Chapter 15
Corporate strategy
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-1
Business and corporate strategy
• Business-level strategy:
– which strategy for this business?
– position on the quadrant?
• Corporate strategy:
– which businesses should we be in?
– how should growth be managed?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-2
5 types of corporate strategy
• Specialisation: expansion with narrow range of businesses
– Advantage: simplicity, focus
• Vertical integration: integration of suppliers and/or distributors
– Advantage: market power, control over resources
• Economies of scope: exploiting resources and capabilities
across businesses
– Advantage: leveraging value-added across activities
• Economies of search: leveraging distribution channels and
customer relationships
– Advantage: leveraging customer relationships
• Unrelated diversification: no relationship between businesses
– Advantage: risk management
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-3
Specialisation: examples
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-4
Vertical integration: example
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-5
Economies of scope: example
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-6
Economies of search: examples
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-7
Unrelated diversification: example
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-8
Mixing and matching
• Most firms develop a corporate strategy that
combines more than one type
• There is usually one ‘dominant’ corporate strategy
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-9
Mixing and matching: example
Casinos
& betting
TV Broadcasting
Magazines
events &
cinemas
Web
TV & cinema
production
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-10
15.3: WineRidge
• WineRidge’s corporate strategy:
– Is it a “pure” strategy or a combination?
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• What’s the dominant type?
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• What are the other types?
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Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-11
15.3: WineRidge
• WineRidge’s corporate strategy:
– Is it a “pure” strategy or a combination?
Combination of: specialisation (wine making in Australia + US
JV), vertical integration (grape growing, wine making, wholesale
distribution, internet retailing)
• What’s the dominant type?
Specialisation (wine making)
Grape growing is 10% of needs, internet retailing is small, so
vertical integration is not dominant.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-12
Corporate strategy: portfolio
• “Which businesses should we be in?”
• Generate answers using portfolio analysis: evaluate
the businesses one by one
• Two tools used, depending on corporate strategy:
– Unrelated diversification: BCG
– Other corporate strategies: McKinsey
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-13
BCG Matrix
Market Share
High
High
Stars
Stars
Low
Question
Ma
Question
marks
(faster than
the economy
as a whole)
Industry growth rate
Cash cows
Cash
Cows
Dogs
Dogs
Low
(slower than
the economy
as a whole)
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-14
BCG Matrix
• Growth rate as estimate of attractiveness
• Market share as proxy for profit potential
• Assumptions:
– businesses are independent one from another (no
synergies, no shared resources or capabilities)
– economies of scale
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-15
McKinsey Matrix
Business strength
Strong
Average
Weak
High
Winners
Winners
Question
marks
Industry
attractiveness Medium
Winners
Average
business
Losers
Profit
producers
Losers
Losers
Low
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-16
McKinsey Matrix
• Same as BCG, but:
– 3*3 design to look different
– qualitative, case-based evaluations
• Assumptions:
– Use external analysis (Porter’s 5 forces, PEST) to
evaluate attractiveness
– Use resource and capabilities analysis to evaluate
business strength (synergies, shared resources
and capabilities are possible)
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-17
15.9 Worked example: Woolworths
2000-2004
Supermarkets
Dick Smith/Tandy
Big W
Sector growth
High
Very High
Medium
Woolworths growth
+27% (>sector)
+40% (=sector)
+18% (<sector)
2004 sales
$22bn
$0.9bn
$2.7bn
2004 EBIT margin
4.0%
5.0%
4.3%
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-18
15.9 Worked solution
Business Strength
Industry Attractiveness
Strong
High
Medium
Average
Weak
DS/T
Supermarkets
BigW
Low
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-19
Matrices and lifecycle
Introduction
Growth
Maturity
Decline
Star
Cash cow
Sales
Dog
Question
mark
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-20
Signature brands
6 Pulp juice bars, Koala Blue wines, Ozi Varmints
kid’s clothing, Brian Rochford swimwear
Went bankrupt in 2006, lost $ millions
3 juice bars operating at a profit
all other businesses making a loss
3 bars sold as going concern. Rest will be liquidated
Overdiversification, poor portfolio management
15-21
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15.10 WineRidge
Position the businesses of WineRidge on the McKinsey matrix (grape
growing, Australian wines, international operations, on-line retail
distribution)
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-22
15.10 WineRidge
Position the businesses of WineRidge on the McKinsey matrix (grape
growing, Australian wines, international operations, on-line retail
distribution)
international
operations
on-line
retail
Australian
wines
grape
Copyright  2007 McGraw-Hill Australia
Pty Ltd
growing
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-23
15.10 WineRidge - justification
• Grape growing: dominant player (largest grape
grower) in an unattractive industry (oversupply)
• Australian wines: industry attractiveness is medium
(retailer power) and WineRidge is losing market
share at home
• International: attractive market in medium term (high
growth) WineRidge is the largest exporter (16%
growth)
• Online retail: potentially attractive (high margins), but
online achieves only small volumes at present (1%)
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-24
15.10 Recommendations
• Grape growing: reduce to supply premium wines only
• Australian wines: invest in marketing and distribution
to regain share in home market
• International: continue export growth, no further
investment abroad
• Online retail: no further investment until volume
growth is significant
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Strategic Analysis: A Guide to Practice, by Waldersee
Slides prepared by Robert Waldersee and Stephane Tywoniak
15-25