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Pattern in Corporate Evolution$

Neil M. Kay

Print publication date: 2000

Print ISBN-13: 9780199242115

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199242115.001.0001

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Mapping Strategy

Mapping Strategy

(p.111) 6 Mapping Strategy
Pattern in Corporate Evolution


Oxford University Press

Abstract and Keywords

This chapter focuses on mapping corporate strategy and its application to an analysis of the recent strategies pursued by five large UK corporations, namely, Cadbury Schweppes, Thorn EMI, Ladbroke, Trafalgar House, and Hillsdown Holdings. It begins by discussing the basis for constructing maps at corporate level and then examines the five strategies in detail. The chapter then explores the possibility of using maps of the corporation as a basis for analysing possible sources of internal economies and external threats.

Keywords:   mapping, corporate strategy, Cadbury Schweppes, Thorn EMI, Ladbroke, Trafalgar House, Hillsdown Holdings, internal economies, external threats

In this chapter we shall apply an approach to mapping corporate strategy to an analysis of the recent strategies pursued by five large UK corporations. We shall start by looking at the basis for constructing maps at corporate level in section 6.1, before looking at five strategies in some detail in successive sections. The companies analysed here are Cadbury Schweppes (section 6.2), Thorn EMI (section 6.3), Ladbroke (section 6.4), Trafalgar House ( section 6.5), and Hillsdown Holdings (section 6.6). Section 6.7 explores the possibility of using maps of the corporation as a basis for analysing possible sources of internal economies and external threats.

6.1. Mapping Strategy

In Chapter 4 we looked at the exploitation of synergy at a single level in the case of a simple two-business firm. However, in practice synergy is exploited at many levels within the large diversified firm. For example, brands may share plants and labour force, products may share marketing and distribution, divisions may share R&D, and groups of divisions may share legal and financial services. The exact pattern of synergy will depend on the particular corporation and its strategy, and some resources (e.g. advertising and R&D) might be exploited at any or all levels in the corporation. In addition, a given level may generate a rich set of resource linkages between areas (e.g. Ferguson et al 1993, pp. 18–21 and 29). It might therefore seem a daunting task to set out to map the linkages that might give rise to synergy in particular firms. A full description of the synergy exploited by even a small, relatively specialized corporation, would require a map of considerable detail and intricacy. Any attempt to construct a full map of all the linkages involved in managing a large diversified multinational would commit the cartographer to a task of immense complexity. It is further questionable as to whether such a task would be worth the effort; just as a highly detailed map of a forested area might make it difficult to see the wood for the trees, so a complete mapping of synergy would be likely to make it difficult to see the strategy for the linkages.

In fact, the mapping of corporate strategy is facilitated by the hierarchical nature of corporate activity. A corporate hierarchy constitutes a nested series of layers with coordination of synergy taking place at various levels in the hierarchy. Management at all levels may have responsibilities for (p.112) resolving interdependencies, and corporate strategy is largely concerned with the residual linkages which have not been resolved at lower levels. Further, nesting of decision-making may reduce the type as well as the number of linkages which have to be dealt with at corporate level. For example, in 1993, Cadbury Schweppes operated nearly 100 manufacturing and bottling plants in a variety of countries.1 In such cases, operational questions of how best to coordinate capital and labour at plant level have to be largely resolved before they reach board room level if they are not to swamp top level decision-making capacity. In the extreme case of the conglomerate, all marketing and technological linkages may be coordinated at lower levels leaving only a few finance linkages to be coordinated at Headquarters level. An example of this is the conglomerate Hanson Trust, many of whose acquisitions had shared characteristics of having been weakly managed dominant firms in mature low technology markets. What Hanson added to its diverse portfolio of businesses was a skill in applying tight cost control and aggressive pricing strategies to such businesses.2

We shall look at how organizations organize nested clusters of resource linkages in Chapters 11 and 12, but for the moment we are concerned with the narrower question of what kind of resources are likely to generate synergies at the level of corporate strategy. Plant and hardware related synergies are likely to be exhausted at lower levels in most cases, as are labour skills and professional expertise related to a narrow range of technologies and markets. At corporate strategy level, the types of resource which tend to generate synergies typically fall into the general category of competencies. As Winter (1987) points out, the assets involved in corporate strategy are often denoted by such terms as ’knowledge, competence, know-how, or capability’ (p. 160). At this level, the tangible assets associated with the traditional theory of the firm have typically been left behind at lower levels. The assets associated with corporate strategy tend to be diffused throughout various teams and coalitions, and it is the organizational task to draw upon them to formulate a coherent corporate strategy.

The nature and significance of competencies at the level of corporate strategy might be explored by considering what it would take to remove them. This turns out to be more difficult than might be first thought. It is easier to identify competencies than to establish where they are embodied. For example, it is clear that Boeing has developed technological competencies in producing complex high performance aerospace products, and marketing competencies in selling them to a few, technically sophisticated customers. However, it is less clear what it would take to wipe out Boeing’s competencies in these areas, or indeed where they are located in the firm. It is usually difficult to identify a specific individual or group whose removal from the firm would also remove the firm’s core competencies. Institutions such as firms tend to outlive the tenure of individual managers and managerial groups.

