STRATEGIC EXAM 2- CHP. 6

Why has strategic restructuring of companies become so common in the past few years?

- Stakeholders push managers to restructure to save their ROI -with so much diversifying, managers may feel as if their organization is out of control -high levels of debt due to acquisitions

Strengths of Concentration Strategies

- allows organization to master one business -better position and develop resources -more profit than corporate level strategies

Problems with Chp 11 Reorganizaiton

- can be expensive -Managerial discretion and flexibility are reduced; after all filing, all major restructuring decisions are subject to court approval

Problems with the BCG Matrix

- overly simplified (only 2 factors considered and 2 divisions) - growth rate is oversimplified and market share is inadequate barometer of competition - all based on past instead of future - difficult to define (numerous markets and factors)

Types of Divestitures

-Spin off -Sell off

Industry Attractiveness is assessed by:

-evaluating the power of suppliers and consumers -level of competitive rivalry - threat of substitutes -height of entry barriers - amount of regulation - power of unions -rate of growth

Risks/Weaknesses of Concentration Strategies

-product obsolescence - industry maturity - limited ability to switch to other areas when time gets rough because of limited experience -May not provide enough challenge or stimulation to managers -technological advances are causing convergence especially in reservations and the level of tech

As organizations evolve, they go through different phases/period. What are these?

1. Convergence 2. Reorientation (radical adjustment) 3. Convergence Period 2

Strategic Restructuring (Renewal)

1. Turnaround 2. Refocusing on distinctive competencies (downscoping) 3. Changes to organizational design 4. chp. 11 reorganization

How do companies Reduce organizational layers and unproductive activites? TWO WAYS

1. redesign functional organizations into cross-functional teams 2. use technology to improve data dissemination and decision making

Common restructuring approaches:

1. turnaround strategies and downsizing 2. refocus on corporate assets on distinctive competencies 3. changes to organization design 4. chp 11 reorganization

Concentration Strategies

A strategy in which an organization concentrates on its primary line of business and looks for ways to meet its growth goals by expanding its core business

Business Growth Rate

Growth rate of the industry

Sell Off Divestitures

a business unit is sold to another firm or, in case of leverage buy out, to the business units manager

Reorientation

a significant realignment of the organizations strategies, structures, and processes with new environmental realities also referred to as Transformation, renewal, reorientation, restructuring

Concentration

a type of corporate level strategy where someone only opens one hotel, restaurant, or casino, in a limited market - associated with a narrow business def.

High levels of debt are often associated with _________________________.

acquisitions

Divestitures (demerger)

action or process of selling a subsidiary business investment or interest a reverse acqusition

Dogs

least attractive type of business

Portfolio Management

refers to managing the mix of businesses in the corporate portfolio and helps mangers to make decisions on how to divide organizational resources among diversified units, where to invest new capital, and which businesses to divest

Vertical Integration is determined by

the degree to which a firm owns its upstream suppliers and downstream buyers

Concentration Strategy

A strategy in which an organization concentrates on its primary line of business and looks for ways to meet its growth goals by expanding its core business least complicated of corporate strategies

Vertical Integration Strategies

A strategy in which an organization grows by gaining control of its inputs(backward integration), its outputs(forward integration), or both.

Changes to Organizational Design

As organizations diversify, top managers have a more difficult time processing the vast amounts of diverse information that are needed to properly control each business -move to a more decentralized product/market= managers will have more control

Related Diversification

Diversification that stems from common markets, functions served, technologies, or services

Chp. 11 Reorganization

Provides a proceeding for an organization to work out a plan or arrangement for solving its financial problems under the supervision of a federal court intended for debtors who feel they can solve their financial problems under their own if given sufficient time and if relieved of some pressure

Continuous restructuring is a good idea and essential to remaining competitive

TRUE

Downsizing doesn't always decrease expenses and can sometimes increase them

TRUE

Research hasn't necessarily found vertical integration to be more profitable than corporate level strategies.

TRUE

Example of Vertical Integration

TUI AG opened its own travel agents, hotels, airlines, and cruise ships so the company has positioned itself to be its own supplier and buyer of travel services

BCG Matrix is based on two factors:

business growth rate relative market share

Relative Market Share

calculated as the ratio of the business unit's size of its largest competitor represent stars, dogs, question marks, and cash cows

Turnaround Strategies

can involve workforce reductions, selling assets to reduce debt, outsourcing unprofitable activities, implementation of tighter cost and quality controls new policies that emphasize quality or effieceincy

Boston Consulting Group (BCG)

created the most simple and widely used portfolio model

Market Saturation

excess resources that they need to find a use for or some other reason As companies grow, they often abandon their concentration strategies because of market saturation

Stars

greatest potential for growth and high profit but can become a cash cow over time

One of the central ideas of the BCG Matrix

high market share leads to high profit due to learning effects, experience effects, entry barriers, market power, etc.

Cash cow

high profit and superior market share

Example of Spin off

if a shareholder owns 100 shares of XYZ company and the company spins off the business unit J, the shareholder would then own 100 shares of XYZ company and 100 shares of an independently operated company J

Downscoping

involves selling off nonessential business that are not related to the organization's core competencies and capabilities -increased by innovation

Business Process Reengineering

involves the radical redesign of core business processes to achieve dramatic improvements in productivity cycle times and quality. Companies start with a blank sheet of paper and rethink existing process, typically placing increased emphasis on customer needs.

Refocusing Corporate Assets

most restructuring companies are moving in the direction of reducing their diversification, as opposed to increasing it. Refocusing entails trimming the businesses that are not consistent with the strategic direction of the organization

Leaner

must successful restructuring efforts result in a leaner (fewer employees and less capital equipment) less diversified organization or product

Unrelated Diversification

not based on commonality among the activities of the corporations

A company that is fully VERTICALLY INTEGRATED would handle all of its activities by?

obtaining raw materials though delivery of the finished product

Restructuring

often involves reducing the business definition, combined with refocusing efforts on the things the organization does well. Downscoping is an example of this

For Instance, the stock market tends to react ________ to divestitures linked to corporate and business level strategies and _____________ to divestitures that are portrayed as simply getting rid of unwanted assets

positively negatively

Question Marks

potential to become stars

At the corporate level, primary strategy formulation responsibilities include:

setting the direction of the entire organization -forming a corporate strategy -selecting businesses in which to compete with -selecting tactics growth and diversification

Who usually pushes corporate-level managers to restructure?

stakeholders of the company

From a portfolio-management perspective, businesses that are in a ______________ competitive position in an attractive industry should be given the _______________ priority with regard to resource allocation

strong highest

Spin off Divestitures

the current shareholders are issued a proportional number of shares in the spun off business

Convergence Stages

the organization makes minor changes to strategies in effort to adapt, but for the most part follow a consistent approach structure is more or less stable, performance is acceptable, managers develop mental models can carry on indefinitely

Who forms the corporate strategy?

CEO & other top managers

Corporate Strategy

Concerned with the broad and long-term choices of what business(es) the organization is in or wants to be in, and what it wants to do with those businesses.