Growth Strategies

Corporate (and International) Strategies : 

Corporate (and International) Strategies Three directions for corporate strategy Growth M&A , JV, and SA (external growth) International (internal growth) Stability (internal growth) Renewal (internal growth) Retrenchment Turnaround Increase the four capabilities via core competencies

Types of Growth Strategies : 

Types of Growth Strategies Organizational Growth Horizontal Integration: Along Value Chain International Concentration Diversification Related Businesses Unrelated Businesses Vertical Integration Related Businesses Unrelated Businesses

Concentration : 

Concentration Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business

Diversification : 

Diversification Level Horizontal Vertical Suppliers buying buyers (or vice versa) Two Types Related Businesses Unrelated Businesses

Related Diversification and Competitive Advantage : 

Related Diversification and Competitive Advantage Competitive advantage can result from related diversification if opportunities exist to Transfer expertise / capabilities / technology Combine related activities into a single operation and reduce costs Leverage use of firm’s brand name reputation Conduct related value chain activities in a collaborative fashion to create valuable competitive capabilities

What is Unrelated Diversification? : 

What is Unrelated Diversification? Approach is to venture into “any business in which we think we can make a profit” Firms pursuing unrelated diversification are often referred to as conglomerates

Attractive Merger/Acquisition Targets : 

Attractive Merger/Acquisition Targets Companies with undervalued assets Capital gains may be realized Companies in financial distress May be purchased at bargain prices and turned around Appeal of Unrelated Diversification Strategy Business risk scattered over different industries Financial resources can be directed to those industries offering the best profit prospects If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced

Drawbacks of Unrelated Diversification : 

Drawbacks of Unrelated Diversification Difficulties of competently managing many diverse businesses Lack of strategic fits which can be leveraged into competitive advantage Consolidated performance of unrelated businesses tends to be no better than sum of individual businesses on their own (and it may be worse) Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3 Promise of greater sales-profit stability over business cycles seldom realized

Diversification and Corporate Strategy : 

Diversification and Corporate Strategy A company is diversified when it is in two or more lines of business Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business A diversified company needs a multi-industry, multi-business strategy A strategic action plan must be developed and implemented for several different businesses competing in diverse industry environment

When to Diversify : 

When to Diversify Some companies do EXCELLENTLY and are not diversified McDonald’s, SWA, Coca-Cola, Domino’s Pizza, Wal-Mart, FedEx, Timex, Gerber Why stay single business Clear understanding of who we are/what we do No Dilution of management’s attention Risks of a single business strategy Putting all the “eggs” in one industry basket Unforeseen changes can undermine a single business firm’s prospects