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ADMS4900 Corporate Strategy

ADMS4900 Corporate Strategy - ADMS 4900 Class 6 ADMS...

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Unformatted text preview: ADMS 4900 Class 6 ADMS Corporate Strategy Corporate strategy: Corporate adding value in multi-business firms Corporate strategy: adding value in multi-business firms Outline Outline Corporate Strategy Changes in Organisational Structure Strategy and Structure The Corporate-Business Interface The Role of the Corporate Headquarters Managing the Portfolio Evidence and Experience Corporate Strategy Corporate The value gained from a mixture of businesses and the management of those businesses to optimize value. Corporate Strategy Corporate Essential components: Portfolio management – What business should Portfolio make up the portfolio. Growth - the way that profitable growth is Growth achieved through internal investments and acquisitions Relatedness – the way in which synergies Relatedness between businesses are to be manages and exploited. The Unitary Form The Advantages • Division of labour allows Division specialisation and productivity • Clear separation of Clear responsibilities Disadvantages • Complex coordination Complex • Administrative overload Administrative • Limited entrepreneurial Limited capacity The Multidivisional Form The The Multidivisional Form The • Advantages Freed corporate Freed management from operational decisions for strategy. Integrated operations Integrated around specific business goals. Focused on products Focused and markets. Not tied up the day to Not day • • • The Multidivisional Form The • • • Disadvantages Corporate mangers Corporate isolated from business issues. Business units tend to Business compete for corporate resources. Limits development of Limits trans-firm competencies. Strategy and Structure Strategy What is the additional value generated by a multi-business firm? Relatedness Relatedness Synergy Synergy Oligopolies Oligopolies Founded initially on the scale and scope elements of production and distribution. Secured my scale and scope distribution, research, marketing and development. Oligopolies Oligopolies Giants can, however, and do stagnate. Flexibility and innovation can falter in the face of the needs of the dominant brand. Problems with ‘M’ Style Problems The distance between the head office and the subsidiaries can lead to competition and perhaps deceit. Subsidiaries compete for resources. Head Office Head How are multibusiness firms best managed? Role of the Role corporate head office 9.6 ABB and the 9.6 Role of Culture The Role of the Corporate The Headquarters Parenting Advantage: additional value that corporate ownership adds to a business unit (Goold et al. 1994) et 1994) Corporate ownership should: provide additional competitive advantage in at least provide one business unit in the portfolio. create more value than the cost of corporate create ownership. add more value than any other possible parent; add otherwise more value could be gained by selling to that other. Corporate Value Corporate Vc = As + Bs + Cs + Mc Vc = the value of the corporation As, Bs, Cs = the values of stand-alone businesses Mc = the benefits of corporate membership In many cases Mc is negative. Corporate Value Negative? Corporate If the corporate value is negative, then the most financially attractive thing is to break up the company. In short the whole was NOT worth the sum of its parts. Styles of Corporate-Business Styles Interface Strategic Planning Corporate managers Corporate define and monitor corporate and business strategies. Most suitable for Most capital-intensive or highly-interrelated businesses. Can go poorly is not Can interrealted. Styles of Corporate-Business Styles Interface Strategic Control Corporate managers Corporate influence business strategies and monitor financial results. This is a loose-tight This approach. Styles of Corporate-Business Styles Interface Financial Control Corporate managers Corporate define specific financial goals for business units. Most suitable for Most conglomerates. Allows for a great deal Allows in flexibility and innovation amongst units. Corporate Strategies Corporate Restructuring Sharing activities Transferring skills Porter (1987) Stand-alone influence Functional and services influence Linkage influence Goold et al. (1994) Corporate Strategies Corporate (Porter) Restructuring occurs occurs when a business is acquired with the intent of achieving an aim or purpose. Once this has occurred the company needs to capture the new value Ebay & Skype Ebay On Monday, eBay said it would take a $900 million socalled impairment write-down against the value of Skype. This means that eBay has been forced to reassess the value of the Internet telephony company relative to its overall business today. By recording a charge, the company is essentially saying that it has taken a loss on its original investment. In what looks like an attempt to shake things up at Skype and move the division in a new direction, eBay also said Monday that Skype co-founder and Chief Executive Niklas Zennström has stepped down. October 7, 2007 October Corporate Strategies Corporate Sharing Activities Is a value activity that Is is based on using the same facilities, services processes and systems in a company to get benefits of scale. Corporate Strategies Corporate Transferring Skills Is managing ongoing Is interrelationships between the business units. Sharing skills, Sharing expertise or best practices. Linkages and interdependencies. Corporate Strategies Corporate (Goold et al) Linkage Influence • Is to increase the value by creating linkages between the business units. • Shared activities. • Transfer of skills Corporate Strategies Corporate