Cheat sheet module 4 - Corporate strategy
Coase and Williamson
- Transaction costs = search, bargaining, enforcement costs. Market expensive: organise internally.
- Limit to size: overhead and errors. Coase: optimal balance internal/external. = first diversification driver.
- Williamson: opportunism with (1) few alternatives, (2) complex and changeable, (3) asset specificity.
- Vertical integration: backward (suppliers), forward (buyers). Otherwise outsourcing.
Ansoff matrix
| Direction | What | Watch out |
|---|---|---|
| Market penetration | existing product, existing market | retaliation, legal, economic constraints |
| Product development | new product, existing market | new resources, capabilities, project management |
| Market development | existing product, new users or geography | new market |
| Diversification | new product, new market (zone D) | unrelated (conglomerate); zones B and C = related |
Examples: Huizenga (industry roll-up), Apple, Catawiki, DSM.
Diversification drivers
Value-creating (4)
- Economies of scope (tangible, intangible).
- Stretching corporate management capabilities, limit = dominant logic (Prahalad and Bettis).
- Superior internal processes: internal capital market (miniature capital market).
- Market power: mutual forbearance, cross-subsidise, cheaper borrowing, bulk, large customer.
Value-destroying (3): market decline, spreading risk, managerial ambition. Lecturer: not always value-destroying (“potentially”).
Corporate parent
- Core question: what is the value of the head office?
- Adding value: envisioning, synergies, coaching, central services, intervening.
- Destroying value: management costs, bureaucracy, obscuring.
- Parenting advantage or market for corporate control.
| Role | Office | Emphasis |
|---|---|---|
| Portfolio manager | small | investing, intervening |
| Synergy manager | large | cooperation |
| Parental developer | large | own capabilities, downward |
Parenting-fit matrix (Campbell)
Fit with opportunities (horizontal) against misfit with KSFs (= critical success factors; vertical).
- Heartland: fit, no misfit.
- Edge of heartland: partial.
- Ballast: no fit, no misfit.
- Alien territory: no fit, misfit: divest.
- Value trap: fit, misfit on KSFs. Looks wonderful.
BCG matrix
Star, question mark, cash cow, dog. Criteria: balance, attractiveness, fit. Four problems: high/low, internal financing, motivation, ignored commercial linkages.
Chipotle and McDonald’s
1998 investment, 90 percent in 2005, failed franchises, McSplit. Parental developer, fit but misfit on KSFs: value trap, divest.
Exam
- No lecturer signal found; question 4 form: Coase, Ansoff, constraint, driver.
- Link to the book, English terms.