Business Strategy

The types of decisions made and direction created for a single business 

Corporate Strategy 

the types of decisions made and direction created for a corporation that operates multiple lines of business 

5 Areas within Corporate Strategy

1. Deciding which industries to enter & exit 

2. Defining a strategic business unit 

3. Establishing investment priorities 

4. Making resource & management transfers 

5. How to structure the corporation 

Dominant Business 

A company in which 70-95% of revenue comes from a single business unit 

Conglomerate 

A corporation that owns a large number of businesses that are different sizes and operate in different industry sectors (ie. General Electric) 

Junk Bonds 

High-yield debt that is realted below investment grade at the time of purchase (Below BBB or Baa) 

Leveraged Buyout (LBO)

A process where a company is bought primarily using debt financing (typically enegineered by a P/E firm) 

Private Equity (PE) Firm 

Private corporation or partnership that uses their financial resources to engineer buyouts and acquisitions of other companies (often use SPACs or CLOs) 

Special Purpose Acquisition Company (SPAC)

Empty shell firms that promise to buy businesses with the process of their initial public stock offerings 

Clolateralized Loan Obligation

(CLO)

Larege pool of bank loans bundled together by financial service firms and sold off to investors in slices with the goal to spread default risk "an inch deep and a mile wide"

4 Primary Motivations for Diversifying a Company 

1. Seeking Growth 

2. Market Entry 

3. Seeking Market Power 

4. Spreading Risk 

6 Reasons to Seek Growth

1. Better External Opportunities 

2. Acquire New Capabilities 

3. Response to Intensifying Competition 

4. Avoiding Decline and Takeover 

5. Benefits to management and employees

6. Managerial capitalism 

4 Reasons for Market Entry 

1. Overcoming barriers to entry 

2. Avoiding internal development costs 

3. Increasing speed to market 

4. Opportunity Cost - imitating others 

Bandwagon Effect

If one company buys a company in an industry, it will make other companies feel like they need to get into that industry as well

3 Reasons for Seeking Market Power

1. Gains in Pricing Authority 

2. Increased Bargaining Power 

3. Mututal Forbearance - keeping competitors at bay 

2 Reasons for Spreading Risk 

1. Reducing variability in performance 

2. Shareholder's benefit 

Systematic Risk 

Risk associated with macro-economic forces 

Un-Systematic Risk

Risk associated with a particular business 

Related Diversification

A M&A whre there is some similarity of industry and/or value chain between the corporation and the company it seeks to acquire 

3 Types of Related Diversification 

1. Horizontal - same industry, same value chain

2. Vertical - same industry, different positions up/down the value chain 

3. Cross-Sector - new industry, similar value chain of what company already has 

3 Types of "Fit" 

1. Market Fit - take synergistic advantage of relationships with suppliers or customers 

2. Operational Fit - combine similar primary value chain activities 

3. Management Fit - synergies in admin. and support activities of the value chain 

3 Types of Synergistic Benefits 

1. Scope - ability to broaden a product line

2. Economizing - cost savings 

3. Resources Leverage - extension and application of corporate resources 

Unrelated Diversification

When a corporation enters a new business in a different industry from that in which it currently operates and does not expect to achieve any value chain synergies through the merger/acquisition

Holding Company 

corporation that owns the majority of voting shares of other companies but that allows the other companies to operate as independent entities

7 Factors Affecting Acquisition Performance 

1. Attractive Industries 

2. Strategic Rationale - should relate to the strategy critera 

3. Do the due diligence 

4. Capture Synergies - capture, don't just identify synergies 

5. Acquisition Premiums - don't pay too much 

6. Loss of Focus 

7. Accelerating Growth is tough - very hard to do, don't lose focus 

6 Post-Acquisition Efforts 

1. Immediately establish an integration team 

2. Ensure that senior management of both companies are visibly involved 

3. Give accountability to the integration team, and provide them authority with resources to effect changes 

4. Have a HR transition plan and team in place when the acquisition becomes official 

5. Implement a system that provides financial controls and operational indicators 

6. Communicate early and often 

Biggest Issue with Matrix Diagrams 

Depends on assumption that high market share is always related to superior profitability - not always true, market share can be purchased 

Downscoping 

when a corporation reduces its level of diversification and strategically refocuses on core businesses where the synergies of scope, economizing, and leverage are more evident and more realized 

Spin-Off

Divestiture in which a corporation creates a new company out of one of its businesses. New company has its own shares of stock, its own shareholders, and its own board of directors. 

