Corporate Diversification Corporate Diversification Corporate Level Strategies Detail actions taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets. Relevant questions: What business should the firm be in? How should the corporate office manage its group of businesses?
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Sharing activities often lowers costs or raises differentiationSharing activities often lowers costs or raises differentiation.
Sharing activities can lower costs if it:Sharing activities can lower costs if it:
- achieves economies of scale.- achieves economies of scale. - boosts efficiency of utilization. - boosts efficiency of utilization. - helps move more rapidly down the learning curve- helps move more rapidly down the learning curve.
• Sharing activities:
Sharing activities can enhance potential for or reduce the Sharing activities can enhance potential for or reduce the cost of differentiation.cost of differentiation.
Must involve activities that are crucial to competitive advantage.Must involve activities that are crucial to competitive advantage.
- activities involved in the businesses are similar enough that - activities involved in the businesses are similar enough that sharing sharing expertise is meaningful.expertise is meaningful.
- transfer of skills involves activities which are important transfer of skills involves activities which are important toto competitive advantage.competitive advantage.
- the skills transferred represent significant sources of the skills transferred represent significant sources of competitivecompetitive advantage for the receiving unitadvantage for the receiving unit
- Sharing of know-how, or transferring of skills that have already Sharing of know-how, or transferring of skills that have already been paid for.been paid for.- Same generic strategy- Same generic strategy- Same type of buyer- Same type of buyer- Similar configuration of value chain- Similar configuration of value chain- Similar important value activity- Similar important value activity- Example: Phillip Morris acquisition of Kraft and Miller Brewing.- Example: Phillip Morris acquisition of Kraft and Miller Brewing.
Firms using this strategy frequently use acquisitions.
• Efficient internal capital market
- acquire sound, attractive companies.- acquired units are autonomous.- acquiring corporation supplies needed capital.- portfolio managers transfer resources from units that generate cash to those with high growth potential and substantial cash needs.- add professional management & control to sub-units.- sub-unit managers compensation based on unit results.