(p.113) Perhaps the clearest clues as to where and how these competencies may be embedded is given by Nelson and Winter’s (1982) analysis of organizational routines. Knowledge and skills are embedded in habits and routines in Nelson and Winter’s analysis, and these in turn form the ‘organizational memory’ of the firm.3 The concept of organizations having memory is one that is difficult to accommodate within the reductionist confines of traditional economics. In particular, it is difficult to reconcile such systemic concepts with the individualistic perspectives of neoclassical theory. However, it is even more difficult to make sense of concepts such as core competencies without recognizing that something, whether it is described as organizational habits, routines or memory, has to store these competencies. Consequently, if organizational memory (or something analogous to it) does not exist, it is difficult to see how we can talk of the competencies, and indeed the strategies, of firms. As we shall see, it is not only possible but natural to describe organizations in terms of their competencies, capabilities, strategies, and objectives. In turn, where these competencies are shared across businesses they may be expressed as links as we saw earlier. These links may indicate potential sources of economies or synergies from resource sharing. Further, as we saw earlier, these links may also represent sources of potential vulnerability to external threats, especially technological innovation.

In order to see if this mapping approach could be applied more generally to analysis of corporate strategy along the lines suggested in Chapter 4, five firms were selected for detailed analysis. The firms chosen were all large UK public companies. In each case there was detailed published information available stretching back some years. They were also chosen to be comparable in terms of size; in 1993, the largest (Hillsdown Holdings), had a turnover of £4595m and the smallest (Cadbury Schweppes) had a turnover of £3725m. Finally, they were seen to display an interesting variety of strategies seen from the point of view of mapping. The maps finally developed for the five companies are shown in Fig. 6.1.

Before we look at individual strategies, some points can be made about how the various maps were developed. To begin with, a decision was made to rely on published information as far as possible. This was assisted by there being a considerable amount of published material reporting the views of professional company and industry analysts on the coherence of each of the corporate strategies reported below. The Financial Times was a particularly valuable source of expert opinion on the logic and soundness of the respective strategies seen from the perspective of potential investors. The views of the companies themselves were also taken into account in this respect, especially as set out in their Annual Reports. It might be suggested that the exuberance with which companies pursued illusory synergy gains in the past might encourage treating recent claims in these regards with a degree of circumspection. However, there was little evidence here of major (p.114) disagreement between the companies’ Boards and the wider investment community on the extent to which their respective strategies could exploit synergy.

                   Mapping Strategy

Fig. 6.1. Maps of various corporate strategies

(p.115) The high degree of convergence of published views is not too surprising in retrospect. Any management that made what the investment community felt were unreliable or spurious claims concerning synergy gains in its product markets could invite an adverse reaction in the capital market. Also, the current emphasis on strategic focus would make management particularly cautious about making claims for synergy that went against stock market sentiment. It may be the case that managements’ views have been forced more in line with independent opinion on the feasibility of transferring competencies across businesses, but it should also be remembered that conglomerate strategies have also been very popular with investment analysts in the past. It may be overly simplistic to regard management’s views as converging on those of the investment community, since sentiment in this market has also been changing over time. However, whether management views and those of the investment community have been converging, or simply moving in parallel, these sources of information display a fair degree of consistency as far as analysis of potential synergy gains is concerned. This does not mean that shareholders and managerial objectives are necessarily consistent with each other. Consistency in terms of perceived effects does not necessarily imply consistency in terms of objectives; it is quite possible to agree on the length and time required for a journey and still disagree on its purpose and desirability.

In constructing the maps, some initial attempts were made to allow for varying the strength of linkages between businesses, for example in terms of strong, moderate, or weak linkages. However, this proved difficult to sustain. Analyses of particular strategies tend to focus on the perceived existence or absence of shared competencies across businesses, rather than more detailed auditing of the degree or strength of linkage. A second problem related to the construction of the maps. It is not difficult to represent complexity in terms of linkages as long as we are dealing with pairs of businesses as in Fig. 4.2. It is also not difficult to represent complexity at the level of a multi-business strategy as long as linkages are kept simple. However, representing complexity simultaneously in terms of both linkages and businesses turns out to be extremely difficult. There appears to be a natural trade-off in terms of representing complex linkages and complex strategies, in that analysis of one requires suppression of complexity at the other level. Similar trade-offs and partial suppression of complexity is carried out by economists moving back and forward between micro and macro levels of analysis, and the ceteris paribus assumption is a standard tool in this respect. Our earlier discussion of the hierarchical nature of linkages suggests that corporate strategy is concerned with a restricted number of know-how linkages in any case; attempts to fully map linkages exploited at all levels might obscure the nature of linkages involved in corporate strategy.

Therefore, in finally constructing the maps a simple question was asked: is there evidence of marketing or technological competencies shared across businesses? If it was reasonable to conclude that a non-trivial amount of expertise could be transferred across businesses, an appropriate link was recorded. If there was insufficient evidence, no link was recorded. (p.116) Marketing competencies were seen as reflecting sales and distribution expertise, while technological competencies reflected production and R&D expertise. The latter set of skills can be interpreted more generally as skills in operating a business, as in the case of retail operations for Ladbroke and Thorn EMI below. The most recently available Annual Reports were used in each case, which was 1993 for Cadbury Schweppes and Ladbroke, and 1994 for the others. The maps ignore minor business activities, which in this context means the few businesses recorded with less than £200m turnover.

