Transcript Chapter 9 - 10 reduced.ppt

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Chapter 9-10
Corporate Level Strategy
Snack Foods
Frito-Lay North America
Frito-Lay International
Beverages
Foods
Quaker North America
Pepsi-Cola North America
Gatorade/Tropicana North America
PepsiCo Beverages International
Snack Foods
Frito-Lay North America
Lay’s
Ruffles
Doritos
Santitas
Fritos
Cheetos
Rold Gold
Funyuns
Sunchips
Cracker Jack
Chester’s popcorn
Grandma’s cookies
Munchos
Smartfood
Baken-ets fried pork skins
Oberto meat snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacks
Crujitos corn snacks
Fandangos corn snacks
Hamkas snacks
Niknaks cheese sticks
Quavers potato snacks
Sabritas potato chips
Twisties cheese snacks
Walkers potato crisps
Walkers Square potato snacks
Walkers Monster Munch Corn snacks
Miss Vickie’s potato chips
Gamesa cookies
Dippas
Sonric’s sweet snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacks
Crujitos corn snacks
Fandangos corn snacks
Hamkas snacks
Niknaks cheese sticks
Quavers potato snacks
Sabritas potato chips
Twisties cheese snacks
Walkers potato crisps
Walkers Square potato snacks
Walkers Monster Munch Corn snacks
Miss Vickie’s potato chips
Gamesa cookies
Dippas
Sonric’s sweet snacks
Beverages
Pepsi-Cola North America
Pepsi-Cola
Mountain Dew
Slice
Mug
Sierra Mist
FruitWorks
Lipton
Dole
Aquafina
Frappuccino
SoBe
AMP
Beverages
Gatorade/Tropicana North America
Gatorade
Propel
Tropicana
Dole juices
Beverages
PepsiCo Beverages International
Loóza juices and nectars
Copella juices
Frui’Vita juices
Tropicana 100 juices
Foods
Quaker North America
Quaker Oats
Cap’n Crunch cereal
Life cereal
Quisp cereal
King Vitaman cereal
Mother’s cereal
Quaker rice cakes and granola bars
Rice-A-Roni side dishes
Near East couscous/pilafs
Aunt Jemima mixes & syrups
Quaker grits
Foods
Business Level
Strategies
How are we going
to compete and
gain a competitive
advantage in
each of our
businesses?
Quaker North America
Quaker Oats
Cap’n Crunch cereal
Life cereal
Quisp cereal
King Vitaman cereal
Mother’s cereal
Quaker rice cakes and granola bars
Rice-A-Roni side dishes
Near East couscous/pilafs
Aunt Jemima mixes & syrups
Quaker grits
Snack Foods
Beverages
Foods
Corporate Level Strategy
1) What businesses do we want to compete in?
2) How do manage effectively across businesses
Where did they go?
Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the
businesses
Capturing synergies and turning them into
competitive advantages
Establishing investment priorities and
steering resources into business units
4 Corporate Level Strategies
•
•
•
•
Vertical Integration
Strategic Outsourcing
Horizontal Integration
Diversification – two or more different
businesses with distinct operations
1) Vertical Integration

Forward or backwards



Benefits





Full integration
Taper integration
Build barriers to entry
Facilitates investment in specialized assets
Protecting product quality
Improved scheduling
Risks



Costs
Rapid technological changes
Demand predictability
Alternatives to Vertical Integration
Competitive bidding
 Long term contracts or strategic alliances

Form of Relationship
Vertical
Integration
Hybrid &
Contracts/Alliances
Markets &
Competitive Bidding
2) Outsourcing
Cost reduction and differentiation
 Hold-ups, scheduling and hallowing out

3) Horizontal Integration

Acquiring or merging with industry
competitors
Reduce cost and economies of scale
 Increasing value through wider product line
or product bundling
 Manage industry rivalry
 Increase buyer and supplier power

4) How to Diversify?
1) Internal Development - corporate
entrepreneurship or internal venturing
able to appropriate a larger portion of wealth
 avoids complexities of multiple partners
 time consuming and requires diversity of
organizational capabilities

4) How to Diversify?
2) Strategic Alliances and Joint Ventures
 entering a new market via the combination of
complementary resources - do more together
 cost reduction & sharing
 development/diffusion of technology
Problems
 appropriate partners - skills and compatibility
 trust and commitment
 communication
Who Makes a Geo?
Geo Storm was actually manufactured by
Isuzu. The Storm is the Isuzu Impulse.
Geo Prizm = Toyota Corolla
Geo Tracker = Suzuki Sidekick
Geo Metro = Suzuki Esteem or Swift
w/hatchback
No Geo cars were actually made by
General Motors. They were all imported
from foreign manufacturers.
4) How to Diversify?
3) Mergers & Acquisition
Mergers & Acquisitions
Reasons of Acquisitions
Increase Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
Avoid Competition
Acquisitions
Reasons of Acquisitions
Problems with Acquisitions
Increase Market Power
Integration of two firms
Overcome Entry Barriers
Overpayment/Debt
Increased Speed
Overestimation of Synergy
Lower Risk
Overdiversification
Avoid Competition
Managerial energy absorption
Become too large
Substitute for innovation
Acquisitions
Reasons of Acquisitions
Problems with Acquisitions
Increase Market Power
Integration of two firms
Overcome Entry Barriers
Overpayment/Debt
Increased Speed
Overestimation of Synergy
Lower Risk
Overdiversification
Avoid Competition
Managerial energy absorption
Results
Poor
Performance
Become too large
Substitute for innovation
Who Wins?
Acquired Firm
Shareholders
Monday October 27th WSJ

Bank of American – Boston Fleet
Financial


Anthem – WellPoint Health Networks


BoA down $8.29, or 10%, BFF rose 23%
Anthem down 8.2%, WellPoint up 8.8%
United Health – MidAtlantic Med
Services
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UH down 4.9%, MAMS up 9.7%
Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months
following acquisitions
30 - 50% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by
4%
3 month performance before and after
 30% substantial losses, 20% some losses,
33% marginal returns, 17% substantial
returns
Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are
related
When do executives loss their jobs?
1) Acquired - larger firms harder to acquire
 2) Performing poorly - employment risk is
reduced as returns are less volatile

Related Diversification at Disney
Entertainment/Production
Theme Parks
Resorts
Entertainment/Broadcasting
Retailing
Cruise Lines
Levels of Diversification
Related Diversification - entering product markets
that share some resource or capability
requirements with the current business – horizonal
relationships across businesses - synergies
Advantages of related diversification include:
 Leveraging Core Competencies
 Sharing Activities
 Market Power
Tyco Electronics
Tyco Telecommunications
Tyco Fire and Security
Tyco Safety Products
Tyco Healthcare
Tyco Plastics
Tyco Adhesives
Tyco Flow Control
Tyco Electrical and Metal Products
Tyco Fire and Building Products
Tyco Infrastructure Services
Tyco
Limits itself to businesses that can be held
strictly accountable for a few key
financial measures
Mature, stable, low-tech industries which
face certain environments and little R&D
investments
Levels of Diversification (cont.)
Unrelated Diversification - few similarities in the
resources and capabilities required among the
firm’s businesses
Conglomerate Diversification - no relatedness
between businesses
When/Why to Diversify?
To create shareholder value
Porter’s Three Point Test
1) Attractiveness Test
2) Cost of Entry Test
3) Better off Test
Should pass all 3
Portfolio analysis
 BCG Growth-Share Matrix
 question marks, dogs, cash cows, stars
 GE- Nine Cell Matrix