6. Strategy Execution

Question 1

How does the Corporation add value to its’ businesses?

Answer 1

• Overall corporate portfolio management (Planning models)
• Each individual business (Business strategy)
• Linkages among businesses (Corporate strategy)
• Corporate change (Strategy implementation)

Question 2

How does the Corporation add value to its’ businesses? - Portfolio management

Answer 2

• Corporate HQ primarily acts as an investor
• Making acquisitions and divestments
• Allocating investment funds among the different businesses

Question 3

How does the Corporation add value to its’ businesses? - Individual businesses

Answer 3

• Corporate HQ is involved more directly in adding value to businesses
• Improves the management of those businesses

Question 4

How does the Corporation add value to its’ businesses? - Linkages among businesses

Answer 4

• Corporate HQ primarily acts as coordinator and orchestrator
• Manages synergies between businesses
• Supports business strategy by sharing resources and transferring capabilities between businesses
• Centralization of common services (E.g. financial planning)

Question 5

Sources of Synergy within the corporation

Answer 5

• Shared corporate services
• Transferring skills between businesses
• Sharing resources and activities
• But! exploiting synergies is not costless

Question 6

Four Models of Corporate Value added

Answer 6

• 1. Active Portfolio Management -> Value creations for SH through analytical resources to identify attractive canditates/ Diversification through acquiring attractive companies/ Unit becomes autonomous and is not sold (passive investment)/ But(!) impossible to buy undervalued companies
• 2. Restructuring -> Value creations for SH (Virgin) through restructuring and finding candidates/ Diversification through acquisition of undeveloped corps/ After that business is sold/ But (!) strategy is identical with portfolio management if units don’t get sold afterwards
• 3. Proprietary Skill Transfer -> Value creations for SH through transferring unique skills across businesses/ Requires similar businesses, activities important for CA, to be a significant source for competitiveness/ But (!) must change strategy and identifying activities that leverage CA
• 4. Activity Sharing -> Value creations for SH through lowering costs (EOS, Efficiency) or raising differentiation/ Sharing CA increasing activities across businesses (Google, Disney)/ But (!) costs of shared activities must outweigh the costs involved

Question 7

Portfolio Planning

Answer 7

• Allocating resources
• Formulating business-unit strategy
• Setting performance targets
• Portfolio balance

Question 8

BCG Matrix still relevant?

Answer 8

• Questionable because of Increased speed of change, Unpredictability, Reduced importance of market share
• Unpredictability -> Needs to be applied with greater speed with more focus on innovation
• Reduced importance of market share -> Needs a new measure of competitiveness to replace its x-axis
• Too superficial -> More deeply embedding into organization’s behavior to be useful

Question 9

The Ashridge Matrix

Answer 9

• Parenting advantage = Parent companies create more value in their businesses than rivals would
• Parenting fit matrix = Focus on the fit between the business and the parent
• Parenting fit matrix = Y-Axis -> Misfit between critical success factors and parenting characteristics/ X-Axis -> Fit between parenting opportunities and parenting characteristics/ Heartland -> / Edge of Heartland -> / Value trap (right corner)-> / Alien territory (center) -> / Ballast (left corner) ->

Question 10

The GE/ McKinsey Matrix

Answer 10

• Industry Attractiveness Criteria = 1. Market size/ 2. Market growth/ 3. Industry profitability/ 4. Inflation recovery/ 5. Overseas sales ratio
• Business Unit Position = 1. Market share/ 2. Competitive position/ 3. Relative profitability

Question 11

Pros and Cons Portfolio planning models and strategy formulation

Answer 11

• Pros = 1. Simplicity/ 2. Big picture/ 3. Analytically versatile (vielseitig)/ 4. Can be augmented (Erweiterung möglich)
• Cons = 1. Oversimplification/ 2. Ambiguity (Zweideutigkeit)/ 3. Ignored synergies

Question 12

Corporate Divestitures Definition

Answer 12

• Growth strategies with high levels of divestitures

- Also other forms of corporate restructuring

Question 13

Forms of Corporate Divestitures

Answer 13

• Sell-off -> Sale to another company
• Spin-off -> The sold part will be listed on stock market and majority of shares of spun-off company offered to shareholders of parent company
• Equity Carve-out -> Subsidiary goes stock market but parent retains majority control over shares
• Tracking stock -> Special class of parent company shares issued to track performance of subsidiary
• Management buyout (MBO) -> The acquiring group is led by its own management and the company’s executives

Question 14

Why Corporate Divestures

Answer 14

• Managerial reasons -> 1. Unable to monitor divisional performance/ 2. Defense against hostile takeover
• Financial reasons -> 1. Get rid of low-performing businesses/ 2. Raise cash to fight financial emergency/ 3. Raise cash to pay for acquisition/ 4. Divested part will be better valued by stock market if standing alone
• Strategic reasons -> 1. Poor strategic fit of business/ 2. Unwanted part of an acquired firm/ 3. Divested business has better fit with another firm and seller can share the added value

Question 15

Implementing Corporate Strategy

Answer 15

• Execution is the result of thousands of decisions that imply self-interest and information available by employees
• Failed execution of strategy -> Actions related to Decision rights and Information flow are far more important than Motivators or Structure

Question 16

The Challenge of Leading Change

Answer 16

• Inertia (Trägheit) major problem of leading change
• The bigger and more complex the company the greater the forces of Inertia
• Kotter’s 8-Step Model = 1. Create/ 2. Build/ 3. Form/ 4. Enlist/ 5. Enable/ 6. Generate/ 7. Sustain/ 8. Institute

Question 17

Video BCG Matrix

Answer 17

• Developed to efficiently allocate financial resources along different business lines in order to maximize ROI
• X-Axis = Market share (MS)/ Y-Axis = Market growth (MG)
• Assumption = High market share means that firm is financially sustainable, but there are always exceptions
• 1. Dog -> Low MS, Low MG/ Firm generates low revenues and market is very competitive
• 2. Question Marks -> Low MS, High MG/ Firms Nightmare because they have to invest to see if product is successful/ Growth potential with less competition/ Most complex area
• 3. Stars -> High MS, High MG/ Market still expands/ Dominant player in market/ Product generates high revenues
• 4. Cash Cow -> High MS, Low MG/ High revenues with low growth rate/ Continuous cash flows without extra advertisement and promotion