Business Policy
Essay Preview: Business Policy
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Vertical integration
Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the companys 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 dont 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
Financial controls
Good incentive programs
Strong manufacturing
Strong operating managers
Sharps Corporate Strategy
Scope of business
Appliances
Electronic components
Stick to technology base
Coordination