Corporate strategies articulate the domain choices made by an organization define competitive scope. Managing corporate strategy starts with resources

Transcription

1 17. Vorlesung Defining Corporate Strategy Corporate strategies articulate the domain choices made by an organization define competitive scope Vertical Scope integration Horizontal Scope diversification Geographic Scope location choice Managing corporate strategy starts with resources What types of resources do you possess? (Specialized v. General) What should be the scope of your businesses? (Narrow v. Wide) What coordinating mechanisms will you deploy? (Sharing v. Transferring) What control systems will you use? (Operating v. Financial) What would your corporate office look like? (Large v. Small) Classification of Corporate Strategies Corporate Strategy Integration Vertical Scope Diversification Horizontal Scope Vertical Horizontal Related Unrelated Forward Backward

2 Core and Adjacencies Forward integration Internet New Technology New Value Activities Backward integration New Models Mail Order New Channels New Businesses Unrelated products Direct Regional New Geography New Customer groups Related products New Segments Local/multilocal Global New markets Allied needs Benefits of vertical integration 1 Cost advantages Internalizes Economies of Scale benefits Avoids transaction costs (e.g., search, procurement) Allows the firm to assure uniform quality of inputs Tax advantages through revenue shifting Benefits of vertical integration 2 Defensive market power Provides protection against loss of proprietary knowledge Raises barriers to entry Offensive market power Increases opportunity to enter new businesses Improves market intelligence Helps implement aggressive share growth strategies

3 Motives For Diversification Value Enhancing Motives: Create value by enhancing strategic competitiveness of the entire organization Value Neutral Motives: Leave value of the firm unchanged but ensure that there is no erosion of firm value in the future Devaluation motives: Opportunistic behavior by top management Value Enhancing Motives 1 Leverage Economies of Scope Georgia Pacific in forestry, pulp and paper Philips, Sony and Matsushita vs. Bang & Olufsen in consumer electronics Transferring core competencies Philip Morris and Miller Brewing in marketing Value Enhancing Motives 2 Balance market power Multipoint competition Pepsico/Coke; Goodyear/Michelin Predatory Pricing (cross-subsidization) Capital allocation Systematic Risks Market imperfections (failure) Understanding the Core and Identifying Adjacencies The National Geographic Society was founded as a club that would provide a gathering place for explorers and adventurers. It funded some high profile explorations mostly through philanthropy. Alexander Graham Bell started the idea for the magazine and constant revenues Exploration, Research, Advancing geographic knowledge

4 Where the Geographic has gone? in 20 languages Value-neutral Motives Tax incentives Poor performance (Sears; Xerox; Mobil) Cash flow uncertainty (Railroads, tobacco) Devaluation Motives Diversifying managerial employment risk Increasing managerial compensation When is Diversification Valuable? 1 The attractiveness test The industries chosen for entry must be structurally attractive Potential to generate rents (economic profit) Ease of entry Market concentration

5 When is Diversification Valuable? 2 The cost-of entry test The cost of entry must not capitalize future earnings The better-off test The new venture must either use existing core competencies of the parent firm or create viable core competencies that the parent can use Diversification and Performance Performance Level of Diversity Other things being equal, some relatedness is better than none Here s what we don t know yet What role does country context play in determining diversification performance? How is the incidence of market failure tied in with the performance benefits of diversification? Is diversification ultimately a test of dominant logics and management styles? Is diversification a logical (instinctive?) response to uncertainty? Resources, Fit and Competitive Advantage

6 Competitive advantage is elusive Competitors secure detailed product information for roughly 70% of all new products within ONE year Patenting usually fails to deter imitation. Imitation costs 1/3 less than innovation and is usually 1/3 faster Production process enhancements are subject to the same diffusion rates as product technologies Branding does not secure market share during intense price wars Resources: The building blocks of competitive advantage Resources include a variety of organization-specific elements such as capital equipment, brand name, employees Unique v. common Tangible resources v. intangibles..invisible assets are often the only real source of competitive advantage that be sustained over time. Hiroyuki Itami, Mobilizing Invisible Assets The ideal resource set: Criteria 1 Durability How long will the resource last? Patents offer limited durability in the short term or medium term depending on the nature of product technology. Brand names are durable in some industries such as industrial products where the reputation and reliability of the product are matched. The ideal resource set: Criteria 2 Replicability Are resource advantages transportable across locations? Globalization will require the firm to be able to transport its resource advantages across countries. (e.g., Toyota in autos, Philips in lighting and optics)

7 The ideal resource set: Criteria 3 Transferability Can resource advantages be transferred across businesses? Core resources are more valuable if they can be used as building blocks to enter other businesses (e.g., Amazon.com in e-retailing) The ideal resource set: Criteria 4 Imitability How easily can the resources be duplicated by other firms? Physical uniqueness: Is the product, technology, or service physically unique compared to others in the market? Causal ambiguity: Is it easy to identify how resources lead to profits? Path dependence: What role did the history of the firm play in acquiring the resources? The ideal resource set: Criteria 5 Appropriability Will the firm stand to get most of the benefits from utilizing the resources or are the benefits shared with other players? Biotechnology firms and selling pharmaceuticals The ideal resource set: Criteria 6 Substitutability Can similar end products or services be developed and delivered using a completely different set of resources by other firms? Sugar producers and high fructose corn syrup makers

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9 FIT as consistency Are the resources internally consistent? +% % # + + Resource aquisition and Management inconsistencies Wal*Mart focuses only on those resources that promote its position of cost advantage. Dell Computer specializes only in those activities and resources that contribute to its drive to reduce cycle time, operations cost and price advantage. FIT as reinforcing Do resources in one area reinforce resources in another area to build competitive advantages? Inventory Managemet Location of facilities reinforce distribution skills Distribution skills Information processing Information processing resources complement inventory control Location of facilities Location and distribution along with information processing skills reinforce inventory management competencies Fit as optimizing Are resources deployed in a configuration where they exploit naturally occurring competitive benefits? Quick Turnaround Fleet Management Flight Frequency Location Of airports Choice of aircraft Location of airports reinforces quick turnaround times Choice of aircraft allows uniformity of maintanence and quick ground turnaround times These reinforced competencies result in higher flight frequency, a strategic advantage for the company

10 Guidelines for managing resources Focus attention on privileged resources that possess a majority of the desirable characteristics (e.g., low imitability, high transferability etc.) Deploy the available resources in a consistent set of competencies that are mutually reinforcing. Eliminate resources that do not fit the overall picture. Ensure that the competencies are not just interlocked closely but also configured to tap into the competitive advantages that might occur as a result of a well reinforced system.