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BusinessPolicyNotes09 - Chapter 9 Corporate Strategy...

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r Chapter 9 Corporate Strategy - Horizontal Integration, Vertical Integration, and Strategic Outsourcing 220
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STRATEGIC MANAGEMENT Abell's Framework for Defining the Business Lecture 9 Dr. John Kraft WN.Mirv --... ~",. Wt-.·tIIiinv ..... •.•. -- \ ==)" -- . '----...e Corporate-Level Strategy should allow a company, or its business units, to perform the value-creation functions at lower cost or in a way that allows for differentiation and premium price. Corporate strategy is used to identify: 1. Businesses or industries that the company should compete in 2, Value creation activities that the company should perform in those businesses 3. Method to enter or leave businesses or industries in order to maximize its long-run profitability Companies must adopt a long-term perspective Consider how changes in the industry and its products, technology, customers, and competitors will affect its current business model and Mure strategies. Repositioning and Redefining A Company's Business Model Corporate-level strategies are primarily directed toward improving a company's competitive advantage and profitability in its present business or product line: .:. Horizontal Integration The process of acquiring or merging with industry competitors .:. Vertical Integration Expanding operations baclcward Into an industry that produces inputs for the company or forward into an Industry that distributes the company's products .:. Strategic Outsourcing Letting some value creation activities within a business be performed by an independent entity .:.Horizontal integration The process of acquiring or merging with industry competitors ~ Acquisition and merger ·:·Vertical integration Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company's products ·:·Strategic outsourcing Letting some value creation activities within a business be performed by an independent entity c.p,orighl:O~""~.MriIt*--.t. Opening Case .:. Read All About News Corp. ~o .... .... ~c ..... , Mrigt*-.d.. ~&l •.••••••••••• e:.-.-,..••..••---- 3" 3'3 3,5 221 Source:D.f.Aben.~"~~.s-n.Pol1flCffSltolqk c I ••.•••••• WI~ •• ""~· Corporate-Level Strategy ~OHllugNDn~~."'~-..d. Overview ~;~~e.m::~~~ 312 314 3" 1
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Benefits of Horizontal Integration Benefits of Horizontal Integration Profits and profitability increase when horizontal integration: 1. Lowersthe cost structure .• Crwates increasing eeonomiN oI.ul. .• Reduces the dup/icdon at INOCII'I:U between two companies 2. Increasesproduct differentiation Product bundling - bra,"ler range at single combined price Talal solution - •••••• g customers limo and money .• Cros..s4elling - ~ging established aJStomer relationships 3. Replicatesthe business model .• In new martcet segments within same Industry 4. Reducesindustry rivalry .• Biminata excess capacity in an industry .• Easier to implement tacit price coordination among nv.ls 5. Increasesbargaining power Increased m.rlret power oyw suppliers and buyers .• Gainargter contrpl eop,.ngHo •.••••.••••••••
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