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Scope for the exam

1. 2. 3. 4. Parenting Competitive strategy (as per 2011) Other strategy principles (from competitive to corporate strategy Porter) Chaos and Complexity

1.

Parenting What is the parenting advantage? The parenting advantage is creating more value than your competitors would with the same businesses. For example would eBay (previous owner of Skype) or Microsoft (current owner of Skype) create more value owning Skype. Chances are Microsoft will create more value so they would have the parenting advantage over eBay in this case. It is also about asking following questions:

1. Which businesses should we own rather than our competition and why? 2. What is the best configuration, processes or structure to foster superior performance? 3. Is there a good fit between the skills of the parent and the needs of the business? The last question is the most important, if you do not have skills or resources that the acquired business needs then there is little point owning it and you are actually more likely to destroy value. So how does a corporate parent assess which businesses to own? Step 1: Understand the critical success factors (CSF) of the business, what really makes a successful business. For example in the hotels market one CSF might be product branding or site selection. Step 2: Assess the parenting opportunities i.e. is there any upside? An inefficient business might have a lot of upside but some businesses will be so well run and financed that there is little opportunity. Step 3: Understand the characteristics of the corporate parent. Describe theirs skills, experience, structure, processes, and employees. Step 4: Map these onto the parenting grid.

Understanding the parenting grid

You should focus your attention on businesses in the heartland and possibly those on the edge of the heartland. Edge of heartland business can be moved into the heartland when the parent learns the new CSF over time. The ballast businesses have little upside but can be a reliable source of earnings (cash cow). Those businesses in the alien territory and value trap should be avoided at all costs, as they will be a drain on resources and very distracting! Remember it is much easier to change the portfolio to match the parent, changing the parent to match the portfolio is much, much harder. 1. Businesses 2 2.1 Parenting advantage Characteristics of businesses Business Skype Online services Parenting opportunities Skpe was struggling with traffic management Innovation Critical success factors (industry of the business) Traffic management Ability to run on multiple platform Windows (Windows operating system) Server and Tools (Windows server, Ms Visual Studio, MS SQL) Online services (Bing, Hotmail, Skype) MS Business Division (MS Office, MS Project, MS CRM) Entertainment and Devices (Xbox, Windows Phone, Surface)

2.2

Characteristics of Microsoft (parent) a) Mental maps Values Success formula Innovation Software engineering experts Learning economies of scale Leadership

Biases Rules of thumb Aspirations b) Functions and services c) Decentralization contracts d) Systems, processes and structure e) People and skills Leadership, exceptional software engineering skills. Finance Release OS and Office products at regular intervals.

Technology Parenting characteristics Maps Databases Infrastructure

Social mediat Characteristics CSF (first year explains this) Technology speed, transferability Mobile social media
SWOT analysis for Skype

Scalability

Hardware Software

Development skills Skills supports the development Networks, every country, speed Data

Value creation insights Heartland businesses

(Once off benefit vs ongoing benefit) Porter argues that you need both, especially the ongoing benefit.

Porter asks: What is the corporate going to do for the acquired company? What is the corporate going to benefit going to obtain from this company? Attractiveness test! talk about the 5 forces, the cost and differentiation strategies, the value chain Cost of entry premium that does not erode future profits.

In conclusion

REO Asset velocity ROA

Chaos and complexity


External Value Proposition mission/vision Strategy Implementation/ execution Review

Internal

Resources/ capabilities

Resource Based view

1. Self organising 2. Synergies look for a mutual arrangements or forced arrangements