Strategic Management: A Comprehensive Guide to Value Chains, Competitive Strategies, and Corporate Parenting
Value Chain and Center of Gravity
A value chain is a sequence of value-creating activities that transform raw materials into finished products or services. The center of gravity is the most critical part of the chain, where the company’s expertise and capabilities lie.
Sustainability of Distinctive Competency
Two characteristics determine the sustainability of a firm’s distinctive competency: durability and imitability. Durability refers to the rate at which the underlying resources and capabilities depreciate, while imitability measures the ease with which competitors can duplicate them.
Propitious Niche
A propitious niche is a highly favorable market segment that is well-suited to a firm’s internal and external environment. It is large enough to sustain the firm’s growth but not so large that it attracts significant competition.
Porter’s Generic Strategies
Porter’s generic strategies are four competitive strategies that firms can adopt to gain a competitive advantage:
- Cost leadership: Focuses on achieving the lowest cost structure in the industry.
- Differentiation: Creates a unique product or service that is perceived as superior by customers.
- Cost focus: Targets a specific market segment and focuses on achieving the lowest cost within that segment.
- Differentiation focus: Combines differentiation with a focus on a specific market segment.
Cooperative Strategies
Cooperative strategies involve working with other firms to gain a competitive advantage. The two main types of cooperative strategies are collusion and strategic alliances.
Types of Alliances
Businesses can engage in various types of alliances, including:
- Mutual service consortia
- Joint ventures
- Licensing arrangements
- Value-chain partnerships
Directional Strategy
Directional strategy refers to the overall direction of a company’s growth or retrenchment. The three general orientations of directional strategy are:
- Growth: Expanding the company’s activities.
- Stability: Maintaining the company’s current activities.
- Retrenchment: Reducing the company’s activities.
BCG Growth Share Matrix
The BCG Growth Share Matrix is a tool for analyzing a company’s product portfolio. It categorizes products into four quadrants based on their market share and growth rate:
- Question marks: High growth, low market share
- Stars: High growth, high market share
- Cash cows: Low growth, high market share
- Dogs: Low growth, low market share
Corporate Parenting
Corporate parenting focuses on the role of the parent corporation in creating value for its business units. It involves leveraging the parent’s resources and capabilities to support the growth and profitability of its subsidiaries.
Retrenchment Strategy
A retrenchment strategy is used when a company has a weak competitive position. Popular options include:
- Turnaround
- Becoming a captive company
- Selling out
- Bankruptcy
- Liquidation
Portfolio Analysis
Portfolio analysis involves evaluating a company’s product lines and business units as a portfolio of investments. Top management must allocate resources to ensure the best return on investment.
Stability Strategies
Stability strategies aim to maintain the company’s current position. Popular options include:
- Pause – proceed with caution
- No change
- Profit
Control
Proper control involves:
- Minimal information
- Meaningful activities
- Timeliness
- Long-term and short-term controls
- Exception pinpointing
- Rewarding success
Benchmarking
Benchmarking is a process of comparing a company’s performance to that of industry leaders. It involves:
- Identifying areas for improvement
- Measuring performance
- Selecting competitors
- Analyzing differences
- Developing improvement programs
- Implementing and evaluating programs