Video Transcript: Lecture 8

Hello. So we are talking about selecting corporate level strategies today. So  we're going to define it. We're going to talk a little bit about what the  diversification is. We're going to talk about how to implement a corporate  strategy. Talk about strategies for getting smaller, and then we'll do some  portfolio planning and corporate level strategies as well. So I started out to say  this, it's a lot. That is a lot, but we're going to get through it. We are going to try  and use some of these examples. I know I tend to go back to the same  examples, but that's because these companies are the largest in the world. For  a reason, they they are doing very, very well with for themselves in areas of  innovation or in areas of strategy, in areas of marketing, in all these different  areas, and that's why they're the largest and having so much success right now.  But as we've seen with others, I've certainly used Kodak as an example, things  can change on a dime, and if you're a winner today, you may be a loser  tomorrow, if you don't have a good strategy, if you don't do good planning, if you  don't look at internal and external factors, if you're not willing to adapt and  change, if you don't manage your people well and your resources. Well, if you're not constantly looking for that competitive advantage and leveraging your  strengths, then then you can certainly find yourself in a bad position soon. So  you know what I what I would say is that it's important to have a good strategy.  So things, things that we need to consider is, what is corporate strategy?  Corporate Strategy is specific actions that are taken by a business. You gain a  competitive advantage by selecting and managing a group of different  businesses in several industries or product markets. So corporate level strategy, really people are trying CEOs, executives, the brain trust of the corporation is  trying to answer two basic questions, and those, what business should we be in, and how should we manage the portfolio to achieve synergy and create value.  And then part of that, what geography should we be in, what range of products  should we offer, and what stage of industry value can we offer, and what can we  participate in? So the book defines this term synergy, and in the business  context, it means cooperations or interactions between two or more business  units so they can perform more effectively together than they would if they are  independent. So I work and have done work for organizations that do not  understand synergy very well, and they treat every unit as a separate unit. And  instead of working together to maximize value, they use one unit which may be  more profitable than the other new unit to fund that other unit. And certainly  there are problems with that. Some of the ways to help that is to do things like,  you know, combine certain functions so human resources functions can be  across all the companies. Certainly accounting and finance can be across all the companies and and there's some other administrative positions that could be  across all the companies as well. So one of the foundational things, and we will  talk about, is diversification, and that's, how do you diversify, and in doing so,  how do you create that synergy that we're talking about. So you know, the book 

talks about Berkshire Hathaway as an example of that, where they own as  many, many diverse areas as possible. They own businesses and real estate,  insurance, railroad, all kinds of businesses. Disney is another one that has  diversified with their Disney Plus app that is a separate, separate thing. It  diversified its value training and that that gave it a place for the video content  that they create, the content that they create, a place for that to work. So there  are three kinds of diversification. There's related diversification, and that's  diversifying into businesses in the same industry, like Volkswagen and Aldi.  There's unrelated diversification that that would be like Amazon buying whole  foods that is completely different, or the Washington Post, those are completely  different businesses. Actually, I need to correct myself, Amazon does not own  the Washington Post. Bezos does. And then there's a geographic diversification  as well, which is operating on different geographic markets. So the goal, again,  is to get as efficient and effective as possible in these in these models. So you  want to achieve that synergy. So Porter. We talked about Porter a lot because  Porter, really, Michael Porter is a rock star. He is the person who, when it comes  to strategy, there, the name Michael Porter is well known. In fact, if you've never  seen a picture of Michael Porter since we talk about every single one of his  strategies, let's, let's bring him up. There's Michael Porter, so he's at Harvard  Business School. That is him. He's a nice, smiley man, but he's an economist,  and he has brought economic theory and strategy this has to bear on a bunch of markets. Yeah, that's a blah, blah, blah, but Michael Porter is one of the  foremost strategists of our time, really, he really, really is. So his book on  competition is a very, very good one, if you never read it. And then, obviously,  he's written a lot of books, you can see here a lot of journal articles. There's a lot of his work is out there, and it goes on and on and on and on and on and on and on and keeps going on and on and on and on and on. The point is, and look,  you can click on this. It says all publications. The point is, is that Michael Porter  is a rock star, and we can go through his 47 pages of publications alone and  teach a class. So you'll hear Porter refer to a lot, but anyway, Porter said that if  you are going to do a diversification move, you have to figure out how attractive  the industry that you're considering entering is, how much it will cost, and really  honestly, and it's what it boils down to is, will it make you better, and will you be  better off by entering in that market, or will you not be and that's one of the  considerations. Now, sometimes you won't enter in a market because they'll give you a competitive advantage, and that certainly could be a reason to to engage  in diverse diversification, excuse me, so related diversification is when a firm  moves into a new industry that has important similarities. So Disney buying ABC is certainly one of them. You will see things like in the makeup space is the  example that's in the book, and that's pretty good example. You will see here  that they certainly have bought a bunch of a bunch of products Estee Lauder  did, which have helped them. Okay, so let's move past that, and let us move to 

