Chapter 7 Corporate Strategies Melissa Dunlop Jose Medina

Chapter 7 Corporate Strategies Melissa Dunlop Jose Medina Mona Shafer Alma Pena Raul Guerrero Laura Randall

Explain What Corporate Strategy is A strategy with choices of what business(es) to be in and what to do with those businesses. The corporate strategy for Under Armour is Integration Position

Single- and Multiple-Business Organization Ü Single-business organization is primary in one industry. Ü Ex. Under Armour Ü Multiple-business organization is in more than one industry Ü Why is the distinction important? Ü Because it influences an organization’s overall strategic direction, what corporate strategy is used, and how that strategy is implemented and managed

Corporate, Competitive, and Functional Strategy Ü Is important to whether the organization does what its in business to do and whether it achieves its strategic goals Ü Without resources, capabilities, and competences being developed and used in the competitive and functional strategy; the corporate strategy can’t be implemented Ü The competitive and functional strategies that are implemented must support the overall strategic direction and corporate strategy

What Are the Corporate Strategic Directions Ü 1. Moving an Organization forward Ü Means an organization’s strategic manager’s hope to expand the organization's activities or operations- that is to grow. Growth Ü 2. Keeping an Organization as is Ü Means it’s not growing, but also isn’t falling behind. Stability strategy Ü 3. Revering an Organization’s decline Ü Describes situations in which an organization has problems and may be seeing declines in one or more performance areas. Renewal

Organizational Growth

Types of Growth Strategies Ü Concentration: : focuses on main line of business and tries to meet its goals by growth in its core business Ü Adding products or opening new locations; Under Armour choosing to start selling footwear Ü Product-market exploitation: : increase the sales in current products in its current market; creating incentives for customers Ü Product development: : producing new products for a company’s current market by adding new features or options to the product Ü Market development: : selling current product in a new market possibly in different geographic regions; Under Armour making deal with Tottenham FC in EPL Ü Advantage of concentration growth is that a company can become very good at it

Types of Growth Strategies Ü International: : looking at global markets for new opportunities Ü Vertical Integration: growth through control of a company’s inputs(backward) or outputs(forward) Ü Ü Backward VI: : a company becomes its own supplier of the resources that it needs Forward VI: : company becomes its own distributer ; Wal-mart with Great value or outlet stores such as Apple Ü Horizontal Integration: : the combining of operations with its competitors Ü Ü Able to expand market share and strengthen market position For horizontal integration to work it has to be found legal by the FTC in that it will not decrease overall competition and not make the consumer worst off Ü Diversification: : movement into a different industry Ü Ü Related: : movement into a different industry but similar to the company’s current business, trying to find a strategic fit Unrelated: : moving a completely different industry that has nothing to do with the company’s current strategy or resources; done when there is a lack of growth in an industry

Implementing The Growth Strategies Ü Mergers-Acquisitions Ü Internal Development Ü Strategic Partnering

Mergers-Acquisitions Ü Merger Ü A legal transaction in which two or more organizations combine operations through an exchange of stock and create a third entity Ü Between organizations of similar size are usually friendly Ü Acquisition Ü Outright purchase of an organization by another Ü Between organizations of different sizes and can be friendly or hostile

Mergers- Acquisitions Ü Used when: Ü Maturity stage of industry life cycle Ü High barriers to entry Ü New industry not closely related to existing one Ü Unwilling to accept time frame and development costs of starting new business Ü Unwilling to accept risks of starting new business

Internal Development Ü Grows by creating and developing new business activities itself Ü Have the necessary resources, distinctive capabilities, and core competencies Ü Under Armour

Internal Development Ü Used when: Ü Embryonic or growth stage of industry life cycle Ü Low barriers to entry Ü New industry closely related to existing one Ü Willing to accept time frame and development costs of starting new business Ü Willing to accept risk of starting new business

Strategic Partnering Ü Two or more organizations establish a legitimate relationship by combining their resources, distinctive capabilities, and core competencies for some business purpose Ü Examples Ü Organization-suppliers/distributors Ü Organization-competitor Ü Organization-related industry organization

Strategic Partnering Ü Joint Venture Ü Two or more separate organizations form a separate independent organization for strategic purposes Ü Both own equal shares Ü Used when partners do not want to or cannot legally join together permanently Ü Ex: Clorox Company and Procter & Gamble

Strategic Partnering Ü Long-Term Contract Ü Legal contract between organizations covering a specific business purpose Ü Used between organizations and suppliers Ü Both partners understand the importance of developing resources, capabilities, and core competencies for a competitive advantage Ü Under Armour and Dick’s Sporting Goods

Strategic Partnering Ü Strategic Alliance Ü Two or more organizations share resources, capabilities, or competencies to pursue some business purpose Ü No separate entity formed Ü Used to: Ü Encourage product innovation Ü Bring stability to cyclical businesses Ü Expand product line offerings Ü Cement relationships with suppliers, distributors, or competitors Ü Ex: Pepsi. Co and Lipton

Organizational Stability Strategy Ü Organizational Stability Ü An organization might want to stay as it is although there are times when its resources, distinctive capabilities, and core competencies are stretched to their limits Ü Growing might risk the organization’s competitive advantage. Ü Stability Strategy: is one in which an organization maintains its current size and current activities.