Whilst the prime reason for simplifying the analysis of linkages at the level of corporate strategy was to reduce complexity and facilitate the manageability of the mapping process, it was felt that the end result provided a fairly good representation of corporate strategy in the respective cases. The maps echo fairly closely the broad conclusions of analysts in most cases, and when they were compared with maps that had attempted to incorporate more detail in terms of strength of linkage, it was felt that the latter did not add much to the audit of corporate strategy that the simpler maps did not also provide. There were clearly cases where a more detailed analysis would certainly have to acknowledge variation in strength of linkages, as in Hillsdown Holdings where the livestock divisions may have more in common with each other than with the other food divisions. However, this might be interpreted as inviting deeper analysis of groupings or clusters within the firm at a level below that of corporate strategy.

The corporate strategies of the five companies will be analysed below on the basis of the principles just outlined, after which some conclusions will be drawn concerning the application of the mapping technique in this context.

6.2. Cadbury Schweppes

Cadbury Schweppes plc manufactures, markets, and distributes internationally branded confectionery and beverage products. In 1993, out of total sales of £3725m, £2065m accrued from the beverages stream and £1660m from the confectionery stream. Trading profits from the streams were £228m and £208m respectively.4

Cadbury Schweppes was formed by a merger of the confectioner Cadbury and the carbonated drinks company Schweppes in 1969. Linkages between the two streams resulted in the consolidation of some operations, though not in distribution since bottling franchisees controlled local distribution in soft drinks.5 There are other differences between the two streams. In beverages, some products such as Schweppes and Canada Dry are global brands, and some cross-country distinctions are nominal: for example, TriNaranjus in Spain and Oasis in France are identical orange drinks.6 It is the world’s third largest soft drinks producer, but its 4 per cent market share in 1993 (p.117) was well behind Coca-Cola and PepsiCo.7 The company has been exploring methods of exploiting potential scale economies in production and distribution, such as investing in its own bottling plants, though it also considers cooperative arrangements such as franchising as means of limiting commitment to particular areas.8

                   Mapping Strategy

Fig. 6.2. Map of Cadbury Schweppes’ corporate strategy

The company is fourth in terms of global market share in confectionery,9 but this stream, in contrast to beverages, operates in a sector characterized by strong national differences. International brands such as Mars and KitKat are very much the exception in this market place. Even within Europe, Cadbury’s UK products have to be re-formulated and re-branded locally.10 Its 1989 European confectionery acquisitions were described as ‘a boxed assortment rather than a continental network brimming with obvious synergy’.11 However, the company has been able to consolidate some confectionery production, with cross-frontier sales within the European arena.12 There are also technological differences between the two streams, and this is reflected in separate production with 38 facilities for beverage products and 57 for confectionery products. There is also a degree of separation in R&D, with the company operating a specialized beverages R&D facility in addition to other corporate R&D activities.13

While these differences do exist between the two streams, there are still strong linkages between them in terms of marketing, distribution and technological characteristics. Both streams are sold through a highly fragmented series of wholesale and retail outlets in which there is a high degree of overlap between the outlets of the two streams. Also, skills in food and flavouring technology run through the group’s products as well as there being commonalities in some raw materials.14

Cadbury’s original decision in the late sixties to diversify away from confectionery reflected a desire ‘to hedge against…all our eggs being in one basket’, areas of potential vulnerability cited including health propaganda, changing tastes, and dependence on raw cocoa (Rowlinson, 1995, p. 127).15 Each of these could still be associated with possible threats at the level of the confectionery stream as a whole, with availability/price of raw cocoa hitting a technology characteristic widely shared within confectionery, and the (p.118) other two possibly hitting market characteristics shared by confectionery brands. Vulnerability at corporate level relates to whether any of the company wide linkages are open to outside attack. For example, the widely shared ingredient sugar exposes the firm to a high degree of dependence on this in its operations, as well as to issues of tastes and debates on health on the marketing side. However, to date these links have not appeared to pose a focus for serious threats to the firm’s corporate strategy. One other conceivable threat at corporate level is posed by the changing balance of power between large retailers and food manufacturers with the growth of own labelling by supermarket chains. It might be thought that Cadbury’s brand strengths would insulate it from attack on these fronts, but the beverages stream at least is seen to be vulnerable to such threats.16

In 1993 the company hinted at possible (unspecified) moves outside confectionery and soft drinks,17 and this was followed by its being a member of Camelot Group plc, the consortium that bid successfully for the right to run the UK’s first National Lottery. The company identified its experience in impulse purchase markets and knowledge of retailing as providing the consortium with essential expertise in this market18 (see insert to Fig. 6.2). This is a claim which appears more than justified in view of the critical role of marketing and retail distribution in what has turned out to be an outstandingly profitable venture in its first year of operation. Finally, in 1995 it purchased Dr Pepper, an acquisition which was seen as providing sales, distribution, and production synergies with its existing beverages stream, as well as moving the company up the world soft drinks league, ’within yodelling distance of Coke and Pepsi’.19

6.3. Thorn EMI

Thorn EMI is a company which has transformed itself in recent years in an ‘amoeba-like’20 fashion from a ‘motley assortment of industrial interests’21 to focus on its core businesses of retailing (mostly rental, such as TVs and other consumer durables) and music production. In 1994, turnover from its music business (EMI) was £1761m, from rental business (Thorn) it was £1512m, whilst for music retailing (HMV) it was £404m. There were a variety of businesses grouped under Thorn Security and Electronics (TSE), including plastic card technology, instrumentation, and fire detection systems (turnover £408m). Total turnover was £4084m, profits were £37lm, with music accounting for two-thirds of profits.22

The company’s music business, EMI, has attracted the interest of potential predators. The music business is highly concentrated with the five largest producers accounting for 60 per cent of global sales in 1994. EMI is the only one of the big five that analysts believe might conceivably be available for purchase,23 and there has been corresponding talk of demerging the (p.119) company.24 There is perceived to be a ‘lack of synergy between music publishing…and TV rental’,25 but they are linked indirectly. The music retailing business, HMV, has potential links with EMI in the music market, and with Thorn in retail operations.