unrelated. And then you, you may have heard the term, don't put all your eggs in one basket. It's a you know, because then if you fall, they're going to break. So  you want to diversify. And you may have that. You may have heard this even  when people are talking about your retirement strategy and they talk about  diversifying your portfolio. Speaking of which, I wonder whether. I wonder how  the stock market is doing, but diversification of your portfolio so you don't want  to put all your assets in, let's say, in Apple, because if Apple goes away  tomorrow, then then you are in trouble. So you want to make sure that maybe  you have a little bit of stock in Apple, but then you have a little bit of stock in, I  don't know, in Target, and then you have a little bit of stock in maybe Amway,  maybe you have a little bit of stock in and then you name the company, name  the company, name the company, and you want to have a bunch of different  things. So if Apple went away, you would still be okay, and you would still retain  the majority of your wealth. Well, that's kind of the same idea when it comes to  diversification, and you want to and we're talking about unrelated diversification,  that's kind of the same idea. So, you know, we mentioned Berkshire. We will talk about them again right now. So you can see here that Berkshire includes things  like general reinsurance and Geico. But that is not the only thing they have.  They also have other things. They have energy holdings. They have retail  holdings. They have apparel business. They have flight safety. They have See's  candies. It's funny that it says Buffett, Warren Buffett, who's the owner of  Berkshire, has a sweet tooth for See's Candies. They have the railroads, and  then they have pampered chef, which is the direct kitchen seller. So you can see there that Berkshire is really a good example of an unrelated diversification  strategy. But what's interesting about Berkshire is not they're just not going out  there and saying, oh, okay, I want this company. I want this company. I want this company. They're being very, very smart about how they do it. Something else,  the book mentioned this one as well. By Coca Cola bought Columbia Pictures.  Again, it's the same. Thing is the more you have, then you're ensuring that your  company is set up for success, and you're hedging and protecting yourself if  something were to happen, your whole business does not go away. Geographic  diversification, if you think about some places that use international expansion  as well as domestic expansion. Certainly, McDonald's comes to mind. I have  never been in a country where I've not been able to find either a Pizza Hut or a  McDonald's. Granted, I've not been in every country in the world, but so far, I am however many countries I've been to, 100% success rate that I can find either a  Kentucky Fried Chicken or a McDonald's or a Pizza Hut in that country. You  know it's interesting is in a in the US in America, there's this big chain called  TGIF, and it's a food place, and you can go in there, it's kind of like an  Applebee's or Chili's, and it's TGIF. Thank goodness it's Fridays and you go in  there and get food. I was overseas in where was I was in Dubai, I think, I think it  was Dubai, and there was a TGIT. Thank goodness it's Thursdays. So it's same 

company, obviously, but because the weekend is different than it shifted, but I  was I was very surprised. And I don't know that was years ago, but I was very  surprised. I was overseas to see not only TGIF, but a TGIT so anyway, there's  geographic diversification as well. Something else to think about is mergers and  

