Dr,Jerry L,Huxell
Business Policies and Strategies
Situation Analysis and Strategy
Formulation
Dr,Jerry L,Huxell
Situation Analysis
? Process of finding a strategic fit between
external opportunities and internal strengths
while working around external threats and
internal weaknesses
? Should we invest more in our strengths or in
our weaknesses?
Dr,Jerry L,Huxell
Business Strategy
? Focuses on improving the competitive
position of a company’s products or
services within the specific industry or
market segment that the business serves.
? Can be competitive or cooperative
Dr,Jerry L,Huxell
Porter’s Generic Competitive Strategies
Dr,Jerry L,Huxell
Cost Leadership
? Low cost producer
? Broad mass market
? Efficient-scale facilities
? Process engineering skills
? Focus on cost reductions
? Tight financial controls
? Sustained capital investments
Dr,Jerry L,Huxell
Differentiation
? Unique product or service
? Broad mass market
? Brand image,technology,or distribution
? Ability to charge premiums
? Lower customer sensitivity to price
? Product engineering skills
? Strong marketing
Dr,Jerry L,Huxell
Corporate Strategy Issues
? Directional strategy – firm’s overall
orientation toward growth,stability,or
retrenchment
? Portfolio strategy – industries or markets in
which the company competes
? Parenting strategy – manner in which
management coordinates activities,transfers
resources,and cultivates capabilities
Dr,Jerry L,Huxell
Corporate Directional Strategies
Dr,Jerry L,Huxell
Growth Strategy Options
? Market penetration – increase market share
– Compete on product/service quality
– Compete on delivery time
? Market development – domestic and foreign
? Product development
? Diversification
Dr,Jerry L,Huxell
Reasons for Related Diversification
? Control of supplies
? Control of markets
? Access to information
? Cost savings
? Spreading risks
? Resource utilization
? Building on technology
Dr,Jerry L,Huxell
Reasons for Unrelated
Diversification
? Exploiting underutilized resources
? Escape from present business
? Spread risk
? Even out cyclical effects
? Need to use excess cash
? Personal values of powerful boss
Dr,Jerry L,Huxell
Portfolio Analysis
? Top management views its product lines
and business units as a series of investments
from which it expects a profitable return
? Popular approaches
– BCG Growth-Share Matrix
– GE Business Screen
Dr,Jerry L,Huxell
BCG Matrix
Dr,Jerry L,Huxell
General Electric’s Business Screen
A
Winners Winners
B
C
Question
Marks
D
F
Average
Businesses
E
Winners
Losers
G
Losers H
Losers
Profit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Source,Adapted from Strategic
Management in GE,Corporate Planning
and Development,General Electric
Corporation,Used by permission of
General Electric Company.
Dr,Jerry L,Huxell
Advantages of Portfolio Analysis
? Encourages evaluation of each business
individually
? Stimulates use of externally oriented data
? Raises the issue of cash flow availability for
expansion and growth
? Graphic depiction facilitates communication
Dr,Jerry L,Huxell
Disadvantages of Portfolio Analysis
? Not easy to define product/market segments
? Suggests use of standard strategies
? Provides an illusion of scientific vigor
? Uses value-laden terms
? Does not indicate the attractiveness of an
industry or position in product life cycle
Dr,Jerry L,Huxell
Strategic Alliances
? Obtain technology and/or capabilities
? Obtain access to specific markets
? Reduce financial risks
? Reduce political risks
? Achieve or ensure competitive advantage
Dr,Jerry L,Huxell
Global Strategy
? Gain access to new customers
? Gain access to low cost factors
? Diversify sales and suppliers
? Manage corporate risk
? Leverage core competencies
? Overcome trade restrictions
? Follow competitors
Dr,Jerry L,Huxell
Global Differences
? Languages
? Political systems
? Economic systems
? Legal systems
? Levels of economic development
? Government controls
? Currencies
Dr,Jerry L,Huxell
Global Differences (cont’d)
? Customer preferences and tastes
? Inadequate distribution channels
? Trade barriers
? Insufficient wealth
? Lack of hard currency
? Inability to extract money
Dr,Jerry L,Huxell
International Entry Strategies
? Exporting
? Licensing
? Franchising
? Joint Ventures
? Acquisitions
? Green-field Development
? Production Sharing
? Turnkey Operations - BOT
? Management Contracts
Dr,Jerry L,Huxell
Acquisitions
? This is the combination of two corporations where
one loses its corporate identity.
? Friendly or hostile.
? Surviving company acquires both assets and
liabilities of the other organization.
