CORPORATE LEVEL STRATEGY: RELATED

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CORPORATE LEVEL STRATEGY RELATED UNRELATED
DIVERSIFICATION

• BUSINESS 189
• SPRING 2007
• DR. MARK FRUIN

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H V INTEGRATION VERSUS DIVERSIFICATION

• CHAPTERS 9 10 NEED TO BE UNDERSTOOD TOGETHER
• THEY CONSIDER THE SAME ISSUE, CORPORATE LEVEL
  (MULTIBUSINESS) STRATEGIES FROM DIFFERENT ANGLES
• THE CONTEXT IS WHAT WE ARE FAMILIAR WITH - A U.S.
  POINT OF VIEW
• HOWEVER, DIFFERENT STORIES IN JAPAN, KOREA,
  CHINA, INDIA, THAILAND, AND ELSEWHERE
• BECAUSE DIVERSIFICATION ACHIEVED THROUGH BUSINESS
  GROUPS AND INTERFIRM NETWORKS

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3 GROWTH STRATEGIES

• DO IT YOURSELF (INTERNAL GROWTH)
• BUY IT (ACQUISITION)
• PARTNER (SHORT- TO LONG-TERM COOPERATIVE
  STRATEGIES)

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DISTINCTIVE v. CORE COMPETENCIES

• DISTINCTIVE COMPETENCIES
• SOMETHING THAT YOU DO WELL AND YOUR RIVALS DONT
  DO AS WELL
• CORE COMPETENCIES VERY FEW DISTINCTIVE
  COMP--gtCORE COMP
• EXPANDABILITY
• TRANSFERABILITY
• INIMITABILITY

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ESTABLISHING A COMPETENCY AGENDA Prahalad
Hamel, p. 339

• INDUSTRY VS COMPETENCY AXES (NOW/EXISTING
  FUTURE)
• 2 X 2 EXISTING VS NEW
• PREMIER PLUS 10 (NEW COMPETENCE/ EXISTING
  INDUSTRY BUILD EXTEND)
• MEGA-OPPORTUNITIES (NEW INDUSTRY/NEW COMPETENCE -
  NIRVANA)
• WHITE SPACES (NEW INDUSTRY/ EXISTING COMPETENCY
  TRANSFER FROM OLD TO NEW)
• FILL IN THE BLANKS (IMPROVE LEVERAGE
  EXISTING/EXISTING)

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INCREASING PROFITABILITY THRU DIVERSIFICATION

• PERFORM ONE OR MORE VALUE CREATING FUNCTIONS AT
  LOWER COSTS HIGHER QUALITY (FL STRATEGY)
• PERFORM ONE OR MORE VALUE CREATING FUNCTIONS TO
  ALLOW DIFFERENTIATION AND GIVE BETTER PRICING
  OPTIONS (LB STRATEGY)
• HELP THE FIRM BETTER MANAGE INDUSTRY RIVALRY (LB
  STRATEGY)
• IN OTHER WORDS, USE STRATEGY STACK TO STRATEGIC
  ADVANTAGE

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INCREASING PROFITABILITY THROUGH DIVERSIFICATION

• TRANSFER COMPETENCIES ACROSS INDUSTRIES (TECH
  MKT RELATED DIVERSIFICATION)
• LEVERAGE COMPETENCIES (MORE INTANGIBLE THAN
  TANGIBLE GOOD FINANCIAL/HR SKILLS)
• SHARING RESOURCES ECONOMIES OF SCOPE
• PRODUCT BUNDLING OFFERING COMPLEMENTARY BUT
  UNRELATED GOODS SERVICES
• WINTEL IS MOST FAMOUS EXAMPLE
• FOOD ENTERTAINMENT AT NIGHTCLUB