acquisitions. ExxonMobil is one. I don't have my ExxonMobil card, but  ExxonMobil is one where Exxon and Mobil was merged, and Exxon and Mobil  merged, Starbucks acquired Seattle's Best Coffee. There you go. So that's that's another merger and acquisition. Hewlett Packard is one diamond, coal, Chrysler. These are sprint T Mobile is obviously one that was recent, that just happened,  and there's been some other ones that have been proposed as well. So these  are mergers and acquisitions. The thing about that's interesting about sprint T  Mobile is right now a lot of people probably remember that, but in 30, 40, 50  years, when sprint becomes begins to fade from people's memory as a wireless  carrier, then they're gonna, I think people be surprised to learn that that T Mobile acquired sprint. So when the names don't combine, it's, it's a little it's a little  harder. So that's, that's a way. Mergers and acquisitions, obviously, is a way to  it's a way to acquire companies with a different expertise if you don't have it. It's  a way to begin to open yourself up to different markets and different things, just  by acquiring companies. And again, Berkshire Hathaway is a good example of  that. And we talked about them, vertical integration. The book uses American  Apparel as an example of that, and they talk about backward vertical integration, which is entering a supplier's business and then using the employees  manufacturing where that happens. And then, you know, they keep pace. It  takes, it takes only a couple weeks to go from idea to retail floor. And then they  use Ford vertical integration, where they enter a buyer's business and they have 250 plus company owned stores worldwide. So what's really cool about that,  and what really struck me about this, and the reason why I'm highlighting it, is  the idea of two weeks, or three weeks, or a very short amount of time you go  from idea to the retail store, I think that is just incredible. Another one. And  actually I mentioned here is oil companies, how they're involved in all the  processes, refining all the way down. And sometimes you'll see that in the  seafood industry as well, where commercial companies will own the processing  plants and those kind of things, and have that vertical integration strategy. So  there is also backward vertical integration strategy, and that means moving back along the value chain and entering a supplier's business. So if you think that a  supplier has too much power over your firm, they can control things. I believe, in an earlier lecture, I talked about wiring harnesses, and if you're the only person  that provides wiring harnesses, then you have incredible power that gives you  incredible power over your competitors, over everybody. So that might be a  reason why somebody would go backward and acquire that business and  remove that power from the supplier, begin to create their own one by creating  subsidiaries that then provide those products to that company. So wiring 

harness is one example. But certainly if you think about automobiles, you can  think about the gas to rubber. I mean the windows to rubber, the glass to rubber, that kind of thing. Ford Vertical integration is when instead of going back along  the value chain, you move forward in the value chain. So if you think about it,  vertical integration, you have the retail stores that that. What that does is that  prevents buyers from being part of the process, and that allows you to control  your product. So if you have a bunch of buyers that that come out and say, No, I  don't want this, I want this. I don't want this. I don't want this, well, if you control  that, then you can control what products gets in front of the consumers. Apple is  big in this area as well. Okay, so there's different ways to do a diversification  strategy. We've talked about some of these. We talked about merger and  acquisition. There's joint ventures, which we talked about last lecture, where,  you know, pharmaceuticals maybe would come together to look at building  something. They also may enter into a strategic alliance. And then there's this  idea as internal development, which I have not talked about. And this would be  where a company decides to enter into a new business itself. So instead of,  instead of acquiring a business, they will enter into it themselves. You have to  have a strong and entrepreneurial orientation in order to do that. And one really  good example of a company that does this quite a bit is Google, which  incentivizes their employees and incentivizes people to to do it. And you know  what, I was mistaken. It's not Google. It is actually. It is actually alphabet, ABC.  So So Google is part of the parent company, alphabet, which gives a lot of  innovation to a lot of people and allows them to do some pretty cool things. So  Google is certainly an example of not only innovation, but it is a very good  example of. Of that kind of strategy that we're just talking about, which is internal development. Apple is another example of that. So because we've already  talked about strategic alliance a little bit, I'm just going to focus on the definition,  which is a mutually beneficial relationship between two organizations. So if you  have ever been into a Barnes and Noble, you'll notice they sell Starbucks coffee, and that would be an example. A lot of university campuses also have strategic  alliances with Barnes and Noble and their book business joint venture is when  two companies come together to birth a third company. So the example in the  book, and since I was wearing the shirt yesterday, I might as well use it is  Embraer is a company as well as Boeing, and they came together to start a third company, and they're going to get into the smaller passenger plane market by  doing so. So that's a joint venture. And again, it's another way to diversify and  mergers and acquisitions. We talked about M and A a lot, and that is where,  basically you just acquire a business and you merge with another company to  form a different company, Exxon Mobil being an example. So there are reasons  that you are big and you may want to get smaller. You know, there's spin offs.  There's some examples in the book, but I want you to do a little bit of research  here, so I'm not going to mention any outside of the book, but, but think about 

