stability strategy
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Chapter 7
Corporate Strategies II
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Lecture Objectives
Describe when organizational stability is anappropriate strategic choice.
Define organizational renewal strategy
Discuss the causes of corporate decline and indicatorsof corporate performance decline
Describe the two main types of renewal strategies
Explain how renewal strategies are implementedDescribe how corporate strategies are evaluated
Discuss the major portfolio management techniques
Describe how corporate strategies are changed
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ORGANIZATIONAL
STABIL
ITYA strategy where the organization maintains
its current size and current level of business
operationsWhen is stability an appropriate strategy?
Industry is in a period of rapid upheaval with
several key industry & external forces drasticallychanging, making future highly uncertain
Industry is facing slow or no growth opportunities
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ORGANIZATIONAL
STABIL
ITYWhen is stability an appropriate strategy?
Organization has just completed a frenzied
period of growth & needs to have some downtime in order for its resources & capabilities to
build up strength again
Large firm in large industry at maturity stage of
industry life cycle
Implementation of Stability Strategy
Not expanding organizations level of operation
Should be a short-run strategy
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ORGANIZATION RENEWAL
A strategy that is used to reverse organizationaldecline & put the firm back on a more appropriate pathto successfully achieve its strategic goals
Main cause of corporate decline ispoor managementPoor management manifests itself in:
Over-expansion or too rapid growth
Inadequate financial controls
Uncontrollable costs or too high costsInability to anticipate & deal with new competitors
Inability to anticipate unpredictable shifts in consumerdemand
Slow or no response to significant external or internalchanges
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Types of Renewal StrategiesRetrenchment Strategy
Common short-run strategy designed to address
organizational weaknesses and deficiencies that are
leading to performance declines
Slow down and catch your breath..
Functional improvement- cost
reduction(turnaround)Reducing functions/businesses divestment,
liquidation
Reducing products/markets
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Types of Renewal StrategiesTurnaround Strategies
A renewal strategy designed for situations where
the firms performance problems are more seriousbut not yet critical
Objective of turnaround strategies
Improve operational efficiency
Improve revenue and profitability of money loosing
businesses
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Types of Renewal Strategies
(Turnaround continued)Turnaround most appropriate when
Reasons for poor performance are short-term
Divestment doesn't make long-term sense
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Implementing the Renewal
StrategiesCost cutting
Costs are cut to revitalize the firmsperformance (retrenchment) or save the firm(turnaround)
Cost cutting can be approached from
Across-the-board all areas of the organization
Selective cuts selected areas of the organization
Strategic managers evaluate & eliminate waste,redundancies, & inefficiencies in work areas
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Implementing the Renewal
StrategiesRestructuring
Divestment: Selling off business to someone else
where it will continue as a going concernLiquidation: Shutting down the business
completely
Reengineering: Fundamental rethinking &
redesign of the organizations business processes
Downsizing: Laying-off employees
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Portfolio AnalysisThree main ones
The BCG (Growth-Share) Matrix:
Simple four-cell matrix created by the Boston Consulting
Group
A way to determine whether a business unit is a cash producer
or a cash user
McKinsey-GE Spotlight Matrix
A nine-cell matrix which provides a comprehensive analysis ofa business units internal (competitive strength) & external
(industry attractiveness) factors
Product-Market Evolution Matrix
A 15 cell matrix developed by C. W. Hofer
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BCG Growth-Share MatrixRelative Market Share Position
Industry
Growth
Rate
Question Marks
Or Cash Hogs
Dogs
Stars
Cash Cows
High ( > 1.0) 1.0 Low (< 1.0)
Low
10%
High
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BCG Growth-Share MatrixQuestion Marks or Cash Hog
Internal cash flows are inadequate to fully fund its
need for working capital & new capital investmentsParent company has to pump in capital to feed the
hog
Sometimes called problem children or wildcats
Strategic options
Aggressively invest in attractive cash hogs
Divest cash hogs lacking long-term potential
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BCG Growth-Share MatrixStars
Businesses that are market leaders
Usually in rapidly growing marketsAble to generate enough cash to maintain sharein the market, but sometimes requiressignificant investment to maintain market share
When market slows, stars become cash cowsStrategic options
Fortify & defend position in industry
Short-term priority
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BCG Growth-Share MatrixCash Cow
Businesses that generates cash surpluses over &above what is needed to sustain its present marketposition
Cash cow businesses are valuable because surpluscash can be used to
Pay corporate dividends
Finance new acquisitions
Invest in promising cash hogs
Strategic Objective
Fortify & defend present market position
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BCG Growth-Share MatrixDogs
Businesses with low market share & no
potential to bring in much cashRequires significant cash injection to maintain
position
Strategic options
Exit business by divesting or liquidating
Harvest if business is generating some profits
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McKinsey-GE Spotlight Matrix
Winners
Winners
Winners
AverageBusiness
Profit
Producers
Question
Mark
Losers
Losers
Losers
Business Unit Strength
Industry
Attractiveness
Low
Medium
High
Strong Average Weak
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Strategic Implications of Strength-
Attractiveness MatrixWinners
Given top investment priority
Strategic prescription isgrow & build
Question marks, Average, Profit producers
Given medium investment
Strategic prescription is invest to maintain positionLosers
Candidates fordivestment
May be candidates forturnaround
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Changing Corporate StrategiesChanges are needed if evaluation shows
Growth objectives are not being attained
Organizational stability causes firm to fallbehind
Corporate renewal efforts are not working
Possible Strategies to change
FunctionalCompetitive
Corporate direction
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