Writing a Corporate Level Analysis Paper

Writing a Corporate Level Analysis Paper

Instructions for Corporate Level Analysis Paper

These instructions provide guidance for your corporate level analysis paper which is due at the end of this course. The practical advice in this document could also be applied to the group analysis presentations due throughout this course. A rubric is included to help provide transparency around point allocations for your paper.

Your corporate level analysis is a valuable way for you to demonstrate your understanding of the various concepts we have discussed in class. Your paper should include information about how each concept fits with others to form a full picture.

General Information

  • The maximum length of your paper is 8 pages of text. There is no limit to the number of pages of supplemental materials that you may attach to your paper.
  • You should use 12-point Arial font for your paper. The body of your paper should be double spaced. It is not necessary to double-space your appendices.
  • Avoid including a figure, appendix, or table in your paper without explaining it in the text.
  • Do not use bullets in your paper. Use complete sentences.
  • Check the schedule for the due date.

The Importance of Drafts and Proofreading

Nobody writes so well that they should attempt to complete this assignment in a single draft. Good writing requires rewriting. Better writing requires the assistance of others to help you with proofreading and editing.

If you would like for me to review a draft of your paper, please submit according to the suggested due dates on the course schedule.

Due Dates and Related Information

The due date for your paper is found on course schedule. Papers that are turned in after the due date will receive a score that is one letter grade lower than earned for each calendar day that the paper is late (note calendar day rather than class day).

This class is often one of the last classes that students take before graduation. If you feel that your grade in this class may mean that you are in jeopardy of not graduating on time, please let me know.

If you are concerned about your ability to pass this class and graduate on time, please let me know. I suggest that you submit drafts of your paper by the dates suggested on the course schedule.

Common Problems

Take care to avoid the problems listed below.

  • Verbosity
  • Tautological arguments
  • Confusing differentiation with diversification
  • Passive voice
  • Transitions, headings
  • Material under the wrong heading and section
  • Capitalization
  • Specificity versus generalization
  • “The” versus “a”
  • Switching between business and corporate level analysis at the wrong times
  • Inventing strategies
  • Switching the definitions of the SBUs and industries in the middle of the paper
  • Omitting references
  • Evaluating versus picking an optimal strategy
  • Missing appendices and not explaining assumptions in appendices
  • Not referencing supplemental material in the text
  • Confusing goals with strategies
  • Hand-written graphics in final paper
  • Awkward, convoluted sentences versus simple, declarative sentences
  • Unsupported assertions
  • Non-referent pronouns such as, “this”
  • Endless repetition of non-referent pronouns, almost as if they were intended to serve as conjunctions, not pronouns
  • While versus whereas
  • Because versus since. Think about which of these refers to a transpired period of time and which asserts causality.
  • Inventing non-technical terms to substitute for the technical ones we have developed theory to support
  • Stating the problem statement as a question
  • Subject-verb agreement
  • Malapropisms (malapropos)
  • Faulty parallelisms
  • The difference in usage between “which” and “that”
  • The difference in usage between “effect” and “affect”

 

Do not say in the implementation section that you need to gather information to decide which alternative to select or how to implement it. The gathering of information is part of the work that you should do before writing the paper.

Companies are an “it” and not a “they”. We need to be careful to avoid anthropomorphism (the attribution of human characteristics to non-human entities). Companies are inanimate legal fictions.

Specific Information on Sections of Your Paper

Use this section of the corporate-level instructions to learn more about the individual sections of your paper.

Introduction

Use the introduction to state the focus or purpose of your analysis. This includes telling your readers which corporation you will analyze.  Explain how the corporation could effectively maximize stockholder wealth by addressing a specific problem related to the mix of businesses it operates.  You should state the scope of your analysis and set the stage for your reader.

The introduction should include key facts necessary for readers when reading your analysis. These facts should be the ones that have affected the company’s strategic direction and performance.

Include information about how you have divided the company into logical SBUs. For purposes of this analysis, three to five SBUs is a manageable number. You can either group smaller SBUs into larger ones or you can exclude SBUs from your analysis if they are not relevant to your purpose.

Explain whether the company is pursuing a strategy of vertical integration, unrelated, or related diversification. Realize that this assignment is asking you to explain how the strategy could be changed to implement related diversification.

The Attractiveness Test

When pursuing or considering pursuing a strategy of related diversification, you should utilize Porter’s three tests of diversification (the attractiveness test, the better-off test, and the cost of entry or the value of disposition test). Let us start with the Attractiveness Test.

Macro-environmental factors affect the attractiveness of the individual SBU industries. Thus, you should precede the use of the five forces model for each SBU with a macro-environmental analysis.  Be sure to select a date for the macro-environmental analysis, which should be the same as for the attractiveness tests.

The basic test of industry attractiveness is the five forces model, which means that you must demonstrate compliance with its three prerequisites:

  • A specific date
  • A narrow industry definition
  • Competitive interdependence

Compare the attractiveness of each SBU’s industry, together with the macro-environmental model for each industry. Explain what these comparisons mean for each SBU’s prospects for success. Although it is preferable for completeness to analyze each SBU’s attractiveness, the focus of your analysis should be on the core SBU and at least one other.

Review all of the moderators affecting the threat levels for each of the five forces.  These are in your notes on the video lectures. Do not simply name a threat level as high, medium, or low. Review each of the moderators to develop a comprehensive analysis.

