strategies in corporate level strategy and industry attractiveness matrix
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Name : Pandu Bintang Hutomo
1. Strategies In Corporate Level
STRATEIES
ro!t" Strategies
All growth strategies can be classified into one of two fundamental categories:
concentration within existing industries or diversification into other lines of business or
industries. When a company's current industries are attractive, have good growth potential, and
do not face serious threats, concentrating resources in the existing industries makes good sense.
Diversification tends to have greater risks, but is an appropriate option when a company's current
industries have little growth potential or are unattractive in other ways. When an industry
consolidates and becomes mature, unless there are other markets to seek for example other
international markets!, a company may have no choice for growth but diversification.
"here are two basic concentration strategies, vertical integration and hori#ontal growth.
Diversification strategies can be divided into related or concentric! and unrelated
conglomerate! diversification. $ach of the resulting four core categories of strategy alternatives
can be achieved internally through investment and development, or externally through mergers,
ac%uisitions, and&or strategic alliances, thus, producing eight maor growth strategy categories.
(omments about each of the four core categories are outlined below, followed by some
key points about mergers, ac%uisitions, and strategic alliances.
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1. #erti$al Integration: "his type of strategy can be a good one if the company has a strong
competitive position in a growing, attractive industry. A company can grow by taking over
functions earlier in the value chain that were previously provided by suppliers or other
organi#ations )backward integration)!. "his strategy can have advantages, e.g., in cost,
stability and %uality of components, and making operations more difficult for competitors.
*owever, it also reduces flexibility, raises exit barriers for the company to leave that industry,
and prevents the company from seeking the best and latest components from suppliers competing
for their business.
A company also can grow by taking over functions forward in the value chain previously
provided by final manufacturers, distributors, or retailers )forward integration)!. "his strategy
provides more control over such things as final products&services and distribution, but may
involve new critical success factors that the parent company may not be able to master and
deliver. +or example, being a worldclass manufacturer does not make a company an effective
retailer.
-ome writers claim that backward integration is usually more profitable than forward
integration, although this does not have general support. n any case, many companies have
moved toward less vertical integration especially backward, but also forward! during the last
decade or so, replacing significant amounts of previous vertical integration with outsourcing and
various forms of strategic alliances.
%. Hori&ontal ro!t": "his strategy alternative category involves expanding the company's
existing products into other locations and&or market segments, or increasing the range of
products&services offered to current markets, or a combination of both. t amounts to expanding
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sideways at the points! in the value chain that the company is currently engaged in. /ne of the
primary advantages of this alternative is being able to choose from a fairly continuous range of
choices, from modest extensions of present products&markets to maor expansions each with
corresponding amounts of cost and risk.
'. Related (iversi)i$ation *a+a Con$entri$ (iversi)i$ation,: n this alternative, a company
expands into a related industry, one having synergy with the company's existing lines of
business, creating a situation in which the existing and new lines of business share and gain
special advantages from commonalities such as technology, customers, distribution, location,
product or manufacturing similarities, and government access. "his is often an appropriate
corporate strategy when a company has a strong competitive position and distinctive
competencies, but its existing industry is not very attractive.
-. nrelated (iversi)i$ation *a+a Conglomerate (iversi)i$ation,: "his fourth maor category
of corporate strategy alternatives for growth involves diversifying into a line of business
unrelated to the current ones. "he reasons to consider this alternative are primarily seeking more
attractive opportunities for growth in which to invest available funds in contrast to rather
unattractive opportunities in existing industries!, risk reduction, and&or preparing to exit an
existing line of business for example, one in the decline stage of the product life cycle!. +urther,
this may be an appropriate strategy when, not only the present industry is unattractive, but the
company lacks outstanding competencies that it could transfer to related products or industries.
*owever, because it is difficult to manage and excel in unrelated business units, it can be
difficult to reali#e the hopedfor value added.
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/ergers0 A$uisitions0 and Strategi$ Allian$es: $ach of the four growth strategy categories
ust discussed can be carried out internally or externally, through mergers, ac%uisitions, and&or
strategic alliances. /f course, there also can be a mixture of internal and external actions.
0arious forms of strategic alliances, mergers, and ac%uisitions have emerged and are used
extensively in many industries today. "hey are used particularly to bridge resource and
technology gaps, and to obtain expertise and market positions more %uickly than could be done
through internal development. "hey are particularly necessary and potentially useful when a
company wishes to enter a new industry, new markets, and&or new parts of the world.
Despite their extensive use, a large share of alliances, mergers, and ac%uisitions fall far
short of expected benefits or are outright failures. +or example, one study published in 1usiness
Week in 2333 found that 42 percent of alliances were either outright failures or )limping along.)