5 Stages of Industry Life Cycles 

1. Introduction 

2. Growth 

3. Maturity 

4. Decline

5. Renewal 

First Mover Advantage  

the sustainable competitive advantage that is sought by being the first company to enter a new industry or industry segment 

Standardization 

an industry condition in which customers begin to appreciate a standard set of features and benefits or products or services 

Commoditization 

an industry condition which a standard set of features and benefits is required for any serious competitor, and in which such features and benefits are readily available from a variety of suppliers 

Reconfiguring the Industry Value Chain

a strategic approach that calls for changing the usual set of relationships across the industry value chain in 4 ways 

4 Ways to Recognifgure the Value Chain

1. Redefine Industry Boundaries 

2. Disaggregate blocks of value chain activity 

3. Redefine Value 

4. Shift to Complements 

Complements 

products or services that have a correlation relationship with, and can affect the value of, a company's own products or services

(ie. iTunes and the iPod) 

Mobility Barriers 

strategic actions and resource investments that prevent competitors in the industry from imitating the company 

Industry Roll-Up

consolidation of an industry when many small fragmented competitors are combining into a larger company  

4 Organizational Life Cycle Stages 

1. Conception 

2. Commercialization 

3. Growth 

4. Maturity 

2 First Mover Advantages 

1. Size - standard setting, installed base and buyer switching costs, reputation, preemption 

2. Size Advantage - scale, experience curve, scope, network 

4 First Mover Disadvantages

1. Pioneering Costs 

2. Technological Uncertainty 

3. Demand Uncertainty 

4. Inertia 

6 Fast Growth Company Characteristics 

1. Loss of culture 

2. Rapid increase of sales/customers 

3. Sometimes extremely hard to control

4. Must ensure consistency with orginal strategy 

5. Communication 

6. Implement organization structure 

2 Ways Renewal Occurs 

1. Expansion via development/introduction of new business 

2. Expansion via acquisitions 

4 Critical Factors

Renewal Efforts Depend on 

1. Opportunity recognition capabilities 

2. Platform innovation 

3. Optioned investments in innovation 

4. Culture and incentives 

4 Reasons to Expand Internationally 

1. Seeking growth internationally 

2. Achieving synergies with existiing value chain capabilities 

3. Spread risk 

4. Achieving location advantages 

4 Types of International Strategies 

1. Transnational - downstream at customer and high pressure for value chain efficiency 

2. Global - upstream at manufacturing or supplier and high pressure for value chain efficiency 

3. Multi-Domestic - downstream at customer and low pressure for value chain efficiency 

4. Centralized Single Country - upstream at manufacturing/supplier and low pressure for value chain efficiency 

Tactics 

dealing with short term competitive moves and countermoves 

2 Types of Industry Characteristics 

1. Benign Environment  (market demand exceeds market supply, generally high gross margin, low competitive industry, high customer loyalty, general market and customer tolerance of management miscues) 

2. Hostile Environment (very slow growth, continuous price wars, high competitive industry, focus on cost containment by competitors) 

Benchmark 

a process through which a company compares its own processes and structure to that of other organizations 

4 Ways of Classifying Organizations 

1. Prospector 

2. Defender 

3. Analyzer 

4. Reactor 

Prospector 

company tends to view the industry from their own perspective and that of the customer rather than being concerned with the competition (usually leaders of undustry change) (ie. Apple) 

Defender 

A company that is intensive rather than extensive. Focus on limited number of key criteria, analyze costs, and rigorously defend their competitive position. 

Analyzer 

Between prospector and defender. Usually take one of the two forms. 