? Types – vertical,horizontal,product extension,
market extension,conglomerate
Dr,Jerry L,Huxell
Reasons for Acquisitions
? Reduce production and distribution costs
? Financial motivations
? Gain market power
? Eliminate inefficient management
? Ensure survival
? Free cash flow
? Potential for above normal profits
Dr,Jerry L,Huxell
Causes of Acquisition Failures
? Target management attitudes
? Premium price paid
? Cultural differences
? No post integration planning
? Lack of knowledge of industry
? Poor management of target
? No prior acquisition experience
Dr,Jerry L,Huxell
Mergers
? A merger is the combination of two
companies where a completely new
corporation is formed.
? Both old companies cease to exist.
? Shares for capital stock are exchanged for
shares in the new company.
Dr,Jerry L,Huxell
Reasons for Joint Ventures
? Share brands and distribution channels
? Wider product lines
? Influence industry structure’s evolution
? Preempt competitors
? Retain entrepreneurial employees
? Share risks/costs
? Obtain financing and other resources
Dr,Jerry L,Huxell
Retrenchment Strategies
? Portfolio or business restructuring
? Financial restructuring
? Operational restructuring
? Organizational restructuring
Dr,Jerry L,Huxell
Portfolio or Business Restructuring
? Significant changes in mix of assets or lines
of business in which the firm operates.
– Withdraw
– Divest
– Spin offs
– Turnaround
– Mergers and acquisitions
Dr,Jerry L,Huxell
Reasons for Withdrawal
? Product life cycle in decline phase
? Overextension of product ranges
? Selling price is high
? Raise funds for other investment
? Loss or low profitability
? Poor strategic fit
? Prior management’s,baby”
Dr,Jerry L,Huxell
Divestment
? The selling off of part of a business by its
management.
? Usually it is the result of restructuring and
rationalizing operations.
? It is a planned decision to ensure short and
long term term survival in the marketplace.
Dr,Jerry L,Huxell
Reasons for Divestment
? Underperformance
? No long term competitive advantage
? Strategic focus of parent has changed
? Absorbing too much management resources
? Parent may be too widely diversified
? Parent may need cash
? May be a defensive move
Dr,Jerry L,Huxell
Spin Off
? A form of divestiture in which an operating
unit becomes an independent company by
issuing shares on a pro rata basis to the
parent company’s shareholders.
Dr,Jerry L,Huxell
Reasons for Turnaround
? Internal
– Management
– Poor financial controls
– One time costs
– Decline in quality/service
? External
– Competition
– Market decline
– Increase in input costs
Dr,Jerry L,Huxell
Turnaround Action Plans
? Change top management
? Financial reorganization
? Install control systems
? Reduce assets
? Reduce costs
? Improve marketing effectiveness
Dr,Jerry L,Huxell
Financial Restructuring
? Significant changes in the capital structure
of a firm in order to reduce the interest
expenses and increase liquidity.
– Leveraged buyouts
– Debt for equity swaps
Dr,Jerry L,Huxell
Leveraged Buyout
? An acquisition technique involving the use
of a large amount of debt (typically 90%) to
purchase a firm.
? A large part of the borrowing is secured by
the acquired firm’s assets and lenders take a
portion of the equity.
Dr,Jerry L,Huxell
Debt for Equity Swaps
? The financial process of exchanging
outstanding debt for equity – preferred or
common stock – in the organization in order
to reduce interest expense.
? Provides time for management to
turnaround the organization.
? Lenders may have no other choice.
Dr,Jerry L,Huxell
Operational Restructuring
? Significant changes in the products,inputs,
processes,technology,and outputs.
– Products and design
– Make or buy - outsourcing
– Reengineering processes
– Locations,markets and channels
– Systems
Dr,Jerry L,Huxell
Organizational Restructuring
? Install the right leader
? Manage the change process
? Change the organizational culture
? Change the organization design – structure
and tasks
? Establish measurements
Dr,Jerry L,Huxell
Corporate Parenting
? Views the corporation in terms of resources
and capabilities that can be used to build
business unit value as well as generate
synergies across business units.
? Provide resources,transfer skills and
capabilities,coordinate shared unit
functions.
Dr,Jerry L,Huxell
Adding Value by Parent
? Efficiency/leverage
? Expertise
? Investment and competence building
? Fostering innovation/vision
? Mitigating risks
? Image/networks
? Standards/performance assessment
Dr,Jerry L,Huxell
What Really Works
? Strategy – a clearly stated,focused strategy
? Execution – flawless operational execution
? Culture – a performance-oriented culture
? Structure – a fast,flexible,flat organization
? Talent – hold on to and find talented employees
? Innovation – make industry-transforming
innovations
? Leadership – find leaders who are committed
Business Policies and Strategies
Situation Analysis and Strategy
Formulation
Dr,Jerry L,Huxell
Situation Analysis
? Process of finding a strategic fit between
external opportunities and internal strengths
while working around external threats and
internal weaknesses
? Should we invest more in our strengths or in
our weaknesses?
