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