                   Mapping Strategy

Fig. 6.3. Map of Thorn EMI’s corporate strategy

Evidence of such linkage is indirectly provided by demerger speculation. A demerger of the company would cut across at least one set of these links, and there are differences of interpretation as to what would be the logical home for HMV in such circumstances. Some focus on its place in the music market, and would group it with EMI in the case of a demerger,26 while others (including the company) emphasize its base in retail operations and would appear more likely to include it with Thorn in the eventuality of a breakup.27 At the same time, the company has been pursuing further divestment possibilities of non-core businesses in the ‘other’ category (TSE).28

Two major recent strategic decisions, the sale of Rumbelows electrical stores and the purchase of Dillons, are consistent with a strategy of tightening up activities around strong core linkages. The moves were at first greeted with scepticism by some analysts since the apparent straight swap of one retailer for another suggested ‘some inconsistency of management strategy’.29 However, limited opportunities to purchase other record companies has encouraged the company to plan expanding into publishing and the purchase of a book retailer is a possible first step in this direction.30 After conducting value chain analysis of a wide range of possible expansion opportunities within the media sector, the firm had concluded that book publishing and retailing were the only two sectors which offered it sufficient profit, growth, and synergy potential.31

(p.120) The eventual purchase of a publisher is seen by analysts as a move which could build on EMI’s skills in managing intellectual property rights32 which include managing diverse outputs, handling copyright issues, and talent spotting.33 Buying Dillons helps build up expertise in publishing, while broadening existing retail operations in HMV.34 The insert to Fig. 6.3 (which excludes ‘rental’ and ‘other’ businesses) suggests how this strategy could therefore exploit at least four core competencies; operational linkages between HMV and Dillons in retailing (Dillons is to be run by the same management that runs HMV),35 and between EMI and publisher in managing intellectual property; knowledge of the respective markets shared by EMI and HMV in music, and Dillons plus publisher in books. Additionally, analysts have also identified possible marketing similarities between EMI and Dillons’ businesses (not shown in insert) as a possible source of synergies.

Apart from the attractive symmetry of such a strategy, it is worth noting that it would serve to tie core businesses together more tightly. This might increase vulnerability to specific external changes (e.g. multimedia and interactive technologies), but if the strategy is realized it should also make it more difficult for bidders to unscramble the omelette (or at least the non-Thorn part) through demerger. At the same time analysts believe it could open up opportunities for the company to become ‘a multi-faceted entertainment group’.36 Such moves could be regarded as adding value and/or as defensive moves against possible predation.

It might be regarded as ironic that the company has been moving out of electronics based businesses at the same time that other companies have been pursuing linkups between mass media entertainment and information, communication, and electronics technologies. However, it is questionable how much of the company’s past expertise could have been readily transferred to these areas, and in fact EMI itself has been exploring investments and collaborative opportunities in areas such as digital, interactive, and multimedia technologies.37

Thorn EMI is an excellent illustration of how a company can completely transform itself over a period of a few years thorough a combination of internal development, acquisition, and divestment; it is difficult to recognize EMI as the company that was, ‘a pioneer in television, a leader in computers, its music business was at the centre of a revolution in popular culture, and its scanner technology transformed radiology. Today only its music business survives’ (Kay, 1993, p. 101).

6.4. Ladbroke

Ladbroke plc grew over four decades from a small private company providing credit betting to a few upper class clients in London’s West End, to become a diversified multinational enterprise in the hotel, betting and gaming, (p.121) retail (the Texas DIY chain), and property development industries. In 1993, out of a total turnover of £4269m, £894m accrued from hotels, £2539m from betting and gaming, £693m from retail, and £144m from property development (latter not shown on map, Fig. 6.4). Betting and gaming provided 59 per cent of turnover, but hotels, with only 21 per cent of turnover, provided almost half the group’s profits of £238m.38

The company has rationalised a ‘jumble’ of leisure operations39 that previously ranged through bingo halls, holiday camps, snooker halls, health clubs, and casinos to concentrate on its three major core businesses. Antitrust considerations precluded making major betting acquisitions in the UK and have encouraged the firm to turn its attention to expansion opportunities in these areas in the USA and continental Europe.40 A major development of its hotels strategy was the acquisition of the Hilton International chain (Hilton hotels outside the USA) for US$1 billion in 1987.

In 1995, Ladbroke sold Texas to Sainsbury. Prior to the sale it might have been thought that Ladbroke could have exploited a reasonable degree of synergy between betting shops and DIY shops in terms of operational expertise, but analysts tended to disagree: ‘it is difficult to see that Ladbroke brings much to retailing in the longer term’.41 Analysts even expressed doubts that Sainsbury could exploit significant synergy benefits between its existing DIY business and Texas given their different market foci;42 there are clearly even greater differences between a high street betting shop and a homecare superstore. Consequently, no linkages are indicated below between retailing and the rest of Ladbroke’s businesses in 1993.

