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Each Corporation has a different strategy depending on the situation and external conditions of "PESTEL". Please read the corporate strategy material and explain what strategies are carried out by the amazon company.

Each Corporation has a different strategy depending on the situation and external conditions of "PESTEL". Please read the corporate strategy material and explain what strategies are carried out by the amazon company.

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Each Corporation has a different strategy depending on the situation and external conditions of "PESTEL". Please read the corporate strategy material and explain what strategies are carried out by the amazon company.

different business strategies so that the corporation as a whole succeeds as a "family."2 Corporate strategy, therefore, includes decisions regarding the flow of financial and other resources to and from a company's product lines and business units. Through a series of coordinating devices, a company transfers skills and capabilities developed in one unit to other units that need such resources. In this way, it attempts to obtain synergy among numerous product lines and business units so that the corporate whole is greater than the sum of its individual business unit parts. All corporations, from the smallest company offer- ing one product in only one industry to the largest conglomerate operating in many indus- tries with many products, must at one time or another consider one or more of these issues. To deal with each of the key issues, this chapter is organized into three parts that examine corporate strategy in terms of directional strategy (orientation toward growth), portfolio analysis (coordination of cash flow among units), and corporate parenting (the building of corporate synergies through resource sharing and development).“ Directional Strategy Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation toward growth by asking the following three questions: CHAPTER 7 Strategy Formulation: Corporate Strategy 227 1. Should we expand, cut back, or continue our operations unchanged? 7-2. Apply the direc- tional strategies of growth, stability, 2. Should we concentrate our activities within our current industry, or should we diver- sify into other industries? 3. If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances? and retrenchment to the organizational environment in which they work best A corporation's directional strategy is composed of three general orientations (some- times called grand strategies): - Growth strategies expand the company's activities. · Stability strategies make no change to the company's current activities. · Retrenchment strategies reduce the company's level of activities. Having chosen the general orientation (such as growth), a company's managers can select from several more specific corporate strategies such as concentration within one product line/industry or diversification into other products/industries. (See Figure 7-1.) These strategies are useful both to corporations operating in only one industry with one product line and to those operating in many industries with many product lines. GROWTH STRATEGIES By far, the most widely pursued corporate directional strategies are those designed to achieve growth in sales, assets, profits, or some combination of these. Companies that do business in expanding industries must grow to survive. Continuing growth means increasing sales and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits. This cost reduction becomes extremely important if a corporation's industry is growing quickly or consolidating and if competitors are engaging in price wars in attempts to increase their shares of the mar- ket. Firms that have not reached “critical mass" (that is, gained the necessary economy of production) face large losses unless they can find and fill a small, but profitable, niche where higher prices can be offset by special product or service features. That is why Oracle has been on the acquisition trail. In the past four years the company has added 31 new companies to the organization focused on four major areas (Applications, Middleware, Industry Solutions, and Servers/Storage/Networking). Although still grow- ing, the software industry is dominated by a handful of large firms. According to CEO Larry Ellison, Oracle needs to grow by buying smaller and weaker rivals if it wants to compete with SAP and Microsoft. Growth is a popular strategy because larger busi- nesses tend to survive longer than smaller companies due to the greater availability of financial resources, organizational routines, and external ties. FIGURE 7-1 Corporate Directional Strategies • GROWTH • STABILITY • RETRENCHMENT Concentration Vertical Growth Horizontal Growth Diversification Concentric Pause/Proceed with Caution No Change Profit Turnaround Captive Company Sell-Out/Divestment Bankruptcy/Liquidation Conglomerate PART 3 Strategy Formulation A corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances. In practice, the line between mergers and acquisitions has been blurred to the point where
Transcribed Image Text:different business strategies so that the corporation as a whole succeeds as a "family."2 Corporate strategy, therefore, includes decisions regarding the flow of financial and other resources to and from a company's product lines and business units. Through a series of coordinating devices, a company transfers skills and capabilities developed in one unit to other units that need such resources. In this way, it attempts to obtain synergy among numerous product lines and business units so that the corporate whole is greater than the sum of its individual business unit parts. All corporations, from the smallest company offer- ing one product in only one industry to the largest conglomerate operating in many indus- tries with many products, must at one time or another consider one or more of these issues. To deal with each of the key issues, this chapter is organized into three parts that examine corporate strategy in terms of directional strategy (orientation toward growth), portfolio analysis (coordination of cash flow among units), and corporate parenting (the building of corporate synergies through resource sharing and development).“ Directional Strategy Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation toward growth by asking the following three questions: CHAPTER 7 Strategy Formulation: Corporate Strategy 227 1. Should we expand, cut back, or continue our operations unchanged? 7-2. Apply the direc- tional strategies of growth, stability, 2. Should we concentrate our activities within our current industry, or should we diver- sify into other industries? 