Lecture 5

lecture 5 is about

• External Growth Strategies

• Mergers, Acquisitions, Alliances

• Entrepreneurial Strategy

McKinsey's Three Horizons of Growth framework is a strategic tool used to help companies plan for growth while balancing attention between current and future opportunities. Each horizon represents a different time frame and type of growth opportunity:

Horizon 1: Core Businesses (Managerial)

• Description: Horizon 1 focuses on the core businesses that currently generate the most significant amount of a company’s income. The goal in this horizon is to protect and extend these existing core operations.

• Activities: This involves enhancing performance, defending market share, and optimizing products or services. These are typically short-term strategies.

• Example: For a technology company, Horizon 1 might involve improving and updating existing popular software products.

Horizon 2: Emerging Opportunities (Entrepreneurial)

• Description: This horizon is about identifying and developing emerging opportunities that have the potential to become significant income streams in the future. These are often related to, but distinct from, the core business.

• Activities: Involves investing in new opportunities, developing new business models or markets, and rapidly scaling successful ventures.

• Example: The same technology company might invest in developing new types of software or technology platforms that are expected to meet future market demands.

Horizon 3: Future Options (Visionary)

• Description: Horizon 3 is the realm of innovation for future growth. These are long-term opportunities that may involve research and development of new products or services with a focus on future markets.

• Activities: This horizon is characterized by exploration and experimentation. Companies invest in research, partnerships, or pilot programs to explore completely new ideas.

• Example: The company might explore cutting-edge technologies like artificial intelligence or quantum computing, which are not currently major income sources but have significant future potential.

The framework suggests that companies should manage a balanced portfolio of these three horizons to sustain growth. By doing so, they can maintain strong performance in the present (Horizon 1), prepare for the emerging future (Horizon 2), and plant the seeds for long-term future growth (Horizon 3).

• Target Management attitudes and cultural differences

• No aquisiton integration planning

• Lack of knowledge of the target industry

• poor management of the target

• No prior acquisition experience

• Overpaying

Strategic Alliances

Collaborative arrangement between two or more firms to pursue agreed common goals (may or may not involve equity participation)

Joint Venture

A particular form of equity alliance where the partners form a new company that they jointly own

1. Assessing Resources: First, the company checks if its current resources are relevant to its strategic goal.

   • If Yes, it can grow by using its internal resources (Internal Development).

   • If No, it moves to the next step.

2. Value Agreement: Next, the company considers if there is a high level of agreement on the value of the needed resources with another party.

   • If High, it can enter into a contract or license agreement with the other party.

   • If Low, it considers the next factor.

3. Relationship Closeness: The company then decides how close it wants to be with the resource provider.

   • If it desires High closeness, it may opt for an Acquisition, buying the provider or resources outright.

   • If it prefers Low closeness, it then evaluates the need for coordination.

4. Coordination Needs: If the company does not need to coordinate closely with the resource provider, forming an Alliance might be the best option.

   • If there is a need for High coordination, then a Joint Venture could be the way forward, where both parties create a new entity together to achieve the strategic goal.