Corporate Strategy
MGMT611: Strategy
Natalya Vinokurova
Corporate Strategy Session 15
1
Corporate Scope
Corporate center
Division A in industry a Division B in industry b Division C in industry c Division D in industry d
– The average U.S. Fortune 500 company operates in four different industries – Diversification is even more prominent in other parts of the world
• Grupos, chaebol, business houses, keiretsu, and so on
– Poor corporate strategy is common
“Excite, one of the leading Internet services companies, yesterday [received a] takeover offer from Zapata, a Texas-based group with holdings in marine protein and food packaging companies.
Citing the “excellent fit with Zapata’s new strategic direction,” Avram Glazer, Zapata’s chief executive officer, said the proposed transaction “makes sense for Excite’s shareholders because of the capital resources that Zapata can bring to Excite.”
Financial Times, May 22, 1998
2
What diversified corporation did this become?
3
Decomposition of Variance in Profitability: Evidence from the United States
Year 2% Industry 18%
Corporate parent 4% Transient 46%
• In the U.S., corporate strategy is typically the icing on the cake, not the cake itself – Business units must be competitive on their own merits – …in attractive industries • But the icing can make the decisive difference between a good cake and a bad one
Business segment 30%
Note: Ignores covariance terms; based on 58,132 observations of 12,296 business segments in 628 industries in the United States Source: Anita M. McGahan and Michael E. Porter, “How Much Does Industry Matter Really?” Strategic Management Journal, 1997
4
Decomposition of Variance in Profitability: Evidence from 14 Emerging Economies
• In much of the rest of the world, corporate strategy is more prominent • Membership in a diversified entity has a larger effect on profitability • The effect on profitability is more likely to be positive
Source: Tarun Khanna and Jan
Natalya Vinokurova
Corporate Strategy Session 15
1
Corporate Scope
Corporate center
Division A in industry a Division B in industry b Division C in industry c Division D in industry d
– The average U.S. Fortune 500 company operates in four different industries – Diversification is even more prominent in other parts of the world
• Grupos, chaebol, business houses, keiretsu, and so on
– Poor corporate strategy is common
“Excite, one of the leading Internet services companies, yesterday [received a] takeover offer from Zapata, a Texas-based group with holdings in marine protein and food packaging companies.
Citing the “excellent fit with Zapata’s new strategic direction,” Avram Glazer, Zapata’s chief executive officer, said the proposed transaction “makes sense for Excite’s shareholders because of the capital resources that Zapata can bring to Excite.”
Financial Times, May 22, 1998
2
What diversified corporation did this become?
3
Decomposition of Variance in Profitability: Evidence from the United States
Year 2% Industry 18%
Corporate parent 4% Transient 46%
• In the U.S., corporate strategy is typically the icing on the cake, not the cake itself – Business units must be competitive on their own merits – …in attractive industries • But the icing can make the decisive difference between a good cake and a bad one
Business segment 30%
Note: Ignores covariance terms; based on 58,132 observations of 12,296 business segments in 628 industries in the United States Source: Anita M. McGahan and Michael E. Porter, “How Much Does Industry Matter Really?” Strategic Management Journal, 1997
4
Decomposition of Variance in Profitability: Evidence from 14 Emerging Economies
• In much of the rest of the world, corporate strategy is more prominent • Membership in a diversified entity has a larger effect on profitability • The effect on profitability is more likely to be positive
Source: Tarun Khanna and Jan