3. If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances? and retrenchment to the organizational environment in which they work best A corporation's directional strategy is composed of three general orientations (some- times called grand strategies): - Growth strategies expand the company's activities. · Stability strategies make no change to the company's current activities. · Retrenchment strategies reduce the company's level of activities. Having chosen the general orientation (such as growth), a company's managers can select from several more specific corporate strategies such as concentration within one product line/industry or diversification into other products/industries. (See Figure 7-1.) These strategies are useful both to corporations operating in only one industry with one product line and to those operating in many industries with many product lines. GROWTH STRATEGIES By far, the most widely pursued corporate directional strategies are those designed to achieve growth in sales, assets, profits, or some combination of these. Companies that do business in expanding industries must grow to survive. Continuing growth means increasing sales and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits. This cost reduction becomes extremely important if a corporation's industry is growing quickly or consolidating and if competitors are engaging in price wars in attempts to increase their shares of the mar- ket. Firms that have not reached “critical mass" (that is, gained the necessary economy of production) face large losses unless they can find and fill a small, but profitable, niche where higher prices can be offset by special product or service features. That is why Oracle has been on the acquisition trail. In the past four years the company has added 31 new companies to the organization focused on four major areas (Applications, Middleware, Industry Solutions, and Servers/Storage/Networking). Although still grow- ing, the software industry is dominated by a handful of large firms. According to CEO Larry Ellison, Oracle needs to grow by buying smaller and weaker rivals if it wants to compete with SAP and Microsoft. Growth is a popular strategy because larger busi- nesses tend to survive longer than smaller companies due to the greater availability of financial resources, organizational routines, and external ties. FIGURE 7-1 Corporate Directional Strategies • GROWTH • STABILITY • RETRENCHMENT Concentration Vertical Growth Horizontal Growth Diversification Concentric Pause/Proceed with Caution No Change Profit Turnaround Captive Company Sell-Out/Divestment Bankruptcy/Liquidation Conglomerate PART 3 Strategy Formulation A corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances. In practice, the line between mergers and acquisitions has been blurred to the point where
niche where higher prices can be offset by special product or service features. That is why Oracle has been on the acquisition trail. In the past four years the company has added 31 new companies to the organization focused on four major areas (Applications, Middleware, Industry Solutions, and Servers/Storage/Networking). Although still grow- ing, the software industry is dominated by a handful of large firms. According to CEO Larry Ellison, Oracle needs to grow by buying smaller and weaker rivals if it wants to compete with SAP and Microsoft. Growth is a popular strategy because larger busi- nesses tend to survive longer than smaller companies due to the greater availability of financial resources, organizational routines, and external ties.6 FIGURE 7-1 Corporate Directional Strategies • GROWTH • STABILITY • RETRENCHMENT Concentration Vertical Growth Horizontal Growth Diversification Concentric Pause/Proceed with Caution No Change Profit Turnaround Captive Company Sell-Out/Divestment Bankruptcy/Liquidation Conglomerate PART 3 Strategy Formulation A corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances. In practice, the line between mergers and acquisitions has been blurred to the point where it is difficult to tell the difference. In general, we regard a merger as a transaction involving two or more corporations in which both companies exchange stock in order to create one new corporation. Mergers that occur between firms of somewhat similar size are referred to as a “merger of equals." Most mergers are "friendly"–that is, both parties believe it is in their best interests to combine their companies. The resulting firm is likely to have a name derived from its composite firms. One of the largest such mergers was between Heinz and Kraft Foods in 2015 that formed the new company Kraft Heinz Company. That merger cre- ated a company with annual revenues of over US$28 billion.’ An acquisition is a purchase of another company. In some cases, the company continues to operate as an independent entity and in others it is completely absorbed as an operating subsidiary or division of the acquiring corporation. In July 2015, Duke Energy acquired Piedmont Natural Gas, making the latter a wholly owned unit of Duke Energy. With the acquisition, Duke Energy tripled the number of natural gas customers it served and took more control of a key resource for electricity production. Acquisitions usually occur between firms of different sizes and can be either friendly or hostile. Hostile acquisitions are often called takeovers. From management's perspective (but perhaps not a stockholder's), growth is very attractive for two key reasons: 1 Growth based on increasing market demand may mask flaws in a company-flaws that would be immediately evident in a stable or declining market. A growing flow of reve- nue into a highly leveraged corporation can create a large amount of organization slack (unused resources) that can be used to quickly resolve problems and conflicts between departments and divisions. Growth also provides a big cushion for turnaround in case a strategic error is made. Larger firms also have more bargaining power than do small firms and are more likely to obtain support from key stakeholders in case of difficulty. I A growing firm offers more opportunities for advancement, promotion, and inter- esting jobs. Growth itself is exciting and ego-enhancing for everyone. The market- place and potential investors tend to view a growing corporation as a “winner" or "on the move." Executive compensation tends to get bigger as an organization increases in size. Large firms are also more difficult to acquire than smaller ones- thus, an executive's job in a large firm is more secure. The two basic growth strategies are concentration on the current or innovative product line(s) in one industry and diversification