                   Mapping Strategy

Fig. 6.4. Map of Ladbroke’s corporate strategy

The acquisition of Hilton International was seen by management as providing substantial opportunities for linkages with its existing hotels division, (p.122) with Ladbroke providing competencies in areas of cost control, sales, and marketing, and the Hilton acquisition allowing the rebranding of a number of Ladbroke’s existing hotels under the Hilton banner.43 It is less clear what marketing or operational linkages may exist between the hotel division and the rest of the group. Interestingly, a failed diversification move by Ladbroke hints at what might have been in these respects. The original move into hotels took place in the 1970s at about the same time as moves into the casino business.44 By 1979, casinos were supplying Ladbroke with about half its profits, but the company then lost its operators licence for breaking regulatory guidelines and was forced to withdraw from the business.45

Recently, managerial and regulatory changes enabled Ladbroke to move back into casinos46 and explore the ‘additional synergies’47 they promised in association with hotels and gaming. This echoes ITT’s recent purchase of Caesars World which creates the ‘possibility of synergies between the casinos and ITT’s Sheraton hotels’.48 The operation of hotels and casinos may in fact become integrated concerns in locations such as Las Vegas. In addition, knowledge and expertise in betting and gaming might be exploited between casinos and Ladbroke’s traditional businesses. These are represented as operational and marketing linkages respectively in the insert to Fig. 6.4, though further linkages might be exploited, for example in jointly marketing hotels and casinos to wealthy clientele, and operational economies between casinos and other betting/gaming businesses. Casinos may therefore represent the missing link in Ladbroke’s diversification strategy.

The lack of strong company wide linkages historically limited the impact of most potential threats to specific businesses. At the same time, much of the group is particularly vulnerable to recessionary tendencies in the global economy, investment in DIY representing a possible attempt to build in counter-cyclical strengths, or at least limit vulnerability to economic slow downs. Unfortunately, each of the businesses has recently faced major problems, with recessionary pressures particularly affecting hotels and property, and an intensively competitive DIY market squeezing Texas Homecare.49

In addition, Ladbroke is facing a threat from a novel source. Early indications are that the National Lottery (for which Ladbroke bid unsuccessfully as a member of a consortium) is hitting conventional betting and gaming business, and Ladbroke, in common with other betting operators, is suffering a corresponding slump in these areas.50 It is worth noting that novel marketing and distribution features associated with the National Lottery means that Ladbroke’s betting activities are threatened by a consortium in which key competencies have been built up through experience in selling and distributing sweets and soft drinks (see section 6.2 Cadbury Schweppes).

(p.123) 6.5. Trafalgar House

Trafalgar House plc describes itself as an ‘international diversified group’.51 Over the past 30 years the firm has been involved in a wide range of industries ranging through oil and gas, newspapers, shipping, hotels, construction, engineering and property. Recently the company has been trying to shed the conglomerate label by repositioning itself as a construction and engineering group,52 and has promised to continue to sell non-core activities, such as the hotels, as opportunities arise.53 Out of a turnover of £3764m in 1994, £2227m came from the engineering division, £828m from the construction division, £319m from house-building, £42m from commercial property (including hotels), and £300m from passenger shipping (including the QE2). The company was in deep financial trouble at the end of 1992 due to the falling property market, a problematic acquisition, and a downturn in the core engineering and construction businesses.54 It was rescued by a Hong Kong based developer becoming a major shareholder, and its ability to again contemplate major acquisitions is attributed to the deep pocket of that shareholder.55 More recently, refitting the QE2 led to the public relations disaster of it sailing with the conversion incomplete.

                   Mapping Strategy

Fig. 6.5. Map of Trafalgar House’s corporate strategy

Even though Trafalgar had built up a conglomerate strategy in the 1970s, it was still possible for analysts to find ‘clear links between the various parts of the property/construction/shipping/leisure complex’.56 Ironically, in view of recent emphasis on it as a core activity, the move into heavy engineering represented by the acquisition of John Brown in 1986 was regarded by analysts at the time as controversial and surprising.57 However, the combination was seen by management as providing potentially strong synergies, (p.124) with John Brown’s design and project management skills and international orientation marrying with Trafalgar House’s cost control experience in handling large projects.58 Trafalgar House was positioned at the ‘rough’ or ‘heavy’ end of construction and had wanted to extend into engineering construction, an area which represented a major proportion of John Brown’s activities.59

This is recognized in the map (Fig. 6.5) which acknowledges possible synergies between engineering and construction in both making and managing large project deals. In addition, the map suggests that knowledge and experience of the property market might have provided a link between construction and property. Construction therefore might exploit two sets of partially overlapping competencies with engineering and property respectively. However, in the case of engineering and construction, it was later acknowledged that ‘there has been less synergy than expected’,60 one problem of integration being that large contracts often stipulate that the main contractor cannot award work to a subsidiary.61 More generally, a recent change in senior management led to indications that the various elements in the company had been, at best, loosely coupled due to a general failure to properly integrate past acquisitions and a complex system of financial reporting.62 More central management control and integration were promised, with the implication that, historically at least, links may have been more visible on paper than in practice.

