Question
Marks

Industry Attractiveness

D
Winners
E
Medium

Average
Businesses
F
Losers

Losers
G
Low

Profit
Producers
Strong

Losers
Average

Weak

Business Strength/Competitive Position

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Source: Adapted from Strategic

Management in GE, Corporate
Planning and Development, General
Electric Corporation. Used by
permission of General Electric
Company.

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International Portfolio Analysis

2 Factors:

Countrys attractiveness
Market size, rate of growth, regulation

Competitive strength
Market share, product fit, contribution
margin, market support
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Portfolio Matrix for Plotting Products by Country

Country Attractiveness

High

Competitive Strengths
High

Low

Invest/Grow

Dominate/Divest
Joint Venture

Selective
Strategies

Low

Harvest/Divest
Combine/License

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Corporate Strategy
Portfolio Analysis
Advantages:
Top management evaluates each of
firms businesses individually
Use of externally-oriented data to
supplement management judgment
Raises issue of cash flow availability
Facilitates communication
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Corporate Strategy
Portfolio Analysis
Disadvantages:
Difficult to define product/market
segments
Standard strategies can miss
opportunities
Illusion of scientific rigor
Value-laden terms
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Corporate Strategy
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.

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Corporate Strategy
Corporate Parenting:

Strategic factors
Those elements of a company that
determine its strategic success or
failure

Performance improvement
Analyze fit

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Corporate Strategy
Corporate Parenting:

Parenting-Fit Matrix
Summarizes the various judgments
regarding corporate/business unit fit
for the corporation as a whole.

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Corporate Strategy
Corporate Parenting:

Parenting-Fit Matrix
2 Dimensions
Positive contributions parent can make
Negative effects parent can have

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Parenting-Fit Matrix
MISFIT between critical success factors
and parenting characteristics

Low
Heartland
Ballast
Edge of
Heartland

Alien
Territory
Value Trap

High
Low

High
FIT between parenting opportunities
and parenting characteristics

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Corporate Strategy
Horizontal Strategy:
Corporate strategy that cuts across
business unit boundaries to build
synergy across business units to
improve the competitive position of
one or more business units.

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