Corporate Strategy Essay

Diversification is even more prominent in other parts of the world Grupos, chaebol, trading houses, keiretsu, and so on poor corporate strategy is common Excite, one of the leading Internet services companies, yesterday received a takeover offer from Zapata, a Texas-establish group with holdings in marine protein and fodder packaging companies.Citing the excellent fit with Zapatas new strategic direction, Avram Glazer, Zapatas chief executive officer, said the proposed transaction makes sense for Excites shareholders because of the not bad(p) resources that Zapata can bring to Excite. Financial Times, May 22, 1998 2 What change flowerpot did this become? 3 Decomposition of Variance in Profitability Evidence from the linked States Year 2% Industry 18% Corporate parent 4% Transient 46% In the U. S. corporate strategy is typically the icing on the cake, not the cake itself Business units must be combative on their own merits in attractive industries But the icing can make the fatal difference surrounded by a good cake and a bad one Business segment 30% Note Ignores covariance terms based on 58,132 observations of 12,296 business 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 effect on profitability The effect on profitability is more likely to be positive Source Tarun Khanna and Jan W. Rivkin, Estimating the Performance cause 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 businesses of the unfl uctuating worth more than the sum of how much each business is worth individually? The answer could be less, e. g. J. C. Penney telemarketing division was worth 3X the market assess of the entire firm When deciding whether or not to acquire another business, you need to decide BOTH whether you waste a competitive receipts data track 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 costs This is an example of what happens when a solid corporate strategy meets an aggressive growth goal 2. Mismatch between strategy and organizational structure You can have a corporation with businesses that are closely connected like the classic Disney businesses and then run the businesses together in a tightly integrated way.That can work. You can have a corporation with the broader mise en scene 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, first principle President 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 failure to the extent that it enhances business unit competitive advantage Is the relative gap between WTP and cost larger than it would be otherwise? Two tests Better-off Does the presence of the corporation in a given market improve the total 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 alternative arrangement would produce? A corporation is more likely to pass the tests when it has some shared resource that (a) creates competitive advantage for the business units and (b) is difficult to trade efficiently via the market E. g. , access to animated characters Making business units better off sounds easy, but it typically requires educate structures, systems, and processes, plus cultural supports 12 Corporate strategy entails trade-offsEither focus on or focus on Guidance on the Projects Overall equalization The project must cover all three components of the class Human and Social Capital Strategy Multinational Management Components of Grade (NOT equally weighted) lend oneself of frameworks (most important issue) Quality of research Innovativeness/Insight of analysis Integration of different components of class Quality of communication 14 ? of scrape will be based on presentation ? on final project write up We will also use a peer assessment to adjust the grade for effort put in by each team member