8
MULTIBUSINESS MODEL

• HOW TO TRANSFER LEVERAGE COMPETENCIES ACROSS
  INDUSTRIES
• FIRST, A BUSINESS MODEL FOR EACH INDUSTRY IN
  WHICH FIRM COMPETES
• HOW TO SUCCEED IN THIS BUSINESS
• SECOND, HIGHER LEVEL MODEL THAT JUSTIFIES ENTRY
  INTO DIFFERENT INDUSTRIES
• HOW TO COMBINE MANAGEMENT OF SEVERAL DIFFERENT
  BUSINESSES

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FREE CASH FLOW MEASURE

• FOR SOME, DIVERSIFICATION CHOICES ARISE WHEN FIRM
  GENERATES CASH IN EXCESS OF THAT REQUIRED TO FUND
  INVESTMENTS IN EXISTING BUSINESS/ES TO MEET
  DEBT REQUIREMENTS
• OF COURSE, BY THIS DEFINITION, DIVERSIFICATION
  OPPORTUNITIES ARISE WHEN EXCESS RESOURCES OF ANY
  SORT ARE AVAILABLE, NOT JUST FREE CASH

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TRANSFERRING COMPETENCIES

• IS NOT EASY
• BECAUSE THEY ARE OFTEN STICKY IN VARIOUS WAYS
  (E.G., SITE- TIME- SPECIFIC)
• NON-EMBEDDED VERSUS EMBEDDED
• HYBRIDIZATION VS. TRUE HYBRIDS
• HYBRIDS HAVE SUPERIOR TRAITS TO BOTH PARENTS
• ECONOMIES OF SCOPE ARISE WHEN TWO OR MORE
  BUSINESS UNITS SHARE RESOURCES, EITHER TANGIBLE
  OR INTANGIBLE
• BRAND EQUITY

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MULTIPOINT COMPETITION

• WHEN COMPANIES COMPETE IN DIFFERENT INDUSTRIES
  (AT THE SAME TIME WITH THE SAME RIVALS)
• MANAGE RIVALRY
• ATTACKS IN ONE INDUSTRY ARE MET OR MATCHED IN
  ANOTHER
• MOSTLY, MOVES ADJUST PRICES SOMETIMES REWORK
  PRODUCT OFFERINGS
• WHY ARE MOVES MOSTLY MINOR?

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GENERAL ORGANIZATIONAL COMPETENCIES

• RARE, CROSS-ORG COMPETENCIES (RELATED TO IDEA OF
  GEN. MGMT SKILLS)
• ENTREPRENEURIAL CAPABILITIES
• ORGANIZATIONAL DESIGN SKILLS (SYSTEMS,
  STRUCTURES CONTROL CAPABILITIES)
• SUPERIOR STRATEGIC CAPABILITIES (INTANGIBLE
  GOVERNANCE SKILLS)
• (LEADERSHIP AND/OR ABILITY TO SEIZE THE MOMENT)

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TYPES OF DIVERSIFICATION

• RELATED
• CONSTRAINED (MARKET-BASED)
• LINKED (TECHNOLOGY-LINKED)
• UNRELATED
• CONGLOMERATES
• BUSINESS GROUPS

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LIMITS TO DIVERSIFICATION

• BUREAUCRATIC COSTS
• NUMBER OF BUSINESSES
• COORDINATION AMONG BUSINESSES
• LIMITS TO EFFECTIVE GOVERNANCE
• CULTURE FALLS APART THERE IS NO CENTER
• (FOCUS NEEDED TO SUCCEED IN INDIVIDUAL BUSINESSES
  IS LOST)

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SONYS WEB OF CORPORATE-LEVEL STRATEGY

• FIGURE ON p. 357
• SONYS CORE INDUSTRY OF CONSUMER ELECTRONICS
• SURROUNDED BY
• RELATED DIVERSIFICATION (COMPUTERS, CELL PHONES)
• UNRELATED DIVERSIFICATION (PLAY STATION)
• BACKWARD INTEGRATION (COMPONENTS)
• FORWARD INTEGRATION (MUSIC, MOVIES)
• WHAT DO YOU THINK OF THIS FIGURE?