Reactor 

Company that reacts (very slowly) to conditions in competitive environment 

4 Internal Competitor Characteristics 

1. Understanding Management Patterns 

2. Relative Market Position 

3. Financial Situation 

4. Means of gathering competitor intelligence 

Clipping Services 

provides complete detailed record of all available public info about any company, area, person, or situation 

Scenario Analysis 

technique that allows organizations to consider dramatic shifts in their business model 

5 Tactical Responses 

1. Acquiesce 

2. Compromise 

3. Avoid 

4. Defy 

5. Manipulate 

5 Strategic Responses 

1. Containment - locking in customers, raising switching costs

2. Shaping - purchasing the threating organization 

3. Absorbtion - acquisition of new competitor 

4. Neutralization - legal action, benefits for free, improve existing products 

5. Annulment - leapfrog new company's approach, sidestep the approach by changing industry fundamentals 

Strategic Alliances 

joint venture or partnership formed with other companies in order to develop a new technology, process, or other type of strategically important resource 

3 C's of Organization Structure 

1. Communication - effective communication

2. Coordination - coordination of activities 

3. Control - structure = control function 

3 Organization Components 

1. Core 

2. Techno Structure 

3. Staff Support 

Core 

the group of groups that are directly responsible for competitive advantages that the firm enjoys 

Techno Structure 

those groups who are advice givers and policy makers to the core 

Staff Support 

all other groups who are not core and not advice givers/policy makers 

5 Coordinating Mechanisms 

1. Mutual Adjustment 

2. Standardization of Work Processes 

3. Standardization of Work Skills 

4. Standardization of Work Output 

5. Direct Supervision 

Mututal Adjustment 

method of coordination where every individual knows everything that is happening in the organization and adjusts his/her work pattern for the conditions at hand

(best in small groups)

Standardization of Work Processes

method of managing large numbers of employees based upon the process they perform 

(ie. Auto Factory Conveyer Belt) 

Standardization of Work Skills

a method of managing large number of employees based upon their skill sets as established by some externally validated means 

(ie. CPA, CMA, CFA, JD, etc.)

Standardization of Work Output 

method of managing large numbers of employees based upon a well-developed set of output measures

Direct Supervision 

every person is coordinated via a direct supervisor and coordination flows into and from that supervisor 

5 Organization Structures 

1. Simple Structure 

2. Functional Structure 

3. Divisional Structure 

4. Matrix Structure 

5. Adhocracy 

Simple Structure 

a method of organizing a company in which all areas of the company report to a single person (flat organization) 

Functional Structure 

method of organizing a company that devides up the compay based upon their functional areas of expertise 

Divisional Structure 

method of organizing a company that divides up the organization into discrete companies within an overall company 

Matrix Structure 

method of organizing a company that utilizes a dual structure such that everybdoy in the org has both a functional home as well as a divisional home 

Adhocracy Structure 

a method of organizing usually used within portions of the organization rather than the entire organization 

5 Keys to Implementation Control

1. Fit 

2. Clear and Compelling Objectives 

3. A Single Company Currency 

4. Top-Management Involvement 

5. Resource Allocation 

3 Types of Metrics 

1. Metrics tied to mission/vision 

2. Measures of Performance (quantitative metrics and qualitative metrics) 

3. Metrics translated to functional levels 

4 Characteristics of Effective Metrics

1. Be both qualitative & quantitative 

2. Balance 

3. Appropriate for the functional level 

4. Metrics connected to incentives 

Balance Scorecard Model

an implementation method that considers a wide variety of stakeholders in the "performance" of the company 

4 Dimensions of the Balanced Scorecard 

1. Financial Perspective

2. Customer Perspective

3. Interal Processes Perspective

4. Learning & Growth Perspective 

Lead Metrics 

represent the observable actions of employees that we hope will lead to results we are ultimately trying to achieve 

Lag Metrics 

represent the results that we would hope and expect to observe for each of the subdimensions in any one perspective of a balanced scorecard 

5 Parts of the Value Driver Model 

1. Key Value Drivers 

2. Desired Stakeholder Experiences 

3. Translating Experience to Position 

4. Actions List 

5. Metrics 

7-S Framwork 

Hard S's 

1. Strategy 

2. Structure 

3. Systems 

Soft S's 

1. Style 

2. Staff

3. Skills 

4. Shared values 

10 Parts of Strategic Leadership 

a.Establish vision, mission, goals

b.Build Senior management team

c.Establish structure for communication, coordination and control

d.Exert control over direction

e.Establish a code of ethics for conduct and decision making

f.  Evaluate, decide, act

g.Rational decision making

h.Establish top-management team process that challenges assumption, surfaces alternatives

i.  Establish culture that matches personal leadership style

j.  Motivate through incentives and rewards aligned with goals