Principles of Strategic Management: Strategic Alliances and M&A - Corporate Venturing and Internal, Development

What This Is

Corporate venturing and internal development refer to the strategic decisions companies make to create new business opportunities through internal innovation, partnerships, or investments. This involves identifying and capitalizing on emerging trends, technologies, or market gaps to drive growth and competitiveness. For instance, Amazon's acquisition of Zappos in 2009 and its subsequent integration into its e-commerce platform is an example of corporate venturing.

Key Frameworks & Tools

• BCG Matrix: A tool used to evaluate business units based on their market growth rate and relative market share. It categorizes businesses into four quadrants: Stars, Cash Cows, Question Marks, and Dogs.
• Ansoff Matrix: A framework for diversification strategies, which includes Market Penetration, Market Development, Product Development, and Diversification.
• Balanced Scorecard: A strategic management tool that evaluates performance from four perspectives: Financial, Customer, Internal Processes, and Learning and Growth.
• Resource-Based View (RBV): A framework that identifies and leverages a company's unique resources and capabilities to create sustainable competitive advantages.
• VRIO Framework: A tool used to evaluate the value of a company's resources and capabilities, considering their Valuability, Rarity, Imitability, and Organization (VRIO) ability to leverage them.
• Porter's Five Forces: A model that analyzes the competitive forces in an industry, including Threat of New Entrants, Buyer Power, Supplier Power, Threat of Substitutes, and Rivalry.
• Innovation Portfolio Matrix: A tool used to manage and prioritize innovation projects based on their potential impact and feasibility.
• Stage-Gate Process: A framework for managing the innovation process, which involves stages of idea generation, concept development, and commercialization.

Step-by-Step Application

1. Conduct a BCG Matrix Analysis:
   • Identify the market growth rate and relative market share of each business unit.
   • Plot the units on the BCG matrix.
   • Determine the strategic implications for each unit (e.g., invest, harvest, or divest).
2. Build a Balanced Scorecard:
   • Identify the company's strategic objectives.
   • Develop metrics for each of the four perspectives (Financial, Customer, Internal Processes, and Learning and Growth).
   • Establish targets and benchmarks for each metric.
3. Apply the Ansoff Matrix:
   • Identify the company's current business and market position.
   • Determine the desired level of diversification (Market Penetration, Market Development, Product Development, or Diversification).
   • Evaluate the potential risks and opportunities associated with each strategy.
4. Use the VRIO Framework:
   • Identify the company's resources and capabilities.
   • Evaluate each resource or capability based on its Valuability, Rarity, Imitability, and Organization (VRIO) ability to leverage it.
   • Determine the strategic implications for each resource or capability.
5. Analyze Porter's Five Forces:
   • Identify the competitive forces in the industry (Threat of New Entrants, Buyer Power, Supplier Power, Threat of Substitutes, and Rivalry).
   • Evaluate the intensity of each force.
   • Determine the strategic implications for the company.

Common Mistakes

• Mistake: Confusing industry attractiveness with competitive position.
• Correction: Industry attractiveness refers to the overall attractiveness of the industry, while competitive position refers to the company's relative position within the industry.
• Mistake: Using the wrong level of strategy (e.g., corporate strategy vs. business unit strategy).
• Correction: Corporate strategy focuses on the overall direction and scope of the company, while business unit strategy focuses on the specific goals and objectives of each business unit.
• Mistake: Failing to consider the company's resources and capabilities when evaluating strategic options.
• Correction: The company's resources and capabilities are essential in determining its ability to execute a particular strategy.

Case Interview / Exam Tips

• Common question patterns: Case interviews often involve analyzing a company's current situation and developing a strategic plan to address specific challenges or opportunities.
• Tricky distinctions: Be able to distinguish between related and unrelated diversification, as well as between differentiation and low-cost strategies.
• Framing answers: Use a clear and concise framework to structure your answer, and be prepared to defend your recommendations.

Quick Practice Scenario

A company has low market share in a high-growth industry – where does it sit on the BCG matrix?

Answer: The company would likely sit in the Question Mark quadrant, as it has low market share in a high-growth industry.

Last-Minute Cram Sheet

• BCG Matrix: Stars are high-growth and high-market share, while Dogs are low-growth and low-market share.
• Ansoff Matrix: Market Penetration involves increasing market share in a existing market, while Product Development involves introducing new products to existing markets.
• Balanced Scorecard: The Financial perspective focuses on financial performance, while the Customer perspective focuses on customer satisfaction.
• VRIO Framework: A resource is Valuable if it provides a competitive advantage, Rare if it is unique, Imitable if it can be easily replicated, and Organization (VRIO) if the company can leverage it.
• Porter's Five Forces: The Threat of New Entrants is high in industries with low barriers to entry.
• Innovation Portfolio Matrix: The matrix is used to prioritize innovation projects based on their potential impact and feasibility.
• Stage-Gate Process: The process involves stages of idea generation, concept development, and commercialization.
• Stuck in the middle' means trying to do both cost leadership and differentiation without achieving either – not a valid hybrid strategy unless operational excellence is present.