Stand Alone Influence • Is the value created by the influence of individual business strategy and performance. The individuals units can influence positively the performanceof the parent. Corporate Strategies Corporate Functional and Services Influences • Value is added through a range of vertically integrated and centrally controlled staff functions. Must add value. Relatedness Relatedness Related Businesses: where a ‘common skill, market or resource applies to each’, (Rumelt 1974, p. 29) ie. economies of scope. But: But: Differences in measuring business relatedness. Relatedness of strategic assets most important. Relatedness must be actively managed to add value. M-form impedes corporate-wide coordination. Concluding Remarks Concluding The corporate centre needs to control individual SBUs and build synergy within the portfolio of SBUs. The patterns of specialization and the definition of managerial responsibilities are influenced by: Corporate structure Corporate Style of control Style Corporate strategies Corporate Corporate strategy: mergers, acquisitions and strategic alliances Outline Outline Acquisitions Pre-acquisition Planning Post-acquisition Integration Strategic Alliances Managing Alliances Evaluating Alliance Outcomes Routes to Expansion Routes Internal growth Acquisition Alliance Acquisitions Acquisitions • Is a tool that Is companies use to grow, but not always to grow profitably. Implementation often fails. European Cross-Border European Acquisitions Key Issues in Acquisitions Key Pre-acquisition Planning Post-acquisition Integration Key Issues in Acquisitions Key Pre-acquisition Planning (Strategic Motives) 1.Industry restructuring 2.Increased market power 3.Access to new markets 4.Economies of scale and scope 5.Acquisition of new skills 6.Diversification Key Issues in Acquisitions Key Pre-acquisition Planning (Financial Motives) 1.Buying a bargain 2.Tax Advantages 3.Financial advantages (tax laws, acheive a listing, cash flow) Key Issues in Acquisitions Key Pre-acquisition Planning (Strategic Issues) 1.Avoid ‘sprat catching’ or buying small companies as management will tend to ignore then and they will underperform. 2.The risk of failure increases as market share decreases 3.Avoid financially weak companies Key Issues in Acquisitions Key • Pre-Aquisition Pre experience is only useful in so far as knowing what not to do based on your errors of the past. Why Acquisitions? Why • Experience Experience suggest that only 50% of acquisitions are a success. So why do they go ahead? Why Acquisitions? Why 1. CEO Ego 2. Process Issues (non-strategic decision making) 3. Environmental Pressures (the market. Pre-acquisition Planning Pre Selecting a target • Be strategic Be • Analyse your target Analyse • Expose Expose incompatibilities. • Examine worth Examine • Explore regulations Explore Pre-acquisition Planning Pre Doing the deal (Bidding tactics) Bidder needs to tell shareholders they will create more value for them. Attack current management . Pre-acquisition Planning Pre Defender tactics Revaluation of assets (raise the price) Improve profit forecasts Pac-Man (Launch a bid for the hostile company.) Post-acquisition Integration Post Post-acquisition Integration Post Organizational Fit Acquisitions are often associated with substantial redundancies. Many layers are effected. Who will stay and who will go? Have you lost key employees? Who can tell? Post Acquisition Integration There can be culture clash post acquisition. The extent to which value can be created through resource sharing can result in four different types if integration. Post-acquisition Integration Post Arms Length These are often in areas that are unfamiliar to the acquiring business. Intensive Care They are in poor financial shape at takeover. Subjugation The company looses its identity and is rolled into the parent. Often to gain market share. Collaboration Here there is a substantial interchange of capabilities. Types of Acquisition Integration Types Strategic Alliances Strategic Collusive strategies: Cooperation among firms to reduce industry output and raise prices. Generally illegal if formally or informally agreed. Strategic alliances: Cooperation among Cooperation firms to create and enhance competitive position of each without reducing industry output. How to Manage Alliances How Balance of power Quality of joint venture manager Appropriability of incumbent's expertise Openness and transparency of the incumbent firm Ability of the entering partner to internalize new skills Limit leakage of know-how outside agreed terms Assess extent and durability of the strategic fit Limit duplication of activities Concluding Remarks Concluding The difficulty of successful acquisition has led to a growing focus on alliances to enhance specific capabilities. Many different forms of alliance. Implementation difficulties are often as formidable as those with acquisition. Added dangers of instability and know-how leakage CIBC Barclays Merger CIBC Stella Artois Stella 1. Does it make sense for Interbrew to develop a global brand? 2. Does Stella Artois appear to be the right choice as the company’s flagship brand? 3. Interbrew’s strategy has focused on developing cities as markets rather than on the more traditional view of countries as markets – what are the pros and cons of this approach? 4. What would Interbrew have to do to succeed with Stella in the major urban market closest to where you live? Will these requirements vary much between major cities? 5. What role should the Internet play in developing Stella Artois as a global brand? 6. Considering the mergers and acquisitions strategy that Stella Artois has pursued, what are the pros and cons of pursuing this strategy? ...
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