formulation corporate strategy

Topics: Strategic management, Management, Boston Consulting Group Pages: 10 (1061 words) Published: April 7, 2014
Introduction to Strategic
Management
Lecture 8:
Strategy Formulation:

Corporate Level Strategy
Reference: Henry “Understanding Strategic Management”,
Chapter 8
Lecturer: Mathew Teale
Facilitator: Michelle Thong

Learning Objectives
After studying this topic you should be able to:
• Explain what is meant by corporate strategy;
• Assess the effectiveness of different growth
strategies
• Evaluate related and unrelated diversification
strategies
• Assess the use of portfolio analysis
• Explain the role of corporate parenting in creating
value
• Discuss strategy evaluation.

Corporate Level Strategy
What is Corporate Strategy?
Defines the scope of the different industries and
markets the organization competes within in
order to achieve its organizational purpose

“What business or businesses should we
be in?”
“How should we allocate resources
across different businesses?”

Corporate parenting
Corporate parenting is concerned with
how a parent company adds value
across the businesses that make up the
organization
Corporate parent refers to all those
levels of management that are not part
of customer facing and profit run
business units in multi-business
companies

Growth Strategies
According to Ansoff (1965) organizations can pursue four different growth strategies:

Market penetration
Increase market share in your existing markets using your existing products

Market development
Entering new markets with your existing
products

Product development
Developing new products to sell in your
existing markets

Diversification

The first of these is
an expansion of an
existing business
but the others
probably involve
new businesses.

Developing new products to serve new markets

Growth Strategies

Figure 8.1 Ansoff’s Growth Vector Matrix (1965)

Types of Diversification

Related Diversification
Entry into a related industry in which there is still some link with the organization’s value chain
Vertical integration
- when an organization goes upstream; that is, it moves
towards its inputs, or downstream; it moves closer to its
ultimate consumer
Horizontal integration
- takes place when an organization takes over a competitor or offers complementary products at the same stage within the
value chain

Unrelated Diversification
Where an organization moves into a totally unrelated
industry; this is sometimes called conglomerate
diversification
E.g.s
Warren Buffett’s Berkshire Hathaway holding company
and
Aditya Birla Group
Both include retailing within large ranges of unrelated
activities.

List of international
conglomerates








Hyundai Group
Mitsubishi
Aya Group
Al-Ghurair Group
Sony Group
Orascom Holding
Mukwano Group








Aju Group
Dangote Group
Aditya Birla Group
Habib Group (Pakistan)
Habib Group (Bangladesh)
Jim Pattison Group

Reasons for diversification:
• Existing markets are saturated or declining

• Regulatory restrictions at home
• To spread risk

Implementing Growth
Strategies
equal organizations

• Mergers and Acquisitions
• Internal Development

one takes over another
organic growth

• Joint ventures and Strategic Alliances
A separate company formed

Shared resources and
capabilities but no
separate company

Mergers and Acquisitions
Merger – when two organizations join together
to share their combined resources
Acquisition – when one organization seeks to
acquire another, often smaller,
organization

Criteria for acquisitions (Porter 1987)
• Attractiveness
• Cost of entry
• Competitive advantage

Internal Development
‘Internal development’ or ‘organic growth’
involves the organization using its own
resources and developing capabilities it
believes will be necessary to compete in the
future.

Less risky and easier to manage
but slower!

Joint ventures and Strategic
Alliances
Joint Venture - when two organizations form a...
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