Binary option Trading MAR: Chapter 8 corporate strategy vertical integration and diversification

Chapter 8- Corporate Strategy: Diversification and Vertical Integration.

ИГРАТЬ.

- it is WHERE TO COMPETE?

1) Industry Value Chain.

2) Products and Services.

2) Economies of Scale.

3) Economies of Scope.

4) Transaction Costs.

- Diversification = when a firm increases the variety of products and services it offers, or the geographic regions in which it competes.

1) Product Diversification.

2) Geographic Diversification.

3) Product-Market Diversification.

2) Core Competency-Market Matrix.

3) Growth-Share Matrix.

- >95% of its revenues are from one business.

- 70-95% of its revenues are from one business, but it does pursue at least one other business activity.

- <70% of its revenues are from one business, and it obtains revenues from other lines of business linked to the primary business activity.

- Related-Contrained--> businesses that are constrained by the fact that they need to be related through common resources, capabilities, or core competencies.

- Related-Linked--> businesses that consider new business activities that share only a limited number of linkages.

- <70% of its revenues come from a single business, and there are very few (if any) linkages between its business.

- the other lines of business ARE NOT linked to the Primary Business Activity.

- Single Business and Unrelated Diversification are the worst performing types of Corporate Diversification.

- Diversification Premium= applies to Related Diversified firms who's stock price of the overall firm is valued more than the sum of their individual business units.

- it is a way to guide managerial decisions in regards to diversification strategies.

- you will either have EXISTING or NEW Core Competencies or EXISTING or NEW Markets.

- Ex: Bank of America→ they used their position as a strong local bank in North Carolina to eventually buy smaller regional banks to eventually become Bank of America.

EXISTING Core Competence & NEW Market= redeploying and recombining core competencies to compete in markets of the future.

- Ex: Bank of America with Merrill Lynch→ Bank of America used their Existing Core Competency (acquiring and integrating) when they bought over Merrill Lynch and entered a new market (investment and wealth management)

NEW Core Competence & EXISTING Market= building new core competencies to protect and extend current market position.

- Ex: Pepsi→ they bought over Gatorade (New Core Competence) to enter an already existing market (Existing Market)

NEW Core Competence & NEW Market= building new core competencies to create and compete in markets of the future.

- Ex: Salesforce→ they employed a New Core Competence of delivering software development and deployment tools that allowed its customers to extend their existing CRM offering or build new types of soft ware (New Market)

- each box represents a different category, and each category warrants a different investment strategy.

- SBUs that are underperforming businesses.

- Earnings= low and unstable.

- Cash Flow= neutral or negative.

- Strategic Recommendation→ Divest or Harvest the business.

- Earnings= high, stable.

- Cash Flow= high, stable.

- Strategic Recommendation→ Invest/Hold current position and avoid having them turn into Dogs.

- Earnings= low, unstable, or growing.

- Cash Flow= negative.

- Strategic Recommendation→ Invest to increase market share (so they turn into stars) or Harvest the cash flow if the market growth slows (because then they will turn into Dogs)

- Earnings= High, stable, or growing.

- Cash Flow= Neutral.

- Strategic Recommendation→ Invest sufficient resources to hold the Star's position or even increase investments for future growth.

- Stars may turn into Cash Cows as the market in which the SBU is situated slows down due to reaching the Maturity stage of the industry life-cycle.

- helps managers decide what activities to do in-house versus what services and products to obtain from the external market.

- Internal Transaction Costs--> costs incurred when companies transact within the firm.

- Buy= obtain externally.

- deciding which one to do will determine the boundaries of the firm.

- If the Cost of pursuing an activity In-House is less than the Costs of transacting for that activity in the Market, then the firm should Vertically Integrate.

- the Buying firm can demand lower prices due to the competitive bidding process.

- CLOSER TO "BUY" side---> less integrated into the firm.

- Long Term Contracts--> contracts that usually last for longer tan a year and they help facilitate transactions (Ex: Licensing or Franchising)

-Equity Alliances--> a partnership in which at least one partner takes partial ownership in the other partner.

- Joint Ventures--> a type of Strategic Alliance in which two or more partners create and jointly own a new organization.

- CLOSER TO "MAKE" SIDE---> most integrated into the firm.

- it is the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

- Vertical Integration is measured by a firm's valued added---> what percentage of a firm's sales is generated within the firm's boundaries?

2) Less Vertically Integrated= the firms that focuses on only one or a few stages of the industry value chain.

3) Backward Vertical Integration= moving ownership activities upstream to the originating inputs of the value china--> becoming a supplier.

4) Forward Vertical Integration= moving ownership of activities closer to the end customer--> becoming a Distributor.

- facilitating scheduling and planning.

- facilitating investments in specialized assets.

- increasing the potential for legal repercussions.

Chapter 8 - Corporate Strategy - Vertical Integration and Diversification.

Click to edit the document details.

