MGMT 4850

fundamental corporate-level strategic decision

What products and services should the firm offer?

Synergy

When the value of two activities combined exceeds the value of the two activities owned separately

corporate strategy questions

Why do we have multi-business firms? - Which industries should a firm compete in? Which activities should we be in?

cost of entry test

Will Future Profits > Cost of Entry?

What is the shape of the relationship between the level of diversification and performance?

inverted U

Corporate strategy

is about ensuring that "the sum is greater than the parts" and enhances the competitive advantage of the businesses

What products and services should the firm offer?

fundamental corporate-level strategic decision

In order for a firm to lower costs, it must

grow

multidivisional structure

Allows for different competitive strategies at the SBU level but Adds another layer of corporate hierarchy

related diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

diversification strategy

Examine your resources, Match your resources different product markets, Use a Core Competence-Market Matrix

business strategy questions

How attractive is an industry? What opportunities & threats?- How can a firm position itself within the industry to create a sustainable competitive advantage? How should we compete?

Business Strategy

How to build a sustainable competitive advantage in a discrete and identifiable market

Related Diversifiers

Perform Better and Survive Longer than Unrelated Diversifiers

Corporate Strategy

The overall plan for a multi-business company

A non-diversified company focuses on what

a single market

diversification discount

a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units

diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

product market strategy

company that pursues both a product and a geographic diversification strategy

cash cows

compete in a low-growth market but have high market share

The key question of where to compete is addressed by

corporate strategy

dominant business firm

derives between 70 and 95% of revenues from a single business

strategy

determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (competitive advantage)

related-linked

diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities

widely diversified firms

do not generally have a good track record compared to more focused firms

the four underlying strategic management concepts that determine the scope of a firm

economies of scale core competencies transaction costs economies of scope

unrelated diversification strategy

less than 70% of revenues come from a single business and few linkages among its businesses

moderate level

level of diversification leads to the highest levels of performance

single business firm

low level diversification, derives more than 95% of revenues from one business

types of diversification tend to have the lowest performances

single business and unrelated diversification

main types of corporate diversification

single business diversification dominant business diversification related diversification unrelated diversification

dogs

small market share in a low-growth market.

core competencies

strengths that allow a firm to distinguish itself from the competition

restructuring

the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully

forward vertical integration

Changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain (farmer who directly sells his crops at a local grocery store)

backward vertical integration

Changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

transactions cost

associated with an economic exchange

related diversification leads to high levels of performance because

it accesses numerous areas of value creation, such as economies of scale and scope