Corporate-level strategy (Companywide)
specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets.
Economies of scope
are cost savings that the firm creates by successfully sharing some of its resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses.
Corporate-level core competencies
are complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise.
Market power
exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of its primary and support activities below the competitive level, or both.
Multipoint competition
exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets.
Vertical integration
exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration).
Financial economies
are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.
Synergy
exists when the value created by business units working together exeeds the value that those same units create working independently.
Business-level Strategy (Competitive)
Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets.
Diversification Strategy
A corporate strategy that takes the organization away from both its current markets and products.
Product Diversification
The scope of the industries and markets in which the firm competes. How managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm.
Measurement of Corporate-level Strategy's Value
The degree to which the businesses in the portfolio are worth more under the management of the company than they would be under other ownership.
Single Business (low level)
More than 95% of revenue comes from a single business. E.g. Wrigley Company vs. Warner-Lambert (Trident, Dentyne)
Dominant Business (low level)
Between 70% and 95% of revenue comes from a single business. E.g. Hershey (Confectionery), UPS--US package delivery.
Related Constrained (moderate to high)
Less than 70% of revenue comes from a single business and all businesses share product, technological and distribution linkages. E.g. P&G, Disney
Related Linked--mixed related and unrelated (moderate to high)
Less than 70% of revenue comes from the dominant business, and there are only limited links between businesses. E.g. GE
Unrelated Diversification (very high levels)
Less than 70% of revenue comes from the dominant business, and there are no common links between businesses. E.g. Virgin, Daewoo etc.
Reasons for Value-Created Diversification
Economies of scope (related diversification), Sharing activities, Transferring core competencies, Market power (related diversification), Blocking competitors through multipoint competition, Vertical integration, Financial economies (unrelated diversifica
Reasons for Value-Neutral Diversification
Antitrust regulation, Tax laws, Low performance, Uncertain future cash flows, Risk reduction for firm, Tangible resources, Intangible resources
Reasons for Value-Reducing Diversification
Diversifying managerial employment risk, Increasing managerial compensation.
Value is created from economies of scope through:
(1) Operational Relatedness--in sharing activities, (2) Corporate Relatedness--in transferring skills of corporate core competencies among units.
Corporate Relatedness: Transferring Core Competencies
Using cmoplex sets of resources and capabilities to link different businesses through managerial and technological knowledge, experience, and expertise.