Dr,Jerry L,Huxell
Business Strategy
? Focuses on improving the competitive
position of a company’s products or
services within the specific industry or
market segment that the business serves.
? Can be competitive or cooperative
Dr,Jerry L,Huxell
Porter’s Generic Competitive Strategies
Dr,Jerry L,Huxell
Cost Leadership
? Low cost producer
? Broad mass market
? Efficient-scale facilities
? Process engineering skills
? Focus on cost reductions
? Tight financial controls
? Sustained capital investments
Dr,Jerry L,Huxell
Differentiation
? Unique product or service
? Broad mass market
? Brand image,technology,or distribution
? Ability to charge premiums
? Lower customer sensitivity to price
? Product engineering skills
? Strong marketing
Dr,Jerry L,Huxell
Corporate Strategy Issues
? Directional strategy – firm’s overall
orientation toward growth,stability,or
retrenchment
? Portfolio strategy – industries or markets in
which the company competes
? Parenting strategy – manner in which
management coordinates activities,transfers
resources,and cultivates capabilities
Dr,Jerry L,Huxell
Corporate Directional Strategies
Dr,Jerry L,Huxell
Growth Strategy Options
? Market penetration – increase market share
– Compete on product/service quality
– Compete on delivery time
? Market development – domestic and foreign
? Product development
? Diversification
Dr,Jerry L,Huxell
Reasons for Related Diversification
? Control of supplies
? Control of markets
? Access to information
? Cost savings
? Spreading risks
? Resource utilization
? Building on technology
Dr,Jerry L,Huxell
Reasons for Unrelated
Diversification
? Exploiting underutilized resources
? Escape from present business
? Spread risk
? Even out cyclical effects
? Need to use excess cash
? Personal values of powerful boss
Dr,Jerry L,Huxell
Portfolio Analysis
? Top management views its product lines
and business units as a series of investments
from which it expects a profitable return
? Popular approaches
– BCG Growth-Share Matrix
– GE Business Screen
Dr,Jerry L,Huxell
BCG Matrix
Dr,Jerry L,Huxell
General Electric’s Business Screen
A
Winners Winners
B
C
Question
Marks
D
F
Average
Businesses
E
Winners
Losers
G
Losers H
Losers
Profit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Source,Adapted from Strategic
Management in GE,Corporate Planning
and Development,General Electric
Corporation,Used by permission of
General Electric Company.
Dr,Jerry L,Huxell
Advantages of Portfolio Analysis
? Encourages evaluation of each business
individually
? Stimulates use of externally oriented data
? Raises the issue of cash flow availability for
expansion and growth
? Graphic depiction facilitates communication
Dr,Jerry L,Huxell
Disadvantages of Portfolio Analysis
? Not easy to define product/market segments
? Suggests use of standard strategies
? Provides an illusion of scientific vigor
? Uses value-laden terms
? Does not indicate the attractiveness of an
industry or position in product life cycle
Dr,Jerry L,Huxell
Strategic Alliances
? Obtain technology and/or capabilities
? Obtain access to specific markets
? Reduce financial risks
? Reduce political risks
? Achieve or ensure competitive advantage
Dr,Jerry L,Huxell
Global Strategy
? Gain access to new customers
? Gain access to low cost factors
? Diversify sales and suppliers
? Manage corporate risk
? Leverage core competencies
? Overcome trade restrictions
? Follow competitors
Dr,Jerry L,Huxell
Global Differences
? Languages
? Political systems
? Economic systems
? Legal systems
? Levels of economic development
? Government controls
? Currencies
Dr,Jerry L,Huxell
Global Differences (cont’d)
? Customer preferences and tastes
? Inadequate distribution channels
? Trade barriers
? Insufficient wealth
? Lack of hard currency
? Inability to extract money
Dr,Jerry L,Huxell
International Entry Strategies
? Exporting
? Licensing
? Franchising
? Joint Ventures
? Acquisitions
? Green-field Development
? Production Sharing
? Turnkey Operations - BOT
? Management Contracts
Dr,Jerry L,Huxell
Acquisitions
? This is the combination of two corporations where
one loses its corporate identity.
? Friendly or hostile.
? Surviving company acquires both assets and
liabilities of the other organization.