5esearch on mergers and ac%uisitions includes a 6ercer 6anagement (onsulting study of all
mergers from 2337 to 2334 which found that nearly half )destroyed) shareholder value8 an A. ".
9earney study of 22 multibilliondollar, global mergers between 233; and 2334 where ac%uisitions over ?77 million
from 233@ to 233> in which twothirds of the buyer's stocks dropped on announcement of the
transaction and a third of these were still lagging a year later.
6any reasons for the problematic record have been cited, including paying too much,
unrealistic expectations, inade%uate due diligence, and conflicting corporate cultures8 however,
the most powerful contributor to success or failure is inade%uate attention to the merger
integration process. Although the lawyers and investment bankers may consider a deal done
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"his second component of corporate level strategy is concerned with making decisions about the
portfolio of lines of business B/1's! or strategic business units -1's!, not the company's
portfolio of individual products.
=ortfolio matrix models can be useful in reexamining a company's present portfolio. "he
purpose of all portfolio matrix models is to help a company understand and consider changes in
its portfolio of businesses, and also to think about allocation of resources among the different
business elements. "he two primary models are the 1(C Crowth-hare 6atrix and the C$
1usiness -creen =orter, 23
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decrease the amount and breadth of diversification. t may involve closing out
some B/1's lines of business!, adding others, and&or changing emphasis among
B/1's.
nitiating actions to boost the combined performance of the businesses the company
has diversified into: "his may involve vigorously pursuing rapidgrowth strategies
in the most promising B/1's, keeping the other core businesses healthy, initiating
turnaround efforts in weakperforming B/1's with promise, and dropping B/1's
that are no longer attractive or don't fit into the corporation's overall plans. t also
may involve supplying financial, managerial, and other resources, or ac%uiring
and&or merging other companies with an existing B/1.
=ursuing ways to capture valuable crossbusiness strategic fits and turn them into
competitive advantages especially transferring and sharing related technology,
procurement leverage, operating facilities, distribution channels, and&or customers.
$stablishing investment priorities and moving more corporate resources into the
most attractive B/1's.
(I#ERSI7ICATI6N
"here are two diversification in corporate corporate level strategy :
Related (iversi)i$ation: n this alternative, a company expands into a related
industry, one having synergy with the company's existing lines of business, creating
a situation in which the existing and new lines of business share and gain special
advantages from commonalities such as technology, customers, distribution,
location, product or manufacturing similarities, and government access. "his is
often an appropriate corporate strategy when a company has a strong competitive
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position and distinctive competencies, but its existing industry is not very
attractive.
nrelated (iversi)i$ation : "his fourth maor category of corporate strategy
alternatives for growth involves diversifying into a line of business unrelated to the
current ones. "he reasons to consider this alternative are primarily seeking more
attractive opportunities for growth in which to invest available funds in contrast to
rather unattractive opportunities in existing industries!, risk reduction, and&or
preparing to exit an existing line of business for example, one in the decline stage
of the product life cycle!. +urther, this may be an appropriate strategy when, not
only the present industry is unattractive, but the company lacks outstanding
competencies that it could transfer to related products or industries. *owever,
because it is difficult to manage and excel in unrelated business units, it can be
difficult to reali#e the hopedfor value added.
%. Industr3 Attra$tiveness /atri8
ndustry attractiveness indicates how hard or easy it will be for a company to compete in the
market and earn profits. "he more pro)ita2le the industry is t"e more attra$tiveit becomes.
When evaluating the industry attractiveness, analysts should look how an industry will change in
the long run rather than in the near future, because the investments needed for the product
usually re%uire long lasting commitment.
ndustry attractiveness consists of many factors that collectively determine the competition level
in it. "heres no definite list of which factors should be included to determine industry
attractiveness, but the following are the most common: E2F
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Bong run growth rate
ndustry si#e
ndustry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of
substitutes and available complements use =orters +ive +orcesanalysis to determine
this!
ndustry structure use -tructure(onduct=erformance framework to determine this!
=roduct life cycle changes
(hanges in demand
"rend of prices
6acro environment factors use=$-" or =$-"$Bfor this!
-easonality
Availability of labor
6arket segmentation
http://www.strategicmanagementinsight.com/tools/porters-five-forces.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/porters-five-forces.html -
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"he vertical axis of the C$ & 6c9insey matrix is industry attractiveness, which is determined by
factors such as the following:
6arket growth rate
6arket si#e
Demand variability
ndustry profitability
ndustry rivalry
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1rand strength use brand value for this!
=rofitability of the company
(ustomer loyalty
05/ resources or capabilities use 05/ framework to determine this!
