DSGM - Lecture.5: Strategic choices 2: Corporate level strategy

Strategic choices 2: Corporate level strategic directions DSGM (Lecture 5) Dr Elvira Bolat C113, Christchurch House, Talbot campus ebolat@bournemouth.ac.uk @Elvira_Mlady

This week: Outline • Lecture 5: Strategic choices 2 – Corporate level – Understand the scope – Examine growth and other strategic directions: • Ansoff’s product/market growth matrix • Diversification drivers • Discuss vertical integration

– Role of a corporate parent!

– The tools of portfolio analysis – Red vs. Blue Ocean strategy

•Summary for the week •Next week’s seminar preparation

Learning outcomes • • • • •

Understand the corporate level scope Examine growth and other strategic directions Assess the role of a corporate parent!

Examine the tools of portfolio analysis Contrast ‘Red ocean’ and ‘Blue ocean’ strategy perspectives

The core (corporate level) strategy • Alternative methods of achieving objectives exist • The core strategy needs to look at the broad basis on which an organisation is going to compete: – Product/Business portfolio – Competitive positioning • Where and how the company will compete

Scope of the organisation Diversification dimensions: products & markets + divers of diversification

All business sizes

Portfolio assessment

Vertical integration (growth) of disintegration (contraction)

Parenting advantage

Ansoff’s product/market growth matrix

Assisting case: Ansoff’s matrix & Enterprise Rent-a- Car

Zone A: Market penetration • Underpinned by existing strategic capabilities • Organisational scope is the same • Two constraints: (1) Retaliation from competitors (2) Legal aspect

In practice:

Zone C: Market development • Potentially cheaper and quicker execution • Skills are critical

New users New geographies

In practice:

Zone B: Product development • Typical case: Apple • Skills are critical • Risky: – New resources and capabilities – Project management

• External environment-driven

In practice:

Zone D: Diversification • Radically expanding the organisation’s scope • High risks • Investment into new portfolio of resources and capabilities • Exploring new business avenues (spreading the risk) In practice:

Diversification drivers Economies of scale

Stretching corporate management competence

Exploiting superior internal processes

Increasing market power

Diversification & performance

Source: Johnson et al., 2017

Vertical integration

Source: Johnson et al., 2017

Role of Corporate Parent Value-adding activities • Envisioning • Facilitating synergies • Coaching • Providing central services and resources • Intervening

Value-destroying activities • Adding management costs • Adding bureaucratic complexity • Obscuring financial performance

Portfolio analysis Company portfolio analysis is: • An overview of the competitive position of the various strategic business units in terms of the rate of growth of their markets and their relative market share • Tools such as BCG growth-share matrix (Boston Consulting Group)

Other portfolio approaches • To overcome limitations of BCG matrix other product portfolio approaches have developed • Other matrices use more comprehensive measures of strategic success – General Electric/McKinsey (GE multifactor matrix) – Shell’s Directional Policy Matrix (DPM)

GE Multifactor Matrix Business strengths

High Medium Low

Industry attractiveness

Strong

s e v In

Medium

g r o tf

t w ro

na a M

Weak

h

s e g

c e l e

or f ly e tiv

ni r ea

Ha

s g n

t/ s e rv

aw r d ti h w

Prospects for sector profitability Attractive

Weak

Average

Disinvest

Phased withdrawal

Double or quit

Average

Unattractive

Phased withdrawal

Custodial growth

Try harder

Strong

Business’ competitive capabilities

Directional Policy Matrix

Cash generation

Growth leader

Leader

Source: Drummond et al, 2008 p.106

Related Diversification Options

Extended growth strategies

Source: Ranchhod & Gurau (2007)

Debate: why to have corporatelevel strategies?

Red ocean vs. Blue ocean Strategy

Summary • Corporate level strategy enables growth of the organisation • Vertical integration is also a business growth direction • The growth and other matrices (Ansoff /market options/extended matrices) are useful to develop basic strategic directions • Portfolio matrices help to allocate resources to attractive future opportunities

Prep-work for Seminar 6: • YOU are tasked to work on your assignment and bring in results of strategic audit (you have conducted to date) • Think about main understanding of the case company: – its industry; – unique portfolio of resources and capabilities; – SBUs; – currently in use business-level and corporate-level strategies.

* Do not come if you have not done any research.

Episode 3 Our presenters per seminar group are: Group A: Bella Constantine, Cameron Donaldson Group B: Luke Eaton, David Hennessey Group C: Sim Gill, Charlie Howitt Group D: Austin Hendley-Richards, Sam Keet Task: You are to explore and tell your seminar group 7 facts in 7 minutes about National Beverage Corp. These facts could be anything you think is relevant and important to highlight strengths and weaknesses of the corporation.

Remember! You are to produce 7 slides to present in 7 minutes