into other product lines or other industries. Concentration If a company's current product lines have real growth potential, the concentration of resources on those product lines makes sense as a strategy for growth. The two basic concentration strategies are vertical growth and horizontal growth. Growing firms in a growing industry tend to choose these strategies before they try diversification. Vertical Growth. Vertical growth can be achieved by taking over a function previously provided by a supplier or distributor. The company, in effect, grows by making its own supplies and/or by distributing its own products. This may be done in order to reduce costs, gain control over a scarce resource, guarantee quality of a key input, or obtain access to potential customers. This growth can be achieved either internally by expand- ing current operations or externally through acquisitions. Henry Ford, for example, used internal company resources to build his River Rouge plant outside Detroit. The manufacturing process was integrated to the point that iron ore entered one end of the CHAPTER 7 Strategy Formulation: Corporate Strategy 229 long plant, and finished automobiles rolled out the other end into a huge parking lot. In contrast, Cisco Systems, a maker of Internet hardware, chose the external route to verti- ol grouth by purehocing Soiontifio A tlonto Ing omokor ton hoxog for tolovicion
Transcribed Image Text:niche where higher prices can be offset by special product or service features. That is why Oracle has been on the acquisition trail. In the past four years the company has added 31 new companies to the organization focused on four major areas (Applications, Middleware, Industry Solutions, and Servers/Storage/Networking). Although still grow- ing, the software industry is dominated by a handful of large firms. According to CEO Larry Ellison, Oracle needs to grow by buying smaller and weaker rivals if it wants to compete with SAP and Microsoft. Growth is a popular strategy because larger busi- nesses tend to survive longer than smaller companies due to the greater availability of financial resources, organizational routines, and external ties.6 FIGURE 7-1 Corporate Directional Strategies • GROWTH • STABILITY • RETRENCHMENT Concentration Vertical Growth Horizontal Growth Diversification Concentric Pause/Proceed with Caution No Change Profit Turnaround Captive Company Sell-Out/Divestment Bankruptcy/Liquidation Conglomerate PART 3 Strategy Formulation A corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances. In practice, the line between mergers and acquisitions has been blurred to the point where it is difficult to tell the difference. In general, we regard a merger as a transaction involving two or more corporations in which both companies exchange stock in order to create one new corporation. Mergers that occur between firms of somewhat similar size are referred to as a “merger of equals." Most mergers are "friendly"–that is, both parties believe it is in their best interests to combine their companies. The resulting firm is likely to have a name derived from its composite firms. One of the largest such mergers was between Heinz and Kraft Foods in 2015 that formed the new company Kraft Heinz Company. That merger cre- ated a company with annual revenues of over US$28 billion.’ An acquisition is a purchase of another company. In some cases, the company continues to operate as an independent entity and in others it is completely absorbed as an operating subsidiary or division of the acquiring corporation. In July 2015, Duke Energy acquired Piedmont Natural Gas, making the latter a wholly owned unit of Duke Energy. With the acquisition, Duke Energy tripled the number of natural gas customers it served and took more control of a key resource for electricity production. Acquisitions usually occur between firms of different sizes and can be either friendly or hostile. Hostile acquisitions are often called takeovers. From management's perspective (but perhaps not a stockholder's), growth is very attractive for two key reasons: 1 Growth based on increasing market demand may mask flaws in a company-flaws that would be immediately evident in a stable or declining market. A growing flow of reve- nue into a highly leveraged corporation can create a large amount of organization slack (unused resources) that can be used to quickly resolve problems and conflicts between departments and divisions. Growth also provides a big cushion for turnaround in case a strategic error is made. Larger firms also have more bargaining power than do small firms and are more likely to obtain support from key stakeholders in case of difficulty. I A growing firm offers more opportunities for advancement, promotion, and inter- esting jobs. Growth itself is exciting and ego-enhancing for everyone. The market- place and potential investors tend to view a growing corporation as a “winner" or "on the move." Executive compensation tends to get bigger as an organization increases in size. Large firms are also more difficult to acquire than smaller ones- thus, an executive's job in a large firm is more secure. The two basic growth strategies are concentration on the current or innovative product line(s) in one industry and diversification into other product lines or other industries. Concentration If a company's current product lines have real growth potential, the concentration of resources on those product lines makes sense as a strategy for growth. The two basic concentration strategies are vertical growth and horizontal growth. Growing firms in a growing industry tend to choose these strategies before they try diversification. Vertical Growth. Vertical growth can be achieved by taking over a function previously provided by a supplier or distributor. The company, in effect, grows by making its own supplies and/or by distributing its own products. This may be done in order to reduce costs, gain control over a scarce resource, guarantee quality of a key input, or obtain access to potential customers. This growth can be achieved either internally by expand- ing current operations or externally through acquisitions. Henry Ford, for example, used internal company resources to build his River Rouge plant outside Detroit. The manufacturing process was integrated to the point that iron ore entered one end of the CHAPTER 7 Strategy Formulation: Corporate Strategy 229 long plant, and finished automobiles rolled out the other end into a huge parking lot. In contrast, Cisco Systems, a maker of Internet hardware, chose the external route to verti- ol grouth by purehocing Soiontifio A tlonto Ing omokor ton hoxog for tolovicion
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