Corporate Level Strategy of Tyco International - Essay Example

? Corporate Level Strategy of Tyco International Corporate Level Strategy of Tyco International The business environment has become challenging because of the many issues affecting the competitiveness of firms in an industry. Many firms have engaged in many strategies in order to improve their competitiveness in the business environment by applying many strategies. Some of the strategies applied by firms include diversification, internationalization and product differentiation. Tyco International is a multinational corporation that was incorporated in 1960 as an experimental laboratory that conducted experiments for the U.S. government. After its incorporation, the firm involved itself with high-tech science materials and conversion of energy products for use in the commercial sector. Over time, Tyco International was involved with various corporate strategies such as mergers and acquisition to become a leading manufacturer of industrial products. Corporate Level Strategies According to Porter (2008), corporate strategy includes all strategies that an organization employs as it diversifies. The strategy involves the combination of enterprises that a firm should compete in integration and modes through which to subsidiaries are coordinated. The four common corporate strategies applied by many firms including Tyco International include the portfolio strategy, restructuring, skills transfer and activity sharing (Tyco, 2011). The portfolio strategy as applied in the context of Tyco international is the ability of the firm to choose the best strategy exploits the strengths of the organization with the ability to exploit existing opportunities. The aim is to maximize shareholder returns. The analysis of the existing business portfolio and making decisions on suitability of the firm in receiving any further investment is a major step that should be accompanied strategy evaluation. In order to achieve the intended strategy, various methods are used, two of which is the BCG matrix and the General electric/shell strategy. Through the application of these strategies, Tyco International has been able to diversify over time (Tyco, 2011). Tyco International was established as an experimental laboratory/organization conducting experiments for the government. However, over time, the firm was able to experience both internal and external growth with diversity in its operations in different fields with the latest being a split. Internal growth was experienced through increased revenue that was used to pursue external growth through mergers and acquisitions. For instance, mergers began as early as 1966 when the firm acquired Industrionics Control Inc. the 1970s saw the firm acquire Simplex and Grinnell. The firm continued its external expansion and ended acquiring more firms in the course of its growth (Porter, 2008). However, the firm realized it potential growth prospects and exploited the corporate strategy of split in 2006 where it was split into three independent companies that were Covidien Ltd, Tyco Electronics Ltd and Tyco International Ltd. Before splitting, Tyco International utilized the BCG strategy that could be used to establish the product portfolios of the firm as explained in the next section. While diversifying in international markets, Tyco International utilized strategies such as the export strategy, franchising and joint ventures and licensing among others. BCG Matrix as Applied to Tyco International The BCG matrix categorizes products of an organization based on the market share and the market growth rate. Based on these two axes, four quadrants are drawn representing stars, cash cows, dogs and cats. The matrix postulates that Stars represent products of the firm that depict high growth rates in the market such as healthcare products and services of Tyco International. Electronic products that have a large market share although they perform moderately in the market while question marks and dogs represent products of low market share operating in high growth markets and product with low market share in unattractive businesses represent the sources of income in the context of Tyco International (Tyco, 2011). According to Porter (2008), a firm that has a large number of products acting as stars could develop other products in the question mark quadrant into stars. In addition, the firm could decide to maintain its current market position. Tyco International did not maintain its position in the market but sought to diversify further by splitting up into three independent small firms. Therefore, the split strategy increased the diversification of Tyco International and the firm can now be termed as heavily diversified because it has many business units operating in both related and unrelated industries. Tyco International became a conglomerate after its split up. Advantages and Disadvantages of Split The split of Tyco International into three small independent companies was driven by many factors such as the need to diversify and increase income while distributing the amounts of risks in different industries. The split of the firm into the three companies has its advantages as well as disadvantages. To begin with benefits, the firm has spread its risks different diverse industries so that in case of any uncertainties in the business environment in any industry, the firm does not suffer full losses. For instance, the 2008/2009 global financial crisis did not affect the entire of Tyco international. Only some of the subsidiaries of the firm were affected. The split offers the company an advantage of being able to invest in any industry that offers best returns. Tyco International split its smaller firms that operate into different industries that include electronics industry, service industry and the healthcare. These industries offer the firm maximum income. The profits realized by Tyco International are stable since they are diversified. Not all industries are the same since the poor performance of a given industry does not affect the performance of another industry, therefore leaving the profits of the firm stable. Lastly, company split in the case of Tyco International increases the value of shareholders especially if the diversification is accompanied by spotting bargain-priced firms. On the contrary, the decision of Tyco international to split up again after a recent split in 2006/2007 raises the question of the competence of the top management. One could question the ability of the management to tell a good industry and acquisitions to make, the ability of finding a good manager to steer the new subsidiary into growth and expansion and the ability to help to stumbling firm. The split of the firm does little to improve the competitiveness of new smaller firms because each business unit is independent hence no corporate synergy can be achieved. Another issue that could affect the split is that only some of the new independent firms could perform well as all may end up being affected by business cycles. Lastly, it is difficult to determine the extent the firm could successful manage diversity of the firm. References Porter, M. (2008). On competition (2nd edn.). Harvard: Harvard Business School. Tyco, (2011). About Tyco International. Retrieved in 24 October 2011 form: http://www.tyco.com/wps/wcm/connect/tyco+who+we+are/Who+We+Are/History Read More