copyright 1998 by houghton mifflin company. all rights reserved. 9-1 chapter 9: corporate strategy...
TRANSCRIPT
Copyright 1998 by Houghton Mifflin Company. All rights reserved.
9-1
Chapter 9: Corporate Strategy -- Chapter 9: Corporate Strategy -- Vertical Integration, Diversification, Vertical Integration, Diversification,
and Strategic Alliancesand Strategic Alliances
Text byCharles W. L. HillGareth R. Jones
Multimedia Slides byMilton M. Pressley
Univ. of New Orleans
Copyright 1998 by Houghton Mifflin Company. All rights reserved.
9-2
PreviewPreview
Concentration on a Single Business
Vertical Integration Alternatives to Vertical
Integration: Cooperative Relationships and Strategic Outsourcing
Diversification Strategic Alliances as an
Alternative to Diversification
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9-3
Concentration on a Single Concentration on a Single BusinessBusiness
SEARSCoca-ColaCoca-Cola
McDonaldsMcDonalds
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Concentration on a Single Concentration on a Single Business Business (Continued)(Continued)
• Allows Company to Focus Allows Company to Focus Resources and Capabilities in Just Resources and Capabilities in Just One AreaOne Area
• Does Not Diversify Into Areas That Does Not Diversify Into Areas That It Knows Little About and Where It Knows Little About and Where Resources and Capabilities Add Resources and Capabilities Add Little ValueLittle Value
AdvantagesAdvantages
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9-5
Concentration on a Single Concentration on a Single Business Business (Continued)(Continued)
• Vertical Integration May Be Vertical Integration May Be Required to Create Value and Required to Create Value and Establish a Competitive AdvantageEstablish a Competitive Advantage
• Opportunities May Be MissedOpportunities May Be Missed
DisadvantagesDisadvantages
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Vertical IntegrationVertical Integration
• Vertical Integration DefinedVertical Integration Defined
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Figure 9.1: Stages in Figure 9.1: Stages in the Raw Material to the Raw Material to
Consumer Value Consumer Value ChainChainIntermediate
Manufacturer
RawMaterials
Assembly
Distribution
End User
Upstream Downstream
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IntelIntelMotorolaMotorola
Dow ChemicalsDow ChemicalsUnion CarbideUnion Carbide
BizmartBizmartComputer WorldComputer World
AppleAppleCompaqCompaq
ExamplesExamples
Figure 9.2: The Raw Material to Consumer Figure 9.2: The Raw Material to Consumer Value Chain in the PC IndustryValue Chain in the PC Industry
IntermediateManufacturer
IntermediateManufacturer
RawMaterials
Assembly
Distribution
End User
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Figure 9.3: Full and Taper Figure 9.3: Full and Taper IntegrationIntegration
Suppliers Suppliers CustomersCustomers
CustomersCustomers
A B C
A B C
Full Integration
Taper Integration
Suppliers Suppliers
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9-10
Creating Value Through Creating Value Through Vertical IntegrationVertical Integration
• Building Barriers to EntryBuilding Barriers to Entry• Facilitating Investments in Facilitating Investments in
Specialized AssetsSpecialized Assets• Protecting Product QualityProtecting Product Quality• Improved SchedulingImproved Scheduling
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Arguments Against Vertical Arguments Against Vertical IntegrationIntegration
• Cost DisadvantagesCost Disadvantages• Technological ChangeTechnological Change• Demand UncertaintyDemand Uncertainty
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Bureaucratic Costs and the Bureaucratic Costs and the Limits of Vertical IntegrationLimits of Vertical Integration
• Lack of Incentive to Reduce Lack of Incentive to Reduce Operating CostsOperating Costs
• Lack of Strategic Flexibility Lack of Strategic Flexibility in Times of Changing in Times of Changing TechnologyTechnology
• Uncertain DemandUncertain Demand
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9-13
Alternatives to Vertical Integration: Alternatives to Vertical Integration: Cooperative Relationships and Cooperative Relationships and
Strategic OutsourcingStrategic Outsourcing
• Short-Term Contracts Short-Term Contracts and Competitive Biddingand Competitive Bidding
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9-14
Alternatives to Vertical Integration: Alternatives to Vertical Integration: Cooperative Relationships and Cooperative Relationships and