Oour business unit strength in meeting industrys critical success factors use (ompetitive
=rofile 6atrixto determine this!
-trength of a value chain use 0alue (hain Analysis and1enchmarking to determine this!
Bevel of product differentiation
=roduction flexibility
Advantages
*elps to prioriti#e the limited resources in order to achieve the best returns.
6anagers become more aware of how their products or business units perform.
ts more sophisticated business portfolio framework than the 1(C matrix.
dentifies the strategic steps the company needs to make to improve the performance of
its business portfolio.
http://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.htmlhttp://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.html -
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(isadvantages
5e%uires a consultant or a highly experienced person to determine industrys
attractiveness and business unit strength as accurately as possible.
t is costly to conduct.
t doesnt take into account the synergies that could exist between two or more business
units.
(i))eren$e 2et!een E /$9inse3 and BC matri$es
C$ 6c9insey matrix is a very similar portfolio evaluation framework to 1(C matrix. 1oth
matrices are used to analy#e companys product or business unit portfolio and facilitate the
investment decisions.
Competitive strengt" o) a 2usiness unit or a produ$t
Along the K axis, the matrix measures how strong, in terms of competition, a particular business
unit is against its rivals. n other words, managers try to determine whether a business unit has a
sustaina2le $ompetitive advantageor at least temporary competitive advantage! or not. f the
company has a sustainable competitive advantage, the next %uestion is: L+or how long it will be
sustainedMN
"he following factors determine the competitive strength of a business unit:
"otal market share
6arket share growth compared to rivals
http://www.strategicmanagementinsight.com/topics/competitive-advantage.htmlhttp://www.strategicmanagementinsight.com/topics/competitive-advantage.html -
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1rand strength use brand value for this!
=rofitability of the company
(ustomer loyalty
05/ resources or capabilities use 05/ framework to determine this!
Oour business unit strength in meeting industrys critical success factors use (ompetitive
=rofile 6atrixto determine this!
-trength of a value chain use 0alue (hain Analysis and1enchmarking to determine this!
Bevel of product differentiation
=roduction flexibility
Advantages
*elps to prioriti#e the limited resources in order to achieve the best returns.
6anagers become more aware of how their products or business units perform.
ts more sophisticated business portfolio framework than the 1(C matrix.
dentifies the strategic steps the company needs to make to improve the performance of
its business portfolio.
http://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.htmlhttp://www.strategicmanagementinsight.com/tools/vrio.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.htmlhttp://www.strategicmanagementinsight.com/tools/value-chain-analysis.htmlhttp://www.strategicmanagementinsight.com/tools/benchmarking.html -
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Rate t"e )a$tors."he next thing you need to do is to rate each factor for each of your
product or business unit. (hoose the values between P2 or P227, where P2 indicates
the low industry attractiveness and P or P27 high industry attractiveness.
Cal$ulate t"e total s$ores."otal score is the sum of all weighted scores for each business
unit. Weighted scores are calculated by multiplying weights and ratings. "otal scores
allow comparing industry attractiveness for each business unit.
ndustry attractiveness factor 1usiness nit 2 1usiness nit I
Weight 5ating Weighted -core 5ating Weighted -core
ndustry growth rate 7.I ; 7.> @ 2ndustry si#e 7.II ; 7.44 ; 7.44
ndustry profitability 7.2< 7.37 2 7.2 @ 7.4< @ 7.4
6arket segmentation 7.73 I 7.2< ; 7.I>
Total s$ore 1. %.= '.=%
"his is a tough task and one that usually re%uires involving a consultant who is an expert of the
industries in %uestion. "he consultant will help you to determine the weights and to rate them
properly so the analysis is as accurate as possible.
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Step %. (etermine t"e $ompetitive strengt" o) ea$" 2usiness unit
P-tep I is the same as P-tep 2 only this time, instead of industry attractiveness, the competitive
strength of a business unit is evaluated.
/a+e a list o) )a$tors.(hoose the competitive strength factors from our list or add your
own factors.
Assign !eig"ts. Weights indicate how important a factor is in achieving sustainable
competitive advantage. A number from 7.72 not important! to 2.7 very important!
should be assigned to each factor. "he sum of all weights should e%ual to 2.7.
Rate t"e )a$tors.5ate each factor for each of your product or business unit. (hoose the
values between P2 or P227, where P2 indicates the weak strength and P or P27
powerful strength.
Cal$ulate t"e total s$ores.-ee P-tep 2.
(ompetitive strength factor 1usiness nit 2 1usiness nit I
Weight 5ating Weighted -core 5ating Weighted -core
6arket share 7.II I 7.@@ I 7.@@
5elative growth rate 7.2< ; 7.@< I 7.;