Strategic boundaries

Redefining the Strategic Boundaries of the Firm The Shift from RtoD... 

In the mid-1970s Union Carbide began to define its strategic boundaries in terms of its competition within the industry s competitive arena. Unable to compete with Du Pont, it withdrew in 1974 from fibers and continued its... 

I conclude this chapter by considering how the three basic themes of this book—barriers to entry, strategic boundaries, and limits to growth—relate to the evolution of the six multisectored core chemical companies that created the U.S. chemical industry in the first decades of the twentieth century. 

Bach of the multisectored core chemical companies redefined their strategic boundaries differently. Du Pont concentrated on the commercializing of polymers Dow on those of petrochemicals. By 1960 Du Font s profit margin was twice that of its nearest competitor. Dow had become the world s largest and most profitable producer of commodity chemicals and plastics. Monsanto and American Cyanamid concentrated on their specialized capabilities within both polymers and petrochemicals. 

Air Products and Chemicals, Inc. Successfully Defining Strategic Boundaries... 

Under Bodman, Cabot transformed itself into a successful enterprise by focusing on economies of scale not only in major markets but also in highly specialized ones. Its managers successfully defined strategic boundaries around the existing technical and functional capabilities of its long-established learning base and a few carefully selected products from its earlier broad diversification moves. 

Before reviewing their achievements, a word is needed on the troubled Hercules and failed Witco. Hercules s misfortunes resulted from its delay in redefining its strategic boundaries after it encountered limits to growth. In 1977, around the same time that Dow had massively redefined its strategic boundaries, Hercules s management reached similar conclusions. But unlike Dow, Hercules remained committed to petrochemical and chemical commodities. By the time a new CEO took the company out of petrochemicals in 1987, it was too late. 

From their beginnings, the other smaller focused companies played critical roles in the evolution of the U.S. chemical industry. Established in the 1920s, they provided the major American chemical companies with a variety of specialty chemicals needed to support the U.S. industry. At the same time, these specialty chemicals found a multitude of uses in many other industries. As a result, the focused companies became and remained central players in the competitive arena in which the strategic boundaries of the chemical companies were defined. 

The technical obsolescence of the basic product that by then accounted for only 20 percent of its income, in tandem with the industry crisis following the second oil shock, prompted Solvay to redefine its product lines and strategic boundaries. Its restructuring was implemented in much the same fash-... 

ASHLAND OIL The evolution of Ashland Oil, which also entered the postwar chemical industry through an SEP, differed sharply from that of the three companies just reviewed. It became a successful enterprise only by making a complete reversal in defining its strategic boundaries. 

Exxon, Arco, Amoco, Mobil, and Ashland also entered the mining of copper and other industrial minerals. For Mobil and Exxon, the latter included uranium. By 1993, however, these units had been spun off. A few firms strayed even further afield. Exxon and Arco undertook the production of computer products and provided computer services. Exxon even went so far as to acquire an innovative electric-motor enterprise. Reliance Electric. As mentioned above, Mobil purchased Montgomery Ward and the Container Corporation of America, while Occidental bought Iowa Beef, the nation s most successful meat packer. By the mid-1990s, however, the petroleum companies had sold off nearly all these acquisitions. By then, nearly all American industrial corporations had learned that such unrelated diversification could rarely remain profitable for more than a decade and defined their strategic boundaries accordingly. 

DEFINING THE STRATEGIC BOUNDARIES In the 1950s Merck made substantial investments in creating subsidiaries in Latin America and Europe. Later, when the threat of price controls loomed, the company began to diversify into related products. The overseas activities proved more successful than diversification. By 1955 sales outside of the United States represented 23 percent of Merck s revenues by 1975 the figure had almost doubled to 45 percent. 

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