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CHAPTER 6 Corporate-Level Strategy (Reasons of Diversification (1. Low…
CHAPTER 6 Corporate-Level Strategy
Definition
Actions taken by firm to gain competitive advantage by managing a group of different businesses competing in several industries
Types of Diversification
Moderate to High
Related Constrained
Revenue 70% < from dominant business, and all business share product, technological, and distribution linkages
Related linked
Revenue < less 70% comes from dominant business, only limited links between businesses
Low Level
Single business
Revenue > 95% comes from a single business
Dominant business
Revenue 70% - 95% from single business
High Level
Unrelated
Revenue 70% comes from dominant businesses, no common links between business
Reasons of Diversification
1.
Low performance
2.
Uncertain future cash flows
3.
Risk reduction for firm
4.
Tangible resources
5.
Intangible resources
6.
Managerial Motives (Value reduction)
7.
Diversifying managerial employment risk
Related Diversification
Transferring core competencies
Corporate relatedness.
using sets of resources and capabilities too link different businesses through managerial and technological knowledge, and expertise
Provides intangible resources that are difficult for competitors to imitate
Eliminates resource duplication to develop a competence that already exist in another unit
Market power
Blocking competitors through multi point competition
Sharing activities
Sharing either primary activity (eg. inv delivery systems) or support activity (eg. purchasing)
Activity sharing requires strategic control over business units
Activity sharing may create risk because business unit ties create links between outcomes
Vertical integration
when company produces its own input/output distribution. used in firm's core buss to gain market power over other rivals
Backward integration -
a firm produces its own inputs
Forward integration -
a firm operates its own distribution system for delivering its outputs
Economies of scope
cost saving that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its business
Corporate relatedness in transferring skills or corporate core competencies among units
Operational relatedness in sharing activities
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Values
Firm creates value by extending its
Resources
Capabilities
Core competencies
Unrelated Diversification
Financial economies
cost saving realized through improved allocations of financial resources
Create value through 2 types of financial economies:
Efficient internal capital allocations
Purchasing other corporations and restructuring their assets
Efficient internal capital allocation
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Business restructuring
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