Unformatted text preview: 8.1 What Is Corporate Strategy? CORPORATE-LEVEL STRATEGY § Corporate strategy determines the firm’s boundaries along three dimensions: 1. 2. Range of products and services 3. § Industry value chain Where to compete: geography Key strategic management concepts used here: •. Core competencies – unique strengths •. Economies of scale – average cost per unit decreases •. Economies of scope – savings producing two (or more) 8-1 8.2 The Boundaries of the Firm TRANSACTION COST ECONOMIES § Explains and predicts the scope of the firm • § "Market vs. firms" have differential costs External transaction costs • Costs associated with economic exchanges ü § Ex: negotiating and enforcing contracts Internal transaction costs • Costs pertaining to organizing an exchange within a firm 8-2 Firms vs. Markets: Make or Buy? FIRST CORPORATE STRATEGY QUESTION § If Cin-house < Cmarket, then vertically integrate (make) • § Ex: Google hires programmers to write code in-house rather than contracting out. Disadvantage of “make” in-house • Principal–agent problem ü § owner = principal, manager = agent Disadvantage of “buy” from markets • Search cost • Opportunism 8-3 PRINCIPLE−AGENT RELATIONSHIP § § Separation of ownership and control – one of the hallmarks of a publicly traded company Principal−agent problem is almost inevitable. • A manager may pursue his or her own interests such as job security and managerial perks (e. g., corporate jets and golf outings that conflict with the principal’s goals – in particular, creating shareholder value) • One potential way to overcome the principal−agent problem is to give stock options to managers, thus making them owners. 8-4 Alternatives on the MakeorBuy Continuum § Short-term contacts • • Less than one-year term • § Competitive bidding process Lower prices cost advantages Strategic alliances • Facilitate investment without administrative costs ü § Ex: Long-term contacts, equity alliances, joint ventures Parent–subsidiary relationship • Most integrated alternative 8-5 8.3 Vertical Integration along the Industry Value Chain § § In what stages of the industry value chain should the firm participate? Vertical integration • Ownership of its inputs, production, & outputs in the value chain • Vertical value chain • Industry-level integration from upstream to downstream ü Examples: cell phone industry value chain • Many different industries and firms 8-6 Types of Vertical Integration § Full vertical integration • Ex: Weyerhaeuser • § Backward vertical integration • § Ex: HTC’s backward integration into design of phones Forward vertical integration • § Owns forests, mills, and distribution to retailers Ex: HTC’s forward integration into sales & branding Not all industry value chain stages are equally profitable. • Apple – designs in-house software and hardware but 8-7 Benefits and Risks of Vertical Integration SOME BENEFITS OF VERTICAL INTEGRATION § Securing critical supplies § Lowering costs & improving quality § Facilitating investments in specialized assets SOME RISKS OF VERTICAL INTEGRATION § Increasing costs & reducing quality § Reducing flexibility § 8-8 Alternatives to Vertical Integration § Taper integration • Backward integrated but also relies on outside market firms for supplies • Forward integrated but also relies on outside market firms for some of its distribution OR § Strategic outsourcing • Moving value chain activities outside the firm's boundaries ü Ex: PeopleSoft, EDS, and Perot Systems provide HR services to many firms that choose to outsource it. 8-9 8.4 Corporate Diversification: Expanding Beyond a Single Market SECOND CORPORATE STRATEGY QUESTION § Degrees of diversification • Range of products and services a firm should offer ü ü § Ex: PepsiCo also owns Lay's & Quaker Oats, but sold off KFC Differences in corporate strategy between KFC & Chick-fil-A Diversification strategies • Product diversification ü • Active in several different product categories Geographic diversification ü Active in several different countries 8-10 8-11 Leveraging Core Competencies for Corporate Diversification § Core competence • • Allows firms to increase the value of product/service • § Unique skills and strengths Lowers the cost Examples of core competencies are: • • § Walmart − globally distributed supply chain at low cost Infosys − high-quality/low-cost IT services The core competence – market matrix • Provides guidance to executives on how to diversify in 8-12 Corporate Diversification and Firm Performance § § Does corporate diversification lead to superior performance? The critical question to ask: • § Are the individual businesses worth more under the company’s management than if each were managed in separate firms? Research finds an inverted U-shaped relationship • Type of diversification • Overall firm performance 8-13 FOR DIVERSIFICATION TO ENHANCE FIRM PERFORMANCE…IT MUST DO AT LEAST ONE OF THE FOLLOWING: 1. Provide economies of scale, which reduces costs 2. Exploit economies of scope, which increases value 3. Reduce costs and increase value 4. Benefit from financial economies, including: • Restructuring • Using internal capital markets 8-14 RESTRUCTURING § The process of reorganizing and divesting business units such as GE in ChapterCase 8 • § InBev sold Busch Gardens and SeaWorld to focus on core. Boston Consulting Group (BCG) growth-share matrix • Build market share with stars and question marks. • Hold market share with cash cows. ü Harvest (milk) as much short-term cash as possible. 8-15 8.5 Implications for the Strategist § § Effective corporate strategy helps to gain and sustain a competitive advantage. Corporate strategy needs to be dynamic over time. • GE CEO Jeffrey Immelt formulated a new corporate strategy in clean-tech and health care. (ChapterCase 8) • Strategic positions of Nike and adidas another example ü adidas founded in 1924 focused on athletic shoes § ü Integrated manufacturing model Globalization led adidas to less integration and wider sports apparel § 2013 − 40% shoes, 50% apparel, 10% equipment 8-16 .

TERM Fall '08 PROFESSOR Staff TAGS Finance, Management, Marketing, Advertising, industry value chain.

Binary option Trading MAR

вторник, 8 мая 2018 г.

Chapter 8 corporate strategy vertical integration and diversification

Комментариев нет:

Отправить комментарий

вторник, 8 мая 2018 г.

Chapter 8 corporate strategy vertical integration and diversification

Комментариев нет:

Отправить комментарий

вторник, 8 мая 2018 г.