Strategic Management Page 91

Nama : Dedy Mulyadi Mujianto
Nim : 21702009
Akuntansi Semester VI
Tugas Manajemen Strategi

1. How does horizontal growth differ from vertical growth as a corporate strategy? How
does it differ from concentric diversification?
2. What are the trade-offs between an internal and an external growth strategy? Which
approach is best as an international entry strategy?
3. Is stability really a strategy or is it just a term for no strategy?
4. Compare and contrast SWOT analysis with portfolio analysis.
5. How is corporate parenting different from portfolio analysis and how is it similar to it? Is
it a useful concept in a global industry?
Answer :
1. Horizontal growth is the expanding of a firm's activities into other geographic regions
and/or by increasing the range of products and services offered to current markets. It
often involves the acquisition of another firm in the same industry (an example of
external growth), but it could also be through the expansion of a firm's products in its
current markets (e.g., through line extensions) or expansion into another geographic
region (an example of internal growth). One example of external horizontal integration
would be if Anheuser-Busch bought Coors. An internal example was Coors' expansion
into the eastern U.S. Vertical growth, in contrast, involves a firm's taking over a function
previously performed by a supplier or a distributor. This would typically involve the
addition of activities in other industries either forward (downstream) or backward
(upstream) on the industry value chain of current products or services. The additions are
primary justified in terms of support of the current product lines regardless of their being
in other industries (and thus can be argued to be diversification). Concentric
diversification, in contrast, is the addition of products or divisions which are related to the
corporation's main business, but are added because of the attractiveness of other
industries rather than because they support the activities of the current product lines. The
additions may be through acquisition or through internal development. The firm buys or
develops another division which is similar to its present product-line. Anheuser- Busch's
diversification into snack foods to complement its line of beers was an example of
concentric diversification. The products are not alike, but have a "common thread"
relating them. If Coca Cola bought RC Cola, it would be an example of horizontal
integration. If it purchased its distributors, this would be an example of forward vertical
Nim : 21702009
integration. Its acquisition of Taylor Wines, however, was an example of concentric
diversification.
2. Internal Growth :
Pros : More likely to be based on some proprietary development giving competitive
advantage; More likely to fit well with current business units/products; Can finance
slowly out of returned earnings; If plan no good, can always cut losses before in too deep.
Cons : May take a long time to develop a new product or new concept; May be hard to
get current managers to try something new; May ignore other uses of money with quicker
return; Favored program may take time away from current businesses.
External Growth :
Pros : Can grow quickly; Good way to use financial leverage to boost EPS; Don't have to
build anything from scratch; Can generate a lot of excitement on Wall Street and boost
stock price.
Cons : All or nothing gamble; Need a lot of money and/or financial moxie to do it right.;
Can purchase someone else's problems; 50% of all acquisitions fail to achieve the
purchaser's objective.
The same list of pros and cons fit an international entry strategy. Internal growth in the
form of a green-field development has an additional con of sometimes going against a
particular country's laws. External growth in the form of acquisitions has an additional
con of running up against a country's laws against foreigners purchasing total control of a
company important to national interests.
3. An argument can be made that stability is not really a strategy in itself, but is just a pause
between strategies. Since one way to view strategy is as a direction the corporation is
taking in order to reach its objectives, standing still has no direction and thus is not a
strategy. The text takes the position, however, that stability is a strategy in itself. Just as
no decision is the same as making a decision, it is argued that even though stability may
be viewed as not choosing a strategy, it is therefore a strategy by default. Stability may be
a very appropriate long-term strategy for a small business in which the owner/manager
does not want the corporation to grow beyond his/her abilities to manage it personally and
is very happy with the level of lifestyle the business provides. Typically, however,
stability is perceived only as a viable short-term strategy while strategic managers are
Nim : 21702009
waiting for key factors needed for growth to fall into place. Nevertheless, to the extent
that stability helps explain the movement of a corporation toward its objectives, it
deserves to be called a strategy.
4. A SWOT analysis is used at the level of the individual business to identify the company's
strengths and weaknesses, as well as external opportunities and threats. Portfolio analysis,
on the other hand, is performed at the market level by analyzing the performance of a
portfolio of stocks. A SWOT analysis is used to improve the performance of a specific
business, while a portfolio analysis is used to improve investments in several businesses.
Portfolio analysis is a method of mathematical modelling based in financial and economic
theory. Portfolio analysis relies purely on numbers without the need to make assumptions.
Conversely, a SWOT analysis combines both quantitative and qualitative measures. A
SWOT analysis will take cold hard facts, like financial data, but these must be interpreted
by the analyst who determines the strengths, weaknesses, opportunities and threats to the
business.
A SWOT analysis benefits a firm by allowing it to find potential opportunities in the
market that can be exploited using its strengths. It is, therefore, a very beneficial tool for
small businesses that are looking to expand. Portfolio analysis is generally used by
investors and fund managers, but it can also be used by businesses to determine their own
investments; for example, it can be used to select a portfolio of projects or external
businesses to invest in.
5. The basic difference between these two approaches to corporate strategy lies in the
questions they attempt to answer. According to the text, portfolio analysis attempts to
answer the following two questions:
 How much of our time and money should we spend on our best products and business
units in order to ensure that they continue to be successful?
 How much of our time and money should we spend developing new costly products,
most of which will never be successful?
The basic theme of portfolio analysis its emphasis on cash flow. Portfolio analysis puts
corporate headquarters into the role of an internal banker. In portfolio analysis, top
management views its product lines and business units as a series of investments from
which it expects to get a profitable return. The product lines/business units form a
Nim : 21702009
portfolio of investments which top management must constantly juggle to ensure the best
return on the corporation's invested money.
Corporate parenting attempts to answer two similar, but different questions:
 What businesses should this company own and why?
 What organizational structure, management processes, and philosophy will foster
superior performance from the company's business units?
Portfolio analysis attempts to answer these questions by examining the attractiveness of
various industries and by managing business units for cash flow, that is, by using cash
generated from mature units to build new product lines. Unfortunately, portfolio analysis
fails to deal with the question of what industries a corporation should enter or with how a
corporation can attain synergy among its product lines and business units. As suggested
by its name, portfolio analysis tends to primarily take a financial point of view and views
business units and product lines as if they were separate and independent investments.
Corporate parenting, in contrast, views the corporation in terms of resources and
capabilities that can be used to build business unit value as well as generate synergies
across business units. The central job of corporate headquarters is not to be a banker, but
to coordinate diverse units to achieve synergy. This is especially important in a global
industry in which a corporation must manage interrelated business units for global
advantage. Corporate parenting is similar to portfolio analysis in that it attempts to
manage a set of diverse product lines/business units to achieve better overall corporate
performance.

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Nama : Dedy Mulyadi Mujianto

Tugas Manajemen Strategi

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