A good example of this latter point is provided by Trafalgar House’s ownership of prestige hotels such as the Ritz and cruise ships such as the QE2 in the Cunard Line division. It might be thought that skills in marketing and managing such luxury products would be transferable across these areas, and this possibility is illustrated in the insert to Fig. 6.5. This tends to be supported by the recent appointment of the former chairman of Rolls-Royce cars as the new chief executive of Cunard, and his comments that the experience of running a high profile branded product like Rolls-Royce would be more important for success in his new job than knowledge of the cruise industry.63 However, Trafalgar House has concluded that the same cannot be said of possible links between luxury hotels and cruise ships: ‘the hotels do not give rise to material synergy with the group’s passenger shipping business’.64 Consequently no links are shown between shipping and the rest of the group. The question of whether prestige products like the Ritz and the QE2 could have shared marketing competencies through tighter central management control is left open.

In late 1994, the company began a controversial and eventually unsuccessful bid for Northern Electric, a regional electricity company. Trafalgar had been planning moves into privatized electricity at least as far back as 1988, emphasizing potential links on the generating side with John Brown’s construction and operating skills.65 Analyst opinion was that Northern’s expertise in power generation and distribution could combine with (p.125) Trafalgar’s electrical engineering skills to open up some overseas markets, but that otherwise, ‘the business fit is minimal’66 and ‘there is no synergy apart from finance’.67 The bid was generally seen as an attempt to make use of its tax losses and offset Trafalgar’s highly cyclical earnings with a stable stream of utility profits.68 If successful, it would therefore have been widely regarded as a conglomerate type merger.

6.6. Hillsdown Holdings plc

Hillsdown Holdings plc was founded in 1975 and became a public company in 1985. By 1989 it was Britain’s fourth largest food company69 having built up its position mainly through acquisitions. It has about 200 independently operated subsidiaries focused particularly on selling to supermarket chains,70 and it is the UK’s largest producer of own label supermarket products.71 In 1994, its activities were grouped into six divisions (turnover in brackets), European Ambient and Chilled (£672m), European Beverages and Biscuits (£293m), European Meat and Produce (£655m), European Poultry (£514m), Maple Leaf Foods (£1583m) and Non Food (£547m). Non Food contributed 20 per cent of profits (13 per cent of turnover) whilst Meat and Produce provided only 4 per cent of profits (15 per cent of turnover).72

Hillsdown’s strategy has been to acquire and consolidate mature businesses in trouble, and combine decentralized operational management with strong financial controls. The head office itself only had 20 employees when the company itself had grown to 40000 employees. Acquisitions tend not to be merged, but compete in an internal market, even for the right to supply other Hillsdown subsidiaries.73 Efficient scale and critical mass are important considerations for the company in its various businesses, and it emphasizes ‘bolt on’ or synergistic acquisitions.74 Most of Hillsdown’s UK products are unbranded, but this strategy puts Hillsdown in the commodity sector of the food business and makes it vulnerable both to the buying power of retailers and price competition from other suppliers. As a consequence, it has been placing increased emphasis on its branded products such as Typhoo tea and Cadbury biscuits in an attempt to differentiate products, add more value, and reduce vulnerability to cyclical competition.75

The company claims it can continue to ‘achieve synergies between its extensive food operations’76 and this is reflected in the map where linkages in food marketing and technology are run between the food divisions. However, the group is ’still evolving a corporate structure that brings synergy and communications to the disparate divisions’.77 Clearly the potential linkages are stronger in some areas (e.g. between the agribusinesses) rather than others. Stronger integration of businesses was one factor in Hillsdown’s April 1995 sale of its 56 per cent stake in Maple Leaf Foods, its Canadian based business. It had heavily restructured Maple Leaf after taking its first stake in 1987, but felt that without full control it could not maximize its potential.78

                   Mapping Strategy

Fig. 6.6. Map of Hillsdown Holdings’ corporate strategy

(p.126) Analysts doubt the ability of Hillsdown to balance potential conflicts between the different competencies required in cost driven own label commodities and marketing driven brands;79 performing well in both ’is a real strategic dilemma’,80 and it tends to be compared unfavourably to companies with a more focused corporate strategy, like Cadbury Schweppes.81 It raises the question of whether Hillsdown could be ‘stuck in the middle’, caught between the two stools of cost leadership and differentiation (Porter, 1985). However, whether or not this is a real danger for companies in practice has been the subject of much recent debate.82

There are a variety of threats to Hillsdown’s linkages. The BSE scare particularly hit red meat linkages,83 whilst vegetarianism trends represent a broader threat to all animal products, including poultry. At the level of the food business as a whole, the growing power of large retailers and own brand sales are squeezing most manufacturers margins.84 Hillsdown’s move further into brands coincides with widening threats to branded products from own labels85 (see also section 6.2 Cadbury Schweppes).

The non food division, (housebuilding and furniture), has no obvious synergies with the rest of the group.86 Hillsdown points out that it could not easily replace them with a more profitable venture in food,87 and that they counterbalance the volatility of food activity.88 However, one recent divisional switch gives indications of interesting indirect linkages. The (p.127) Company’s leather and by-products business was transferred from Meat and Produce into Non Food, where Hillsdown produces upholstered furniture for various customers such as World of Leather.89 Leather’s technical linkages with meat production and marketing linkages with furniture are indicated in the insert to Fig. 6.6. However, there are no indications as to how important these linkages might be in principle or in practice.

