MGMT 7160 Global Strategic Management

Size: px

Start display at page:

Download "MGMT 7160 Global Strategic Management"

Norman Potter
5 years ago
Views:

Global Strategic Management Strategy Formulation: Corporate Strategy Levels of Strategy Functional Strategy How do we coordinate? Business Level Strategy How do we compete?

1 Global Strategic Management Strategy Formulation: Corporate Strategy Levels of Strategy Functional Strategy How do we coordinate? Business Level Strategy How do we compete? Corporate Level Strategy Where do we compete? Corporate Directional Strategies Growth Stability Retrenchment Concentration Vertical Growth Horizontal Growth Diversification Concentric Conglomerate Pause/Caution No Change Profit Turnaround Captive Company Divestment Liquidation

2 Diversification Corporate versus Market Diversification Synergies Whole greater than sum of the parts Very difficult to achieve Usual outcome? Acquired firm gets the extra value Bidding firm loses stock price Levels and Types of Diversification Low Levels Single-business A Dominant-business A B Related-Constrained Moderate to Levels Related-Linked Very Levels A Unrelated B C A B C A B C Evaluating Reasons to Diversify Least Power to Create Value Most Power to Create Value Reduce Risk Maintain Growth Balance Cash Flows Share Infrastructure Increase Market Power Capitalize on Core Competencies Not Recommended as a Reason to Diversify Recommended as a Reason to Diversify

3 Reasons for Diversification Value Enhancing Motives Economies of Scope Market Power Financial i Economies Value Neutral Motives Devaluation Motives Value Enhancing Motives for Diversification Economies of Scope Sharing Activities Value Chain Analysis Costs of economies of scope Transferring Core Competencies Value Enhancing Motives for Diversification Increasing Market Power Multipoint Competition Mutual Forbearance Vertical Integration

4 Value Enhancing Motives for Diversification Financial Economies Internal Capital Market Better information Can keep secrets Less drastic actions possible Restructuring Vertical vs. Horizontal Diversification RANGE OF ALL POSSIBLE INDUSTRIES Abalone Zircons Upstream (Backward) VERTICO Fishing Fleet Wholesale Fish Market Retail Food Stores Mining Operations Stone Polishing Retail Jewelry cessing Stream of Pro Raw Materials Intermediate Processing Finished Product HORIZINC Downstream (Forward) Vertical Integration Value of Vertical Integration Inputs, Operations, Marketing Costs Increasing coordination and control Protection ti of technology Risks of Vertical Integration Coordinating costs Non current technology Transfer pricing

5 Integration/Disintegration Niche Competitors Integral Product Vertical Industry Modular Product Horizontal Industry Technical Advances Dimensional Complexity Supplier Market Power Organizational Rigidities Pressure to disintegrate Pressure to integrate Proprietary System Profitability Computer Industry Structure Distribution Applications Dealers Excel VARs Direct Other Other Operating Systems Computer Platforms Basic Circuitry IBM 1980 DEC IBM Windows Linux Mac Other NT NetWare Other DEC PC Clones Mac Intel 1995 Other Diversification and Performance Perfo ormance Dominantbusiness Related- Constrained Unrelated Level of diversification

6 Trade off Between Growth and Profitability P max Corporate Profitability G 1 Corporate Growth Rate Incentives to Diversify Antitrust Policies and Tax Laws Low Performance Uncertain Future Cash Flows Overall Firm Risk Reduction Percen nt of Sales Tobacco Company Diversification PM AB RJR L&M 95%-100% Singlebusiness 70%-90% Dominantbusiness Under 70% Diversified Year Source: Hitt, Ireland, Hoskisson (1993), Strategic Management, West Publishing

7 Tobacco Company Exports Exports (in billions) Year Source: US News & World Report, 9/21/98 issue Firm Performance and Diversification Resources Capital Market intervention and market for managerial talent Managerial Diversification Firm Motives Strategy Performance Incentives Internal Governance Strategy Implementation BCG Matrix Rate (percentage) Stars Relative Market Share Position Low Question Marks Industry Growth Low Cash Cows Dogs

8 The Growth Share Matrix Stage of Market Life Cycle Introduction Growth Maturity Decline trength Competitive St Moderate Low The Parenting Fit Matrix Low Low Positive Contributions fects Negative Eff Ballast Alien Territory Value Trap Modes of Diversification Acquisitions Fast Costly (debt, additional equity) Strategic Alliances Shared risk Coordination problems Internal Development Keeps things in the family Slow

9 Merger and Acquisitions Terminology Merger Acquisition Takeover Vertical Integration Horizontal Acquisition Related Acquisition Anti Takeover Tactics Scorched Earth White Knight Greenmail Golden Parachutes Poison Pills Pac Man Reasons for Acquisitions and Problems in Achieving Success Increased Market Power Overcome Entry Barriers Increased Speed Lower Risk Increased Diversification Avoid Competition Acquisitions Integration of two firms Overpayment Cost Overestimate of Synergy

10 Reasons for Acquisitions Poor Performance Overdiversification Poor Performance Overdiversification Overdiversification Depends On Managerial expertise Type of diversification Can Lead to Overuse of Financial Controls Emphasis on financial outcomes Short term performance orientation Performance skewing Reduced R&D Reduced long term performance Reasons for Acquisitions Poor Performance Overdiversification Managerial Energy Absorption Poor Performance

11 Managerial Energy Absorption For the Acquiring (Bidder) Firm Analyzing and selecting targets Determining acquisition strategies Negotiating with the target For the Acquired (Target) Firm Negotiating with the bidder Developing employment strategies Dealing with stakeholders, media, etc. Fending off hostile takeovers Reasons for Acquisitions Poor Performance Overdiversification Managerial Energy Absorption Excess Debt Too Large Poor Performance Restructuring Substitute for Innovation Attributes of Successful Acquisitions Careful Selection of Targets Relationship with Targets Financial Slack Low Debt Position After Complementary Resources Continued R&D and Innovation Flexibility and Adaptation Friendly Acquisition

12 Reasons for Restructuring Poor Performance Overdiversification. Need funds to purchase other firms Need funds to pay for debt incurred (LBOs) Better uses of capital become available Restructuring and Outcomes Alternatives Short-Term Outcomes Long-Term Outcomes Downsizing Downscoping Leveraged Buyout Reduced Labor Costs Reduced Debt Costs Strategic Controls Debt Costs Loss of Human Capital Lower Performance er Performance er Risk

Strategy Formulation: Corporate Strategy

Strategy Formulation: Corporate Strategy Strategy Formulation: Levels of Strategy Functional Strategy How do we coordinate? Business-Level Strategy How do we compete? Corporate-Level Strategy Where do we compete? Corporate Directional Strategies