MGMT 3000 1st Edition Lecture10 Outline of Last Lecture I Google s sustainable competitive advantage II 3 Steps of Strategy making process a Assessing need for change b Situational analysis c Choosing Strategic Alternatives Outline of Current Lecture I Corporate level strategies a Portfolio Strategy i Related Diversification ii Unrelated Diversification iii BCG b Grand Strategy i Stability ii Growth iii Retrenchment Current Lecture Corporate Level Strategies Overall organizational strategy that addresses the question what business or businesses are we in or should we be in Answer the questions What business are we in or should we be in How should we compete in the industry Who are our competitors and how should we respond to them Diversification A strategy for reducing risk by buying a variety of items so that failure of one stock does not doom down the entire portfolio Portfolio Strategy Corporate level strategy that minimizes risk by diversifying investments amount various businesses or product lines 1 Related diversification different business units share similar products manufacturing marketing technology or cultures a Key is to acquire and create new companies with core capabilities that complement core capabilities of business already in the portfolio These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 2 Unrelated Diversification Idea that company can reduce risk through acquiring companies in unrelated businesses a Different business units do not share similar products manufacturing marketing technology or cultures 3 BCG Boston Consulting Group Matrix Portfolio strategy that managers use to categorize their corporation s businesses by growth rate and relative market share helping them decide how to invest Idea of investing profits and cash flows from mature slow growth businesses into newer faster growing businesses in order to reduce risk 4 categories of businesses o Stars companies that have a large share of fast growing market Provide sizable future profits o Question marks companies that have a small share of a fast growing market Relative weakness in the market makes investing more risky o Cash cows companies that have a large share of slow growing market highly profitable o Dogs companies that have a small share in a slow growing market Recommends that cash flows from cash cows should be reinvested in stars o Overtime as market growth slows down stars will turn into cash cows Cash flows should also be directed towards questions marks pick those question marks that will become into stars Dogs should be closed down or sold to other companies Problems with Portfolio strategy 1 Unrelated diversification does not reduce risk 2 Present performance is used to predict future performance 3 Cash cows fail to aggressively pursue opportunities and defense themselves from threats 4 Being labeled a cash cow can hurt employee morale 5 Companies often overpay to acquire stars 6 Acquiring firms often treat stars as conquered foes According to the study Related diversification is the best portfolio strategy Grand Strategies Broad Strategic plan used to help an organization achieve its strategic goals Guide strategic alternatives that managers of individual businesses or subunits may use 3 Kinds of grand strategies o Growth Main goal to increase profits revenues market share etc in which he company does business Companies can grow organically or externally by merging with or acquiring other companies o Stability Continue doing what the company has been doing just better Seek to improve the way in which they sell products to same customers o Retrenchment Recovery Turn around very poor company performance by shrinking size or scope of business First step is significant cost reductions layoffs closing of poor stores The next step is recovery Strategic actions that company takes to return to growth strategy