6.7. Mapping Links and Threats

Maps of the type outlined above may provide an organizing framework for a SWOT (strengths/weaknesses/opportunities/threats) type analysis of specific strategies. The cases discussed show how opportunities can be driven along the guidelines of linkages, whilst Fig. 6.7 is an exercise in pure speculation focusing particularly on how threats might hit specific businesses or linkages for some of the businesses we have already looked at. The potential threats illustrated for Cadbury Schweppes have already been discussed, and as Fig. 6.7 illustrates they may have an impact on linkages or specific businesses. For Thorn EMI, the vulnerability of all music related business to changes in tastes is indicated, while the company’s expertise in high street retailing could conceivably be threatened by changing patterns of retailing in the future. The final example is based on the Hillsdown insert, and again suggests how some threats might hit competencies that are business specific, while others may attack linkages. For example, animal rights campaigns, new regulations, and competitors’ innovations might all hit meat and leather as joint products, while the leather/furniture linkage could be vulnerable if a direct competitor establishes a reputation for improved design. There is no suggestion here that any of these conceivable threats might ever materialize; the point here is to demonstrate that they are conceivable, and to explore how they might be incorporated in the mapping approach. More detailed analysis of the nature of competencies in particular cases could also provide valuable input into analysis of corporate strengths and weaknesses. An interesting way the mapping technique could also be applied is in terms of historical analyses of the development of particular corporations. Mapping the shifting boundaries of the corporation and the dominant linkages at particular points in time could provide a valuable illustration of the evolution of specific strategies. The analysis also suggests that the classic strategic management question ‘what is our business?’90 should be rephrased more accurately as ‘what are our competencies?’ Cadbury Schweppes’ business is making and selling confectionery and soft drinks, but it was self-awareness of competencies which led to its joining the National Lottery consortium. Hotels and gambling are very different businesses, but Ladbroke’s move back into casinos could link them indirectly through shared competencies. The crucial point is that it is competencies, (p.128) not businesses, that help define both the nature of particular corporations and what they are capable of. The firm is interpreted here in terms of what it is, not what it does.

                   Mapping Strategy

Fig. 6.7. Strategies and possible threats

Finally, the cases also raise interesting instances where it is possible for firms to respond positively to potential threats by internalizing them as (p.129) opportunities. Ladbroke attempted (unsuccessfully) to internalize the threat posed by the National Lottery by applying to run it as a member of a consortium. EMI is responding to developments in multimedia technology by investigating ways it can integrate such technology in its operations. And if Cadbury Schweppes was seriously concerned about the threat health issues posed to its sugar based products, an obvious response would be to explore diversification into products using non-sugar sweeteners. In each case, firms can try to neutralize or actively exploit that which passivity could permit to emerge as a threat. Such responses may be more difficult when the competencies required lie well outside the range of the firm’s current competencies, as when electronic developments hit the Swiss watch industry. In such cases, firms may judge that merger, acquisition, or collaborative arrangements might allow them to respond more rapidly and effectively than could be the case with internal development.

6.8. Postscript

The maps in Figs. 6.2 to 6.6 were constructed during summer 1995. However, even by spring 1996 there had been a number of changes that could or would influence the maps. In February 1996, Thorn EMI confirmed its intention to demerge its music and rental businesses by the autumn,91 confirming that the links between the two sets of businesses were tenuous at best. Ladbroke sold its retailing interests and signalled its intention to become more focused on its core hotels, gaming, and betting activities.92 The company continued to suffer from competition from the National Lottery, but there was some good news for the company in that it won back the right to be a UK casino licence holder,93 the potential ’missing link’ in its strategy referred to above. Early in 1996, Trafalgar House was bought by Kvaerner, a Norwegian company. There was perceived to be a match between Trafalgar House’s construction and process plant building skills, and Kvaerner’s engineering interests. There were also perceived to be good fits between Kvaerner’s and Trafalgar House’s offshore energy businesses. Trafalgar House had already sold the Ritz94 in 1995 and Kvaerner was expected to follow this by selling both company’s shipping lines to improve the focus of the combined company.95 In 1995, Hillsdown Holdings sold Maple Leaf Foods,96 a divestment which would give its map more balance and focus.

Of all the five companies, Cadbury Schweppes continued to be the least surprising and newsworthy, perhaps reflecting its ability to beat the old Chinese curse ’may you live in interesting times’.

6.9 Conclusions

(p.130) Each of the firms has undergone significant transformations in even the few years covered here, and the mapping technique has been useful in helping analyse the logic of the respective strategies. Here we have concentrated on the representation of the corporate strategy in terms of the pattern of links between the constituent businesses of the corporation. One contribution the technique makes is to provide a graphical representation of how expert opinion evaluates the competitive advantage of firms; as the discussion of individual cases above shows, it is the competencies of the respective corporations which tends to be the focus of such analysis. Where they exist between businesses, these competencies can generate synergy or economies of scope and are represented as links. However, since competencies can obsolesce, these links are also sources of potential shared vulnerability to environmental threats. The link can therefore provide both internal economies and shared vulnerability, and it is the tension between these two influences that can have strategic implications in many cases. What the mapping technique does is to provide an organizing framework around which the constituent businesses of the firm and their associated links can be represented, and the strategy of the firm interpreted.




(1) . Annual Report, 1993.

(2) . See John Kay (1993, p. 133).

(3) . For discussion of the role of routines in organizational memory, see also Hodgson (1988, esp. pp. 124–44), and Kay, J. (1993, pp. 66–86).

(4) . Annual Report, 1993.

