Chapter

PowerPoint Slides by
R. Dennis Middlemist
Colorado State University

McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies,Companies,

The McGraw-Hill Inc. All rights
Inc. reserved.
2006
Chapter 1

An Introduction to
Corporate Strategy
PowerPoint Slides by
R. Dennis Middlemist
Colorado State University

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 The Need for Corporate Strategy
 Many major companies experienced slow
or negative growth in late 1990s
 These companies replaced their CEOs
 Ineffective corporate strategies played a
major role in these misfortunes

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 The Need for Corporate Strategy
 The pressure to change
 Corporate governance scandals
 Financial capitalists
 Pressure for shareholder value
 Corporate takeover
 Leveraged buyout

 New organizational forms

 Employee ownership
 Virtual corporation

 Franchising

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 What Is Corporate Strategy?

Corporate Strategy: the way a company

creates value through the configuration and
coordination of its multimarket activities.
 Emphasis on value creation
 Focus on multimarket scope (configuration)
 Product, geographic, and vertical boundaries
 How the firm manages its activities and
businesses (coordination)

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 Framework for Corporate Strategy
Adapted from: Figure 1.1: Corporate Strategy Triangle

Foundations
VISION
of Corporate
GOALS Strategy
& OBJECTIVES
ORGANIZATION

CORPORATE ADVANTAGE
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 Framework for Corporate Strategy
 Vision
 Successful corporations have one
 Ambitious aspiration
 Defined domain (boundaries of the firm)
 Ethical values

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 Framework for Corporate Strategy
 Goals & Objectives
 Specific short- and medium-term quantitative
targets (objectives)
 Qualitative intentions (goals)

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 Framework for Corporate Strategy
 Resources
 Assets, skills, and capabilities of the firm
 Critical building blocks of strategy
 Determine what a firm can do
 Determine competitive advantage at the
business unit level
 Determine range of market opportunities
 Ultimate source of value creation both within
and across businesses

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 Framework for Corporate Strategy
 Businesses
 The industries in which a firm operates, and
the competitive strategy it adopts in each
 Industry choice is critical to the long-term
success of a corporate strategy
 Best predictor of firm performance is the
profitability of the industries in which it
competes

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 Framework for Corporate Strategy
 Businesses
 A firm’s competitive strategy within each
industry affects corporate performance
 Superior returns, in the long run, are created
only by effective strategies that create
competitive advantages

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 Framework for Corporate Strategy
 Structure, Systems, & Processes
 Structure
 Division of a corporation into discrete units
 Formal organization chart shows allocation of
authority inside the corporate hierarchy

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 Framework for Corporate Strategy
 Structure, Systems, & Processes
 Systems
 Formal policies and routines
 Rules that define how tasks are to be fulfilled

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 Framework for Corporate Strategy
 Structure, Systems, & Processes
 Processes
 Informal elements of an organization’s activities
 A firm’s internal design should flow from its
strategy and be customized to fit its resources
and businesses

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 Framework for Corporate Strategy
 Structure, Systems, & Processes
 No one optimal set of structures, systems,
and processes for all firms
 Firm’s internal design should flow from its
strategy and be customized to fit the
resources and businesses of the particular
firm
 Inappropriate design often causes failure of
otherwise well-constructed corporate
strategies

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 Framework for Corporate Strategy
 Corporate Advantage
 An effective corporate strategy results CORPORATE ADVANTAGE

from a harmonious combination of the

five previously discussed elements
 The elements work together as a
system to create value through
multimarket activity—to yield a
corporate advantage

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 Framework for Corporate Strategy
 Corporate Advantage
 Most corporate advantages are CORPORATE ADVANTAGE

realized at the business-unit level,

where individual businesses use the
benefits of corporate affiliation to
outperform their rivals in a particular
industry

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 Framework for Corporate Strategy
 Corporate Advantage
Three questions can be applied to every CORPORATE ADVANTAGE

business a company owns or is considering

acquiring to determine:
 Does ownership of the business create benefit
somewhere in the corporation?
 Are those benefits greater than the cost of
corporate overhead?
 Does the corporation create more value with
the business than any other possible corporate
parent or alternative governance structure?
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 Portfolio Planning:
Growth Share Matrix

Market growth High

High

3 1.0 0.33
Relative market share

Adapted from Figure A.2: Growth Share Matrix was Used to Map Businesses

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 Portfolio Planning:
Growth Share Matrix

Market growth High

High

3 1.0 0.33
Relative market share

Adapted from Figure A.3: Classic Growth Share Matrix (General Foods Corporation, 1980–1982)

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 Value-Based Strategy
Current
market
value
Curent Maximum
perceptions raider
gap opportunity
Company Optimal
value restructured
as is Restructuring value
Framework
Strategic and Total
operating company
opportunities opportunities

Potential value Potential value

Disposal/
with internal with external
acquisition
improvements improvements
opportunities

Adapted from Figure A.4: Framework for Assessing Restructuring Opportunities

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 Four Types of Corporate Strategies

Continuum of Corporate Strategies

Increasing corporate involvement
in operation of business units

Portfolio Transferring Sharing

Management Restructuring skills activities

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 Resource-Based View
 Core competency
 Capability or skill
 Thread running through a firm’s businesses
units
 Weaves units together into a coherent whole

 Uniquely defines a firm

 Source of value creation

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 Financial Economics View
 Performance implications of diversification
 Capital market test to the value of
diversification
 20% diversification discount
 Compares the actual stock market
capitalization of a multibusiness corporation to
the sum of the imputed value of its business
segments
 For some firms, the whole is worth more than
the sum of the parts

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