When is Stability an Appropriate Strategic Choice? Ü When an industry is in a period of rapid upheaval with several key industry and general external forces drastically changing. Ü If an industry is facing slow or no growth opportunities. Ü Keep organizations working at current levels before any strategic movements into new industries. Ü If an organization has been growing rapidly and needs some “down” time in order to build up its resources and capabilities again. Ü i. e. Staples Inc. Ü Large Firms in an industry that is in the maturity stage of the industry life cycle. Ü Small business owners may follow a stability strategy indefinitely. Ü Feel their business is successful Ü Accomplished personal goal Under Armour is growing at a fast rate but is not looking to stability yet.

Implementing Stability Strategy Ü Involves no growing but also not allowing the organization to decline Ü No new products Ü No new programs Ü No adding production capacity Ü Gives an opportunity for the organization to “take a breather” and prepare itself for pursuing growth.

Stability As a Short-Run Strategy Ü If an organization become too complacent it is susceptible to losing its competitive position. Ü If significant organizational weaknesses exist or performance is declining, then it may be necessary to look at a different strategy such as organizational renewal.

Organizational Renewal Strategies Ü Renewal Strategies- Used when an organization’s situation is declining and strategic managers want to reverse the decline and put the organization back on a more appropriate path to achieving its goals Two Kinds Ü Retrenchment Ü Turnaround

What Leads to Performance Declines? Ü Strategic decisions taken by managers may create conditions that may keep the organization from developing or exploiting a sustainable competitive advantage Ü Primary cause of performance decline is Poor Management Ü If strategic managers are inept, incompetent, or incapable of strategically managing all aspects of the organization, then organizational performance is likely to suffer

What Leads to Performance Declines? Inadequate Financial Controls Overexpansion or Too Rapid Growth Slow or No Response to Significant External or Internal Changes Poor Management Uncontrollable Costs or Too High Costs New Competitors Unpredicted Shifts in Consumer Chapter 3 in Strategic Demand Management and MKT 3350 Porter’s Five Forces Model

What Leads to Performance Declines? Ü Signs of Declining Performance Ü Excess Number of Personnel Ü Unnecessary and cumbersome administrative Ü Ü procedures Fear of conflict or taking risks Tolerating work incompetence at any level or in any area of the organization Lack of clear visions, mission, or goals Ineffective or poor communication within various units and between various units

Renewal Strategies Ü Retrenchment Strategy- is a short-run strategy designed to address organizational weaknesses that are leading to performance declines Ü Doesn’t necessarily have negative financial returns Ü Instead, organization hasn’t been able to meet its strategic goals Ü Turnaround Strategy- is a renewal strategy that’s designed for situations in which the organization’s performance problems are more serious Ü Examples: Sears, Delta Airlines, Kmart, Chrysler, General Motors, Ford Motor, Motorola, Mitsubishi, Intuit, Apple, and others

Implementing Renewal Strategies Ü COST CUTTING Ü Cost cutting alone has little to do with developing a sustainable competitive advantage. Ü Instead, the need to cut costs is approached as a way to bring the organization’s performance results back in line with expectations. Ü How to cut costs? Ü Redundancies Ü Inefficiencies Ü Waste in work activities Ü Ex. UPS-Light bulbs Ü ACCT 5305 - “Chainsaw” Al Dunlop

Implementing Renewal Strategies Ü RESTRUCTURING Ü Divestment- selling a business to another organization where it will continue as an ongoing business Ü Sell to investors, companies, or anyone Ü Under Armour and new cotton products Ü Spin-off- setting up a business as a separate, independent business by distributing its shares of stock Ü Liquidation- shutting down a business completely Ü Business will no longer continue as business Ü Often strategic action of last resort

Implementing Renewal Strategies Ü Downsizing- individuals are laid off from their jobs Ü Dangerous Ü Can increase shareholder wealth when done for strategic purposes Ü Bankruptcy- is the failure of a business in which it’s dissolved or reorganized under the protection of bankruptcy legislation Ü Reorganize-Chapter 11 bankruptcy Ü Liquidate their assets-Chapter 7 bankruptcy Ü Companies can use a combination of any of these strategic actions. What is important though, is that the organization’s competitive advantages are enhanced and strengthen by these actions

How is Corporate Strategy Evaluated? Ü Evaluation is a crucial part of the strategic management process Ü Corporate Goals Ü Efficiency, Effectiveness, and Production Ü Benchmarking Ü Portfolio Analysis

Corporate Goals Ü Goals become the standards against which actual performance is measured Ü Goals are Ü Quantitative Ü Qualitative

Efficiency, Effectiveness, and Productivity Measures Ü Overall output of goods and services/by the inputs used in generating the output Ü Represent corporation's ability to use limited resources strategically in achieving high levels of corporate performance

Benchmarking Ü Search for best practices inside or outside the organization Ü The Benchmark is the Standard

Portfolio Analysis Ü Two-dimensional matrices that summarize internal and external factors through various business units Ü BCG Matrix Ü Mc. Kinsey-GE Stoplight Matrix Ü Product Market Evolution Matrix

Four Takeaways Ü Corporate strategy is a strategy that’s concerned with the choices of what business(es) to be in and what to do with those businesses. Ü A growth strategy is one that expands the products offered or markets served by an organization or expands its activities or operations either through current business(es) or through new business(es). Ü A stability strategy is one in which an organization maintains its current size and activities. Ü Renewal Strategies are used when an organization’s situation is declining and strategic managers want to reverse the decline and put the organization back on a better path to achieving its goals.