CHAPTER 6 Strategic Management

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GROUP 6

06.08.11


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This chapteron Corporate-Level Strategyexplains: Definition ofcorporate-levelstrategyand its

importanceto the diversified firm. Theadvantagesand disadvantages ofsingle-and

dominant-businessstrategies. Firmsmovefromsingle-and dominant-business

strategiesto more diversified strategies. Value creation bythe diversified firmsthrough

sharing ortransferring core competencies. Value creation byan unrelated diversification

strategy. Incentivesand resourcesthatencourage

diversification.


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` Business-level Strategy (Competitive) Eachbusinessunitin a diversified firm choosesa

business-levelstrategyasitsmeans ofcompetinginindividualproductmarkets

` Corporate-level Strategy (Companywide) Specifiesactionstaken bythefirmto gain a competitive

advantagebyselectingand managingagroup of

differentbusinesses competingin severalindustriesandproductmarkets


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e.g. Wrigley Jr. Company

e.g. UPS United

Parcel Service

e.g. Procter &

Gamble

e.g. GE General

Electric


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` e.g. Samsung


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Related Diversification

Involves diversifying

into businesseswhose

value chainspossesscompetitivelyvaluable

strategic fitswithvalue

chain(s) offirms

presentbusiness(es)

UnrelatedDiversification

Involves diversifying

into businesseswith nodeliberateeffortto seek

outbusinesseshaving

strategic fitwithfirms

presentbusiness(es)


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` Reapcompetitive advantage benefits of Skillstransfer Lowercosts Common brand nameusage Strongercompetitive capabilities

` Spreadinvestorrisks overabroaderbase` Preservesstrategic unityin itsbusiness

activities

` Achieveconsolidated performance greaterthan thesum ofwhatindividualbusinessescan earn operatingindependently


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` Competitive advantage can resultfromrelated

diversification ifopportunitiesexistto

Transferexpertise/capabilities/technology

Combine related activitiesinto asingle operation and

reduce costs

Leverage use offirmsbrand name

reputation

Conductrelated value chain activitiesin acollaborativefashion to createvaluablecompetitive capabilities


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Market power` Sellitsproductsabovetheexisting competitivelevel

and/orReducethe costs ofitsprimaryand supportactivitiesbelowthe competitivelevel

Multipoint Competition` Two ormore diversified firmssimultaneously compete

in thesameproductareas orgeographic markets

Vertical Integration` Backward integrationafirmproducesits own inputs` Forward integrationafirm operatesits own

distribution systemfordeliveringits outputs


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Value is created from economies of scope is:

i ) Operational relatedness in sharingactivities

ii)Corporate relatedness in transferringskills orcorporate core competenciesamongunits

` The differencebetween sharingactivitiesand

transferring competenciesisbased on howtheresourcesare jointlyused to createeconomies ofscope


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` Created bysharingeitheraprimary activitysuchasinventory deliverysystems, orasupportactivitysuchaspurchasing

` Activity sharingrequiressharingstrategic controloverbusinessunits

` Activitysharingmaycreate riskbecausebusiness-

unitties createlinksbetween outcomes


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` Eliminates resource duplication in the need to

allocateresourcesforasecond unitto develop

a competencethatalreadyexistsin another

unit

` Provides intangible resources (resource

intangibility)thatare difficultforcompetitorstounderstand and imitate


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Financial Economies

` Are costsavingsrealized throughimproved

allocations offinancialresources

i) Based on investments inside or outsidethe firm

` Createvaluethroughtwo types offinancial

economies:

i) Efficient internal capital allocations

ii)Purchasing other corporations and

restructuring their assets


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` Restructuring creates financial economies

i) A firm creates value by buying and selling

other firms assets in the external market

` Resource allocation decisions may become

complex, so success often requires:

i) Focus on mature, low-technology

businesses

ii) Focus on businesses not reliant on a client

orientation


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CHAPTER 6 Strategic Management

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