companies that have spun off from other companies. So maybe I will give you  one. Let me bring it up. Forgive me for one second while I bring it up. Okay, so I  was going to bring up, I was going to bring up the website, but it's not very clear  by eBay. One of the spin offs from eBay has been PayPal, so that's an example  of a spin off, but it's not very clear on the on the website, so we'll, we'll move  past that, but think about other spin offs. And certainly, if you did a Google  search, you can find some good ones, but spin offs are very valuable, and  there's reasons you do that. Maybe you do that because it's not part of your  strategy or five year outlook. Maybe you do that because you want to get  smaller, because of market forces or pressures, or you want to avoid  monopolies, or whatever the reason may be. There are certainly reasons why  people spin off their companies and sell off parts of their business. Lockheed  Martin is an example of a company that has done that. I worked for a group of  Lockheed Martin's, which called the mission Services Division A few years ago,  and that was spun off, and another company was formed, and it was sold off,  and Lockheed Martin decided that it wasn't part of their long term strategy to  continue in that space, part of that mission Services Division, which ironically, I  should have seen it coming, because we changed names from Mission services  to IS and GS to something else. Anyway, we changed names like five or six  times before eventually they were spun off. Let's see. So one of the things  Boston Consulting Group, they have a matrix which helps people to do some  corporate level strategy. And it helps, it helps define this. They have that cash  cow, which is the high market share the dogs, which is the low market share, the stars, which have high market share, units within fast growing industries, and in  question marks, which is not known. So looking at the time, what I don't want to  get into too much detail on this. But what I do want to say about it is that when  you're looking at it and you're thinking about it, you got to think about the matrix,  which is, you know, what is your strategy going to be? Which is high, high  industry growth rate, low relative market share. That means question marks  should be resolved whether to foster sell these units. So you got to decide if it  makes sense for you to keep it or whether it makes sense to to get rid of it  again. You know, if it's a low grade a growth industry with a low relative market  share, you need to get rid of it immediately. Certainly that would apply to older  technology as well. You don't see many cassette manufacturers anymore, or  many people that are manufacturing CD players or things like that. So you have  to, you can use this matrix and these and this idea of stars or dogs or cash cows to decide whether you need to get rid of a business. So that is it. So I know we  went through Especially that last part a little bit quicker, but the point is, is that,  and I hope the point you're getting is that there's a lot to think about with all this  stuff, right? So, so when you have a company, you and you got to think about,  where do you want to enter? What is the, what is the competitive advantage that you're trying to get by buying a certain company? So Berkshire Hathaway 

obviously has diversified holdings. Somebody at Ford might want to look at the  value chain and move back in the value chain and buy things because they don't want their suppliers to have power. Or somebody like Disney may move forward  in the supply chain because they don't want buyers to have too much power,  and they don't want them to tell them what they have to do. So certainly there  are reasons and strategy behind every decision you make. And you know, just  talking about those dogs one more time, if something is not making you money,  you need to get rid of it right away. So Lockheed Martin certainly did that with  what was the mission services group, and spun it off and let it do its own thing,  and, and, and that was a decision they made. And that is fine. It certainly  fostered innovation and spurred innovation and new companies and new growth and individuals with entrepreneurial spirit who then took over some of those  businesses that existed. So strategy, corporate level strategy, it's a lot, it's a lot  to think about. And I don't know if we always sit back and think about some of  the moves that are made from these successful companies. Next we're going to  talk about competing in international markets. So that will be interesting. There's different frameworks, there's different drivers to success, and there's different  options when it comes to operating in those kind of in those kind of markets. So  looking forward to discussing that with you here as soon as you complete this  module, so as we do every time, let us close in prayer. Heavenly Father, thank  you for the opportunity to come together today. Lord, I pray that anything that  may be weighing on our classmates mind, anything as they're going through the  material that's serving as a distraction or as a roadblock to their learning. Lord, I  pray that you will remove it. Lord, I pray that you will give each person a special  blessing today. Lord, you will help them to know that they are loved. You will give them an opportunity to know that they are loved and Lord, I pray that you will  bless this class, and you will continue to bless the material that we're learning in  Jesus name we pray amen. Thank you so much, and I will see you back here for number nine.