(5) . Mirabelle (1990, p. 477).

(6) . Financial Times, 4 March 1991, p. 11.

(7) . Ibid., 8 June 1993, p. 21

(8) . Ibid., 4 March 1991, p. 11; 8 June 1993, p. 21.

(9) . Ibid., 8 June 1993, p. 21.

(10) . Ibid.

(11) . Ibid., 4 March 1991, p. 11.

(12) . Ibid.

(13) . Annual Report, 1993.

(14) . Ibid.

(15) . Based upon internal company documents.

(16) . Financial Times, 14 October 1994, p. 8.

(17) . Ibid., 8 June 1993, p. 21.

(18) . Annual Report, 1993.

(19) . Financial Times, 24 January 1995, p. 19.

(20) . Investors Chronicle, 3 March 1995, p. 52.

(21) . Financial Times, 25 May 1995, p. 23.

(22) . Annual Report, 1994.

(23) . Financial Times, 25 May 1995, p. 23.

(24) . Ibid., 3 May 1995, p. 24; 24 May 1995, p. 20; 25 May 1995, p. 23.

(25) . Investors Chronicle, 9 March 1995, p. 52.

(26) . Ibid., p. 53.

(27) . Financial Times, 24 May 1995, p. 20; 25 May 1995, p. 23.

(28) . Annual Report, 1994.

(29) . Financial Times, 25 March 1995, p. 20.

(30) . Ibid., 25 March 1995, p. 20, and 3 March 1995, p. 20.

(31) . Ibid.

(32) . Investors Chronicle, 3 March 1995, p. 52; Financial Times, 25 March 1995, p. 20.

(33) . Financial Times, 3 March 1995, p. 20.

(34) . Ibid., 25 March 1995, p. 20.

(35) . Ibid., 3 March 1995, p. 19.

(36) . Ibid., 11 July 1994, p. 18.

(37) . Annual Report, 1994.

(38) . Ibid., 1993.

(39) . Financial Times, 30 August 1991, p. 14.

(40) . Ibid.

(41) . Ibid., 2 September 1994, p. 16.

(42) . Ibid., 25 January 1995, p. 21.

(43) . Proposed acquisition of Hilton International, Ladbroke plc, 1987, p. 5.

(44) . Mirabelle (1990, p. 141).

(45) . Financial Times, 30 August 30th, 1991, p. 14.

(46) . Ibid., 26 August 1994, p. 15, and 26 January 1995, p. 28.

(47) . Ibid., 2 September 1994, p. 16.

(48) . Ibid., 20 December 1994, p. 16.

(49) . Annual Report, 1993.

(50) . Financial Times, 23 May 1995, p. 20.

(51) . Annual Report, 1994.

(52) . Financial Times, 5 May 1993, p. 21.

(53) . Annual Reports, 1992 and 1994.

(54) . Financial Times, 4 April 1995, p. 25.

(55) . Ibid., 15 December 1994, p. 28.

(56) . Ibid., 22 August 1988, p. 20.

(57) . Ibid.

(58) . Ibid., 23 January 1995, p. 9.

(59) . Ibid., 22 August 1988, p. 20, and 23 January 1991, p. 9.

(60) . Ibid., 23 January 1991, p. 9.

(61) . Ibid., 25 January 1991, p. 9.

(62) . Ibid., 20 May 1995, p. 8.

(63) . Ibid., 19 May 1995, p. 12.

(64) . Annual Report, 1993, p. 3.

(65) . Sunday Times, 18 December 1988, p. Dl.

(66) . Financial Times, 15 December 1994, p. 28.

(67) . Ibid., p. 1.

(68) . Ibid., pp. 26 and 28; 20 December 1994, p. 16; 4 April 1995, p. 25.

(69) . Mirabelle (1990, p. 513); Financial Times, 6 March 1992, p. 21.

(70) . Mirabelle (1990, p. 513).

(71) . Financial Times, 6 March 1992, p. 21.

(72) . Annual Report, 1994.

(73) . Miarabelle (1990, p. 513); Financial Times, 6 March 1992, p. 21 and 20 April 1995, p. 28.

(74) . Financial Times, 20 April 1995, p. 28.

(75) . Ibid., 6 March 1992, p. 21.

(76) . Ibid., 20 April 1995, p. 28.

(77) . Ibid.

(78) . Ibid.

(79) . Ibid., 6 March 1992, p. 21; 10 March 1995, p. 25; and 20 April 1995, p. 25.

(80) . Ibid., p. 28.

(81) . Ibid., 6 March 1992, p. 21.

(82) . For a summary of this debate, see Johnson and Scholes (1993) pp. 207–9.

(83) . Annual Report, 1994.

(84) . Financial Times, 1 October 1994, p. 21.

(85) . Ibid.

(86) . Ibid., 6 March 1992, p. 21.

(87) . Ibid., 8 September 1994, p. 24.

(88) . Ibid., 20 April 1995, p. 28.

(89) . Annual Report, 1994.

(90) . See, for example David (1991, pp. 5 and 92–5), following Drucker (1974, p. 611).

(91) . Financial Times, 20, p. 17 and 21, p. 19 February 1996.

(92) . Ibid., 26 January 1995, p. 28.

(93) . Ibid., 1 July 1995, p. 8.

(94) . Annual Report, 1995.

(95) . Financial Times, 5 March 1996, p. 20.

(96) . Ibid., 6 September 1995, p. 16.