? Types – vertical,horizontal,product extension,
market extension,conglomerate
Dr,Jerry L,Huxell
Reasons for Acquisitions
? Reduce production and distribution costs
? Financial motivations
? Gain market power
? Eliminate inefficient management
? Ensure survival
? Free cash flow
? Potential for above normal profits
Dr,Jerry L,Huxell
Causes of Acquisition Failures
? Target management attitudes
? Premium price paid
? Cultural differences
? No post integration planning
? Lack of knowledge of industry
? Poor management of target
? No prior acquisition experience
Dr,Jerry L,Huxell
Mergers
? A merger is the combination of two
companies where a completely new
corporation is formed.
? Both old companies cease to exist.
? Shares for capital stock are exchanged for
shares in the new company.
Dr,Jerry L,Huxell
Reasons for Joint Ventures
? Share brands and distribution channels
? Wider product lines
? Influence industry structure’s evolution
? Preempt competitors
? Retain entrepreneurial employees
? Share risks/costs
? Obtain financing and other resources
Dr,Jerry L,Huxell
Retrenchment Strategies
? Portfolio or business restructuring
? Financial restructuring
? Operational restructuring
? Organizational restructuring
Dr,Jerry L,Huxell
Portfolio or Business Restructuring
? Significant changes in mix of assets or lines
of business in which the firm operates.
– Withdraw
– Divest
– Spin offs
– Turnaround
– Mergers and acquisitions
Dr,Jerry L,Huxell
Reasons for Withdrawal
? Product life cycle in decline phase
? Overextension of product ranges
? Selling price is high
? Raise funds for other investment
? Loss or low profitability
? Poor strategic fit
? Prior management’s,baby”
Dr,Jerry L,Huxell
Divestment
? The selling off of part of a business by its
management.
? Usually it is the result of restructuring and
rationalizing operations.
? It is a planned decision to ensure short and
long term term survival in the marketplace.
Dr,Jerry L,Huxell
Reasons for Divestment
? Underperformance
? No long term competitive advantage
? Strategic focus of parent has changed
? Absorbing too much management resources
? Parent may be too widely diversified
? Parent may need cash
? May be a defensive move
Dr,Jerry L,Huxell
Spin Off
? A form of divestiture in which an operating
unit becomes an independent company by
issuing shares on a pro rata basis to the
parent company’s shareholders.
Dr,Jerry L,Huxell
Reasons for Turnaround
? Internal
– Management
– Poor financial controls
– One time costs
– Decline in quality/service
? External
– Competition
– Market decline
– Increase in input costs
Dr,Jerry L,Huxell
Turnaround Action Plans
? Change top management
? Financial reorganization
? Install control systems
? Reduce assets
? Reduce costs
? Improve marketing effectiveness
Dr,Jerry L,Huxell
Financial Restructuring
? Significant changes in the capital structure
of a firm in order to reduce the interest
expenses and increase liquidity.
– Leveraged buyouts
– Debt for equity swaps
Dr,Jerry L,Huxell
Leveraged Buyout
? An acquisition technique involving the use
of a large amount of debt (typically 90%) to
purchase a firm.
? A large part of the borrowing is secured by
the acquired firm’s assets and lenders take a
portion of the equity.
Dr,Jerry L,Huxell
Debt for Equity Swaps
? The financial process of exchanging
outstanding debt for equity – preferred or
common stock – in the organization in order
to reduce interest expense.
? Provides time for management to
turnaround the organization.
? Lenders may have no other choice.
Dr,Jerry L,Huxell
Operational Restructuring
? Significant changes in the products,inputs,
processes,technology,and outputs.
– Products and design
– Make or buy - outsourcing
– Reengineering processes
– Locations,markets and channels
– Systems
Dr,Jerry L,Huxell
Organizational Restructuring
? Install the right leader
? Manage the change process
? Change the organizational culture
? Change the organization design – structure
and tasks
? Establish measurements
Dr,Jerry L,Huxell
Corporate Parenting
? Views the corporation in terms of resources
and capabilities that can be used to build
business unit value as well as generate
synergies across business units.
? Provide resources,transfer skills and
capabilities,coordinate shared unit
functions.
Dr,Jerry L,Huxell
Adding Value by Parent
? Efficiency/leverage
? Expertise
? Investment and competence building
? Fostering innovation/vision
? Mitigating risks
? Image/networks
? Standards/performance assessment
Dr,Jerry L,Huxell
What Really Works
? Strategy – a clearly stated,focused strategy
? Execution – flawless operational execution
? Culture – a performance-oriented culture
? Structure – a fast,flexible,flat organization
? Talent – hold on to and find talented employees
? Innovation – make industry-transforming
innovations
? Leadership – find leaders who are committed
