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7/30/2019 Ch6-Corporate Level Strategy
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Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinStrategic Management: Text and Cases, 4e
6Corporate-Level Strategy:
Creating Value through
Diversification
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Questions Associated with Diversification
What businesses should a corporation compete in?
How should these businesses be managed to jointly
create more value than if they were freestanding units?
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Making Diversification Work
Diversification initiatives must create value for
shareholders
Diversification should create synergy
Business1
Business2
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Synergy
Related businesses (horizontal relationships)
Unrelated businesses (hierarchical relationships)
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Related Diversification
Economies of scope
Market power
Core competencies
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Three Criteria of Core Competencies
Core competencies must enhance competitive advantage(s)
by creating superior customer value
Different businesses in the firm must be similar in at least
one important way relatedto the core competence
Core competencies must be difficult for competitors to
imitate
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Other Synergies
Sharing tangible and value-creating activities across
corporate business units
Sharing activities provide two payoffs
- Cost savings
- Revenue enhancements
Similar businesses working together can have stronger
bargaining position
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Vertical Integration: Benefits and Risks
Exhibit 6.4 Benefits and Risks of Vertical Integration
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Unrelated Diversification
Most benefits from unrelated diversification are
gained from vertical (hierarchical) relationships
Corporate Parenting
Corporate Restructuring
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Corporate Management Must
Have insight to detect undervalued companies
or businesses with high potential fortransformation
Have requisite skills and resources to turn thebusinesses around
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Portfolio Management
Key
Each circle
represents one ofthe firms
business units
Size of circlerepresents therelative size of thebusiness unit interms of revenue
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Portfolio Management
Creation of synergies and shareholder value by
portfolio management and the corporate office
Creation of synergies and shareholder value by
portfolio management and the corporate office
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Different Approaches to Diversification
Acquisitions or mergers
Pooling resources of other companies with a
firms own resource base
Internal development
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Strategic Alliances and Joint Ventures
Introduce successful product or service into a new
market
Join other firms to reduce manufacturing (or other)
costs in the value chain
Develop or diffuse new technologies
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Some Challenges
Partnership Challenges
Managerial Challenges
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