Corporate Strategy

MGMT611 dodge Natalya Vinokurova unified Strategy Session 15 1 unified Scope Corporate center division A in industry a Division B in industry b Division C in industry c Division D in industry d The average U. S. Fortune 500 company operates in four distinct industries Diversification is even more tumid in other split of the world Grupos, chaebol, job houses, keiretsu, and so on Poor corporate scheme is common Excite, one of the leading Internet services companies, yesterday received a putsch offer from Zapata, a Texas-establish group with holdings in marine protein and food promotion companies.Citing the excellent fit with Zapatas new strategic direction, Avram Glazer, Zapatas party boss executive officer, said the proposed transaction makes sense for Excites shareholders because of the great resources that Zapata tooshie bring to Excite. Financial Times, May 22, 1998 2 What diversified bay window did this become? 3 Decomposition of Variance in Profitability certai nty from the United States Year 2% Industry 18% Corporate raise 4% Transient 46% In the U. S. corporate strategy is typically the icing on the cake, not the cake itself Business units must be competitive on their own merits in attractive industries But the icing brook make the decisive difference between a sincere cake and a bad one Business segment 30% Note Ignores covariance terms based on 58,132 observations of 12,296 headache segments in 628 industries in the United States Source Anita M. McGahan and Michael E. Porter, How Much Does Industry Matter Really? strategic Management Journal, 1997 4Decomposition of Variance in Profitability Evidence from 14 emerging Economies In much of the rest of the world, corporate strategy is more prominent Membership in a diversified entity has a larger rig on profitability The effect on profitability is more possible to be positive Source Ta footrace Khanna and Jan W. Rivkin, Estimating the Performance Effects of Business Groups in Emerging Markets, Strategic Management Journal, 2000 Countries Argentina, Brazil, Chile, India, Indonesia, Israel, Mexico, Peru, the Philippines, South Africa, South Korea, Taiwan, Thailand, and Turkey litmus Test of Corporate Strategy Is the combination of all argumentes of the firm expenditure more than the sum of how much each business is worth severally? The answer could be less, e. g. J. C. Penney telemarketing division was worth 3X the market mensurate of the entire firm When deciding whether or not to acquire other business, you need to decide BOTH whether you have a competitive usefulness running that business AND how it will contribute to the fit among the other 6 businesses you are runningAcrobat Document 7 The Walt Disney Company Stock Price vs. S&P 500, 1984-1994 8 The Walt Disney Company Stock Price vs. S&P 500, 1995-2005 9 Two big problems 1. Growth at all cost This is an example of what happens when a solid corporate strategy meets an aggressive harve st goal 2. Mismatch between strategy and organizational structure You can have a corporation with businesses that are closely connected same(p) the cliqueic Disney businesses and then run the businesses together in a tightly integrated way.That can work. You can have a corporation with the broader stove of later Disney and run them in a loosely coupled way. That can work. But if you have a corporation with the broader scope of later Disney and run them like the classic Disney, with heavy-handed management from the top, searching for synergy that doesnt really existthen you get into trouble. In 2005, ABC electric chair Robert Iger replaces Eisner 10 The Walt Disney Company Stock Price vs. S&P 500, 2005-2012 11 The Walt Disney Company Take-aways Core lessons of corporate-level strategy Competition occurs at the level of the business unit Corporate strategy is a success or chastisement to the extent that it enhances business unit competitive advantage Is the relative hatch way between WTP and cost larger than it would be otherwise? Two tests Better-off Does the charge of the corporation in a given market improve the occur competitive advantage of business units over and above what they could achieve on their own? (Whats the added value of the corporation? Ownership Does ownership of the business unit produce a greater competitive advantage than an resource arrangement would produce? A corporation is more likely to bump the tests when it has some shared resource that (a) creates competitive advantage for the business units and (b) is onerous to trade efficiently via the market E. g. , access to animated characters Making business units better off sounds easy, but it typically requires sophisticated structures, systems, and processes, plus cultural supports 12 Corporate strategy entails trade-offsEither focal point on or focus on Guidance on the Projects Overall Grading The project must cover all three components of the class Human and So cial not bad(p) Strategy Multinational Management Components of Grade (NOT equally weighted) Use of frameworks (most chief(prenominal) issue) Quality of enquiry Innovativeness/Insight of analysis Integration of different components of class Quality of communication 14 ? of grade will be based on presentation ? on final project write up We will also use a peer assessment to come up the grade for effort put in by each squad memberA Word on Plagiarism Any text (more than 2 unbent words) taken from another source must be In invert commas Clearly identified with the source It is NOT sufficient to simply bloodline that you used a source. You must commit which text came from it. Failure to identify the source of your work is a serious breach of academic morals and will be treated accordingly If in doubt, ask prof or TAs for guidance (It is generally not a pricy radical to reproduce whole sentences or paragraphs from other sources without a very good reason anyway ) 5 Next Class Firm Scope and Strategy Case observes Opportunities in India (A), 9708-482 What are the benefits and costs to manage of moving each of its back-office functions to India? In light of those benefits and costs, what would you recommend to Mark Fuller, Monitors CEO, about the location of each function? Should Monitor wiretap into the Indian pool of talent somehow, perhaps by conducting business research there? If so Should it conduct research only for Monitor chance teams or sell its research services directly to external clients? 16