Strategic OutsourcingStrategic Outsourcing
• Short-Term Contracts Short-Term Contracts and Competitive Biddingand Competitive Bidding
• Strategic Alliances and Strategic Alliances and Long-Term ContractingLong-Term Contracting
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Alternatives to Vertical Integration: Alternatives to Vertical Integration: Cooperative Relationships and Cooperative Relationships and
Strategic OutsourcingStrategic Outsourcing
• Hostage TakingHostage Taking• Credible CommitmentsCredible Commitments• Maintaining Market DisciplineMaintaining Market Discipline
– Periodic RenegotiationPeriodic Renegotiation– Parallel Sourcing PolicyParallel Sourcing Policy
Building Long-Term Building Long-Term Cooperative RelationshipsCooperative Relationships
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Alternatives to Vertical Alternatives to Vertical Integration: Cooperative Integration: Cooperative
Relationships and Strategic Relationships and Strategic OutsourcingOutsourcing
• OutsourcingOutsourcing• Virtual CorporationVirtual Corporation
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DiversificationDiversification
• Related Related Diversification Diversification
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DiversificationDiversification
• Related Related Diversification Diversification
• Unrelated Unrelated DiversificationDiversification
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Creating Value Through Creating Value Through DiversificationDiversification
• Acquiring and RestructuringAcquiring and Restructuring• Transferring CompetenciesTransferring Competencies• Economies of ScopeEconomies of Scope
DiversificationDiversification
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9-20
Bureaucratic Costs and the Bureaucratic Costs and the Limits of DiversificationLimits of Diversification
• Number of BusinessesNumber of Businesses• Coordination Among BusinessesCoordination Among Businesses
DiversificationDiversification
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9-21
Figure 9.4: Structure of a Company Sharing Figure 9.4: Structure of a Company Sharing Marketing Between Two Business UnitsMarketing Between Two Business Units
PackagedFood Products
Head Office
MarketingHouseholdProducts
Consumers
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Bureaucratic Costs and the Bureaucratic Costs and the Limits of Diversification Limits of Diversification
(Continued)(Continued)• Number of BusinessesNumber of Businesses• Coordination Among BusinessesCoordination Among Businesses
DiversificationDiversification
• Limits of DiversificationLimits of Diversification
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Diversification That Diversification That Dissipates ValueDissipates Value
• Diversification to Pool Diversification to Pool RisksRisks
• Diversification to Achieve Diversification to Achieve Greater GrowthGreater Growth
DiversificationDiversification
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9-24
Table 9.1: Comparing Related and Unrelated DiversificationTable 9.1: Comparing Related and Unrelated Diversification
Related and Unrelated Related and Unrelated DiversificationDiversification
Source ofBureaucratic
Costs
RelatedDiversification
RestructuringTransferring SkillsEconomies of
Scope
Number ofBusinesses
CoordinationAmong Businesses
Restructuring Number ofBusinesses
Ways ofCreating ValueStrategy
UnrelatedDiversification
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9-25
Strategic Alliances as an Strategic Alliances as an Alternative to DiversificationAlternative to Diversification• Strategic Alliance DefinedStrategic Alliance Defined• Advantages:Advantages:
– Firms May Create Value by Realizing Economies Firms May Create Value by Realizing Economies of Scopeof Scope
– Enable Companies to Swap Complementary SkillsEnable Companies to Swap Complementary Skills
• DisadvantageDisadvantage– Profits Must Be SplitProfits Must Be Split– Risk That One Firm May Give Away Critical Know-Risk That One Firm May Give Away Critical Know-
How That May Create a Competitor from the How That May Create a Competitor from the Alliance PartnerAlliance Partner
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9-26
Chapter SummaryChapter Summary
CONCENTRATION ON A
SINGLE BUSINESS
VERTICAL INTEGRATION
ALTERNATIVES TO VERTICAL INTE-
GRATION: COOPERATIVE
RELATIONSHIPS AND STRATEGIC
OUTSOURCING
DIVERSIFICATION
STRATEGIC ALLIANCES AS AN
ALTERNATIVE TO DIVERSIFICATION