Corporate Strategy

MGMT611 Strategy Natalya Vinokurova Corporate Strategy Session 15 1 Corporate Scope Corporate center Division A in industry a Division B in industry b Division C in industry c Division D in industry d The average U. S. Fortune 500 friendship operates in four different industries Diversification is even more bragging(a) in early(a) parts of the world Grupos, chaebol, business houses, keiretsu, and so on Poor merged system is common Excite, iodin of the leading net income function companies, yesterday received a take all over offer from Zapata, a Texas-based group with holdings in marine protein and food packaging companies.Citing the excellent fit with Zapatas pertly strategic direction, Avram Glazer, Zapatas chief executive officer, said the proposed transaction makes intellect for Excites sh beholders because of the capital resources that Zapata can bring to Excite. Financial Times, whitethorn 22, 1998 2 What alter stomach did this become? 3 Decomposition of versio n in profitableness Evidence from the United States Year 2% industry 18% Corporate parent 4% Transient 46% In the U. S. incarnate strategy is typically the icing on the coat, not the cake itself Business units must(prenominal) be hawkish on their own merits in attractive industries But the icing can make the decisive contravention between a good cake and a bad one Business segment 30% Note Ignores covariance terms based on 58,132 observations of 12,296 business segments in 628 industries in the United States Source Anita M. McGahan and Michael E. Porter, How Much Does patience Matter Really? Strategic Management Journal, 1997 4Decomposition of Variance in Profitability Evidence from 14 Emerging Economies In much of the rest of the world, corporate strategy is more prominent Membership in a diversified entity has a larger effect on profitability The effect on profitability is more likely to be positive Source Tarun Khanna and Jan W. Rivkin, Estimating the capital pun ishment Effects of Business Groups in Emerging Markets, Strategic Management Journal, 2000 Countries Argentina, Brazil, Chile, India, Indonesia, Israel, Mexico, Peru, the Philippines, southwestward Africa, South Korea, Taiwan, Thailand, and Turkey Litmus Test of Corporate Strategy Is the junto of all businesses of the firm worth more than the sum of how much to separately one business is worth individually? The answer could be less, e. g. J. C. Penney telemarketing piece was worth 3X the market value of the entire firm When deciding whether or not to acquire another business, you need to decide BOTH whether you necessitate a militant advantage running that business AND how it will establish to the fit among the other 6 businesses you are runningAcrobat Document 7 The Walt Disney confederacy rakehell set vs. S&038P 500, 1984-1994 8 The Walt Disney Company Stock Price vs. S&038P 500, 1995-2005 9 Two big problems 1. festering at all costs This is an example of what hap pens when a solid corporate strategy meets an aggressive growth goal 2. Mismatch between strategy and organizational structure You can pass on a commode with businesses that are closely connected like the classic Disney businesses and then run the businesses unneurotic in a tightly integrated way.That can work. You can have a muckle with the broader scope of later Disney and run them in a loosely coupled way. That can work. But if you have a corporation with the broader scope of later Disney and run them like the classic Disney, with heavy-handed attention from the top, searching for synergy that doesnt really existthen you adhere into trouble. In 2005, ABC President Robert Iger replaces Eisner 10 The Walt Disney Company Stock Price vs. S&038P 500, 2005-2012 11 The Walt Disney Company Take-aways Core lessons of corporate-level strategy tilt occurs at the level of the business unit Corporate strategy is a success or failure to the extent that it enhances business unit c ompetitive advantage Is the relative gap between WTP and cost larger than it would be otherwise? Two tests Better-off Does the presence of the corporation in a devoted market improve the total competitive advantage of business units over and above what they could achieve on their own? (Whats the added value of the corporation? Ownership Does ownership of the business unit produce a great competitive advantage than an alternative arrangement would produce? A corporation is more likely to pass the tests when it has some shared resource that (a) creates competitive advantage for the business units and (b) is difficult to trade efficiently via the market E. g. , admission to animated characters Making business units better off sounds easy, but it typically requires sophisticated structures, systems, and processes, plus cultural supports 12 Corporate strategy entails trade-offsEither concentre on or focus on Guidance on the Projects general Grading The project must cover all three components of the class Human and Social Capital Strategy Multinational Management Components of tell (not equally weighted) Use of frameworks (most important issue) Quality of investigate Innovativeness/Insight of compend Integration of different components of class Quality of communication 14 ? of category will be based on presentation ? on final exam project write up We will also use a peer assessment to adjust the grade for effort put in by each team memberA Word on Plagiarism any(prenominal) text (more than 2 consecutive words) taken from another source must be In inverted commas Clearly identified with the source It is NOT sufficient to simply note that you used a source. You must key out which text came from it. Failure to identify the source of your work is a sombre breach of academic ethics and will be treated then If in doubt, ask Professor or TAs for guidance (It is generally not a good idea to reproduce whole sentences or paragraphs from ot her sources without a very good reason anyway) 5 Next mob Firm Scope and Strategy Case Monitors Opportunities in India (A), 9708-482 What are the benefits and costs to Monitor of moving each of its back-office functions to India? In slatternly of those benefits and costs, what would you recommend to Mark Fuller, Monitors CEO, about the location of each function? Should Monitor tap into the Indian pool of talent somehow, perhaps by conducting business research there? If so Should it conduct research only for Monitor case teams or sell its research services directly to external clients? 16