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INTERNAL NEW VENTURES

• A KIND OF DIVERSIFICATION
• WHY NEW VENTURES FAIL
• MARKET ENTRY TOO SMALL A SCALE
• LARGE SCALE ENTRY A PRECONDITION OF SUCCESS, ESP.
  FOR LARGE FIRMS
• POOR COMMERCIALIZATION SKILLS
• CROSSING THE CHASM (TWICE)
• POOR MANAGEMENT OF VENTURE PROCESS
• TOO MANY NEW VENTURES STARTED
• MISUNDERSTAND STRATEGIC CONTEXT
• UNDERESTIMATE TIME COSTS INVOLVED
• POOR IMPLEMENTATION/EXECUTION

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GUIDELINES FOR SUCCESSFUL INTERNAL VENTURING

• UNDERSTAND BOTH THE R THE D OF RD
• DOWNSTREAM LINKS TO MARKETING SALES ARE
  CRITICAL DURING D
• KEY OBJECTIVES FOR STRATEGIC SUCCESS ARTICULATED
  EARLY OFTEN
• CROSS-FUNCTIONAL DEVELOPMENT TEAMS
• KNOW WHEN TO HOLDEM FOLDEM

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VENTURE STAGES-PHASES-STEPS

• 30 STEPS FROM START TO STOP
• DOES NOT STANDARDIZE CYCLE TIMES - THESE VARY BY
  INDUSTRY?
• DOES NOT ESTIMATE PHYSICAL AND PSYCHOLOGICAL
  COSTS
• MOST FIRMS DO NOT WIND UP FINISHING WHAT THEY SET
  OUT TO DO
• INITIAL RESOURCES, INCLUDING HR, ARE NOT WHAT IS
  NEEDED ALONG WAY

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ACQUISITIONS STRATEGY

• GUIDELINES FOR SUCCESS
• IDENTIFICATION SCREENING
• BIDDING STRATEGY (AVOID BIDDING WARS)
• INTEGRATION (PRE- POST-INTEGRATION)
• LEARNING FROM EXPERIENCE (OF MAKING ACQUISITIONS
  LEARNING FROM ACQUIRED FIRMS VICARIOUS LEARNING
  (OTHERS DOING THE SAME THING)

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PORTERS GUIDELINES

• 3 TESTS
• ATTRACTIVE INDUSTRY?
• RECOVER INITIAL INVESTMENT?
• BETTER OFF WITH (OR WITHOUT)
• 4 STRATEGIES
• SHARING ACTIVITIES (POOLING)
• RESTRUCTURING
• SKILLS TRANSFER
• FINANCIAL MANAGEMENT

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RESTRUCTURING

• DIVERSIFICATION DISCOUNT
• THE WHOLE IS NOT MORE THAN THE SUM OF THE PARTS
• EXIT STRATEGIES
• DIVESTMENT
• MARKET-BASED VS MANAGEMENT BUYOUT (MBO)
• HARVEST AND THEN LIQUIDATE
• DELAYED DIVESTMENT

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ALTERNATIVES TO FIRM-LEVEL DIVERSIFICATION

• BUSINESS GROUPS
• HOLDING COMPANY MODEL (EUROPE)
• FAMILY-BASED IN EMERGING ECONOMIES
• INTERFIRM NETWORKS
• INTERMARKET AND VERTICAL
• CONSORTIUMS
• EASIEST AT PRE-COMPETITIVE STAGES
• INDUSTRIAL DISTRICTS
• STRENGTH DIVERSITY BY BEING THERE

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PHILIPS V. MATSUSHITA

• WHAT KIND OF C-L STRATEGIES ARE BEING DEPLOYED
• DISSIMILAR WHEN IN DIFFERENT INDUSTRIES BUT
  SIMILAR IN THE SAME INDUSTRIES?
• WHAT IS PHILIPS GOOD AT? MATSUSHITA?
• WHAT FACTORS ARE LIKELY TO INFLUENCE SUCCESS OF
  C-L STRATEGIES?