Business Policy

* 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

Levels of Strategy

Business Strategy (competitive strategy) is concerned with how a firm competes within a particular market. Corporate strategy is concerned with where a firm competes

* Business-Level Strategy (competitive strategy)

How to create competitive advantage in each business in which the company competes:

low cost leadership

differentiation

focus low cost/ focus differentiation

Business (or Competitive) Strategy is concerned with the use of resources and capabilities to create competitive advantages in each of businesses in which a company competes

* Corporate-Level Strategy (companywide strategy)

Corporate (or Company-wide) Strategy is the overall plan for a multi-business unit company.

Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts

Defining Corporate Strategy

Corporate Strategy is the way a company adds value through the configuration and organization of its multi-market activities

The definition has three important aspects:

- Value Addition - the generation of superior financial performance from multi-market activities that create corporate advantage

- Configuration - the multi-market scope of the corporation (product/market diversification, geographic focus, and vertical boundaries)

- Organization - the management of the inter-linkages between businesses and the head office

Goal of Corporate Strategy: Corporate Advantage

The goal of corporate strategy is to build corporate advantage so as to earn above normal returns

* Analogous to a competitive advantage in a business unit

Three tests of the existence of corporate advantage:

* Does ownership of the business create benefit somewhere in the corporation? (Does parentage matter?)

* 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?

Corporate Strategy:

Three Fundamental Issues

1. Can the corporation create economic value by changing its scope?

Diversification

Vertical integration/outsourcing

Geographic expansion

2. Should activities be undertaken inside the corporation, or accessed through contracts, joint ventures, alliances, etc.? How should the corporation grow?

3. How should the corporation be structured and managed to enhance the combined value of its individual business units?

Premises of Corporate Strategy

Competition occurs at the business unit level

* Corporations don't compete; only their business units do

* Value is created at the business unit level, it is only ADDED at the corporate level

* Successful corporate strategy must grow out of and reinforce competitive strategy

Corporate Strategy inevitably adds costs and constraints to business units

* Corporate overhead and costs of communication between HQ and SBUs

* Bureaucratic costs: costs of coordination, costs of monitoring

Shareholders can readily diversify themselves

* Shareholders can diversify their own portfolios of stocks, and they can often do it more cheaply with less risk than corporations

* Shareholders can buy shares at market prices and avoid paying large acquisition premiums

Implications from these Premises

Corporate Strategy cannot succeed unless it truly adds value to business units:

- by providing tangible benefits that offset costs of lost independence

economies of scope

economies of scale

- add value to shareholders in a way that shareholders could not replicate by themselves

Resources and Capabilities

* Newell

Relationships with discount retailers

Efficient high-volume manufacturing

Superior service

On-time delivery

National coverage

Program merchandising

* Sharp

Set of specialized optoelectronics technologies

* Tyco

Financial controls

Good incentive programs

Strong manufacturing

Strong operating managers

Sharp's Corporate Strategy

* Scope of business

A/V

Appliances

Electronic components

Stick to technology base

* Coordination