Corporate Parenting (page 226-227) Developing a Corporate Parenting Strategy (page 227-228) Horizontal Strategy and Multipoint Competition (page 228-229)

retrenchment strategies

A company may pursue this when it has a weak competitive position in some or all of its product lines resulting in poor performance—sales are down and profits are becoming losses.

retrenchment strategies

These strategies impose a great deal of pressure to improve performance.

Turnaround Strategy

It emphasizes the improvement of operational efficiency and is probably most appropriate when a corporation’s problems are pervasive but not yet critical.

contraction and consolidation

two basic phases of a turnaround strategy

Contraction

It is the initial effort to quickly “stop the bleeding” with a general, across-the board cutback in size and costs.

consolidation

It implements a program to stabilize the now leaner corporation.

Captive Company Strategy

involves giving up independence in exchange for security

Captive Company Strategy

Management desperately searches for an “angel” by offering to be a captive company to one of its larger customers in order to guarantee the company’s continued existence with a long-term contract.

Captive Company Strategy

In this way, the corporation may be able to reduce the scope of some of its functional activities, such as marketing, thus significantly reducing costs.

sell out

If a corporation with a weak competitive position in an industry is unable either to pull itself up by its bootstraps or to find a customer to which it can become a captive company, it may have no choice but to?

sell-out strategy

It makes sense if management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the entire company to another firm.

sell-out strategy

The hope is that another company will have the necessary resources and determination to return the company to profitability.

divestment

If the corporation has multiple business lines and it chooses to sell off a division with low growth potential.

Divestment

It is often used after a corporation acquires a multi-unit corporation in order to shed the units that do not fit with the corporation’s new strategy.

bankruptcy or liquidation strategy

Because no one is interested in buying a weak company in an unattractive industry, the firm must pursue a?

Bankruptcy

It involves giving up management of the firm to the courts in return for some settlement of the corporation’s obligations.

liquidation

termination of the firm

Liquidation

It is a prudent strategy for distressed firms with a small number of choices, all of which are problematic

cycle of decline

Top management enters a ___________, in which it goes through a process of secrecy and denial, followed by blame and scorn, avoidance and turf protection, ending with passivity and helplessness.

portfolio analysis

One of the most popular aids to developing corporate strategy in a multiple-business corporation

portfolio analysis

top management views its product lines and business units as a series of investments from which it expects a profitable return

BCG Growth-Share Matrix and GE Business Screen

Two of the most popular portfolio techniques

BCG (Boston Consulting Group) Growth-Share Matrix

It is the simplest way to portray a corporation’s portfolio of investments

area of the circle

It represents the relative significance of each business unit or product line to the corporation in terms of assets used or sales generated.

TRUE

BCG Growth-Share Matrix has a lot in common with the product life cycle.

Question marks

Stars

Cash cows

Dogs

As a product moves through its life cycle, it is categorized into one of four types for the purpose of funding decisions:

Question marks

sometimes called “problem children” or “wildcats”

Question marks

They are new products with the potential for success, but they need a lot of cash for development.

Question marks

This is a “fish or cut bait” decision in which management must decide if the business is worth the investment needed.

Stars

They are market leaders that are typically at the peak of their product life cycle and are able to generate enough cash to maintain their high share of the market and usually contribute to the company’s profits

Cash cows

They typically bring in far more money than is needed to maintain their market share.

Cash cows

In this declining stage of their life cycle, these products are “milked” for cash that will be invested in new question marks.

Dogs

have low market share and do not have the potential (because they are in an unat tractive industry) to bring in much cash.

BCG Growth-Share Matrix

is the concept of the experience curve

market share

The key to success is assumed to be

balanced portfolio

The goal of any company is to maintain a ________________ so it can be self-sufficient in cash and always working to harvest mature products in declining industries to support new ones in growing industries.

BCG Growth-Share Matrix

It is a very well-known portfolio concept with some clear advantages. It is quantifiable and easy to use.

Growth rate

It is only one aspect of industry attractiveness

Market share

It is only one aspect of overall competitive position.

Portfolio analysis

examines the attractiveness of various industries and by managing business units for cash flow, that is, by using cash generated from mature units to build new product lines

Corporate parenting

views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

Campbell, Goold, and Alexander

According to them, “Multibusiness companies create value by influencing—or parenting—the businesses they own. The best parent companies create more value than any of their rivals would if they owned the same businesses. Those companies have what we call parenting advantage.”

Corporate parenting

generates corporate strategy by focusing on the core competencies of the parent corporation and on the value created from the relationship between the parent and its businesses.

1. Examine each business unit (or target firm in the case of acquisition) in terms of its strategic factors

2. Examine each business unit (or target firm) in terms of areas in which performance can be improved

3. Analyze how well the parent corporation fits with the business unit (or target firm)

Campbell, Goold, and Alexander recommend that the search for appropriate corporate strat egy involves three analytical steps:

center of excellence

It is an organizational unit that embodies a set of capabilities that has been explicitly recognized by the firm as an important source of value creation, with the intention that these capabilities be leveraged by and/or disseminated to other parts of the firm.

Corporate headquarters

They must be aware of its own strengths and weaknesses in terms of resources, skills, and capabilities.

horizontal strategy

It is a corporate strategy that cuts across business unit boundaries to build synergy across business units and to improve the competitive position of one or more business units.

multipoint competition

large multi-business corporations compete against other large multi-business firms in a number of markets.

multipoint competitors

arefirms that compete with each other not only in one business unit, but also in a number of business units.

hypercompetition

Multipoint competition and the resulting use of horizontal strategy may actually slow the development of ___________ in an industry