The Better-Off Test

Diagram the value chains of the core and a non-core SBU using the McKinsey value chain. (Make sure thqt you do not use the Porter version.) Show with arrows how they share (or could be restructured to share) one specific, non-separable asset.  Identify the core SBU and the non-core SBU(s).  For the purpose of this assignment, identify one activity that is shared between the core SBU and the non-core SBU.

Perform a net present value analysis of the savings to the non-core SBU.  This becomes the savings or economy of scope.  To perform the NPV analysis, it will be necessary to project a savings stream from the activity sharing.  The easiest way to do this is google a net present value calculator.  It will ask you to specify the savings from the shared asset by years which will form the basis of your multi-period review. You will then enter the savings for one year into each year and select a discount rate.  If you use an initial value, it should be the cost of setting up the cost/service center to manage the sharing.

State the assumptions you are using to justify the savings stream. You could place footnotes next to each year in your exhibit to explain any variation in your yearly projections.

The discount value used in the NPV analysis could be the weighted average cost of capital or the internal rate of return.

If you are missing data, develop some reasonable assumptions about it.  Perform the NPV calculations based on your assumptions, which you must specify in a footnote or legend.

Cost of Entry (Value of Disposition) Test

If you are performing an analysis on an existing (already owned) SBU, the cost of entry test becomes the value of disposition test if you were to dispose of it.  Project the future profits for each SBU and enter them into the line items in your net present value calculator.  Select and justify a useful life for the profit stream.  Remember that this is a different level of analysis than the better-off test.  These projections are at the business level whereas the better-off test is at the functional level.

Perform a net present value analysis of the projected earnings stream for the entire SBU, not just the savings between SBUs for the shared activity.  In the future, after the earnings stream has ended, the SBU will still own assets.  Estimate the future value of these assets and perform a NPV analysis to determine their present value.  Add this value to the discounted value of the earnings stream.

The total of the discounted SBU earnings stream and the discounted liquidation value of the SBU’s assets represent either the cost of entry for the SBU or its value at disposition.

Looking at the value of an SBU in this way is called income-based appraising.

Interpreting the Three Tests of Related Diversification

After completing the three tests of related diversification, you should discuss their meaning.  Simply doing the analysis without discussing their meaning would be inconclusive.

There are no rules for how to interpret their meaning.  However, here are some issues that matter.  If a  company’s acquisition creates no economies of scope, then to acquire a  SBU, a company would not have any comparative or unique bidding advantages, which means that  the most that  could be earned would be normal economic returns.

The cost of an acquisition should not capitalize all  of a target’s future earnings.  In other words, you should offer a statement about the cost of the acquisition, compared with its expected earnings, which could lead to a discussion of a SBU’s expected return on investment, plus its expected economies of scope.

The attractiveness test is a measure of average industry profitability.  If a company passes the better-off test, what would be its prospects  if  the industry were unattractive?

There is no single correct answer to these combination of results.  In the end, you should use critical thinking to  infer what they mean, which would lead you to identifying a company’s problem or opportunity.  However, these tests contain the most  definitive information for specifying the problem/opportunity.   Remember that the corporate level, we do  not use SWOT analysis.   These three tests  are important because they are all that we have to identify a problem/opportunity and how to address it.

The Corporate Level Problem Statement

The problem is always something that is harming shareholder wealth either because of an underperforming, unrelated SBU or an underperforming, inappropriately organized pair of related SBUs. You should identify one SBU as a source of savings or greater earnings.

If the problem results from a related diversification strategy, it may be that the company can keep the existing SBUs if it will reorganize them with more effective cost/service centers to ensure that they generate economies of scope.

The problem must focus on the mix of businesses, not on how to make changes in individual businesses so that individually they will function more effectively.  We assume that corporate managers should not make changes in the operation of individual businesses. Corporate managers can only change the mix of businesses or how these businesses operate together.

Strategy Formulation

Evaluate three to five corporate level strategic alternatives. These strategies must be versions of the following types:

  • Harvest
  • Divest
  • Liquidate
  • Acquisition
  • Merger
  • Internal venture
  • Restructure
  • Status quo

Use critical thinking to evaluate each alternative by addressing the following issues:

  • On what assumption(s) does this alternative depend?
  • What evidence is there for these assumptions?
  • What alternative strategies exist to satisfy the conditions necessary to resolve the corporate level problem?

In choosing the optimal strategy, be sure that you summarize your reasoning for each strategy.  Do not just pick one.  Evaluate each strategy by comparing its assumptions and evidence to show which one is optimal.

Create a table to compare the assumptions and evidence and reach a conclusion.

Explain why other alternatives, although feasible, are less appropriate.  Choose the optimal strategic alternative to address the stated problem.

Implementation and Action Plan

Verify that the proposed steps conform to Porter’s action plan that can be found at the end of his article, “From Competitive Advantage to Corporate Strategy”. Define the steps to be taken.

Conclusion

Briefly review your analysis. State how your analysis will allow your company to maximize shareholder wealth.

Evaluation Rubric for Written Individual Case

Expectation Points Possible
Divide company into 3 to 5 SBUs. 10
Attractiveness Test 50
Better-Off Test (NPV analysis) 50
Cost of entry/value of disposition (NPV analysis) 50
Three Pre-requisites 10
Comprehensiveness of analysis of factors in 5 Forces model 10
Grammar 10
Problem Statement 20
Strategy Formulation 10
Strategy Evaluation Using Critical Thinking 10
Application of Implementation/Action Plan 10
Conclusion 10
References 10
Clarity of Exhibits, especially Labeling and Legends 20
Value chains with unique labels and showing shared activity 10
Succinctness and Clarity of Text 10
Total Points 300