Corporate-Level Strategy Chapter Seven © 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic  Management  Process Chapter 5:  Bus.-Level Strategy Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition ...
Corporate–Level Strategy <ul><li>Knowledge Objectives: </li></ul><ul><li>Define corporate-level strategy and discuss its i...
Corporate Strategy  concerns 2 key questions: Corporate-level strategy specifies actions to be taken by the firm to gain a...
Firms Vary by Degree of Diversification A Single-business > 95% of revenues from a single business unit Low Levels of Dive...
Reasons for Diversification * Motives to Enhance Strategic Competitiveness <ul><li>Economies of Scope </li></ul><ul><li>Ma...
Reasons for Diversification Resources Incentives Managerial Motives <ul><li>Anti-Competition Regulation </li></ul><ul><li>...
Reasons for Diversification Resources Incentives Managerial Motives * <ul><li>Managerial Motives  Causing Value Reduction ...
Summary Model of the Relationship between Firm Performance & Diversification Resources Incentives Managerial Motives Diver...
Value-creating Strategies of Diversification Operational and Corporate Relatedness <ul><li>Related Linked  </li></ul><ul><...
Alternative Diversification Strategies Transferring Core Competencies 2 Efficient Internal Capital Market Allocation Unrel...
Sharing Activities Sharing Activities can lower costs if it: Example :   Laboratory costs forcing drug companies to merge ...
Sharing Activities Assumptions 1 * * Incentive system that rewards more than just business unit performance Strong sense o...
Alternative Diversification Strategies Sharing Activities 1 Related Diversification Strategies Efficient Internal Capital ...
Transferring Core Competencies Key Characteristics 2 * Exploits  Interrelationships  among divisions * Start with  Value C...
Transferring Core Competencies Assumptions Transferring Core Competencies leads to competitive advantage only if the simil...
Alternative Diversification Strategies Transferring Core Competencies 2 Restructuring 4 Sharing Activities 1 Related Diver...
Efficient Internal Capital Market Allocation Portfolio managers transfer resources from units that generate cash to those ...
Efficient Internal Capital Market Allocation Assumptions Managers have more detailed knowledge of firm relative to outside...
Alternative Diversification Strategies Efficient Internal Capital Market Allocation Unrelated Diversification Strategies 3...
Restructuring Key Characteristics <ul><li>Seek out undeveloped, sick or threatened </li></ul><ul><li>organizations or indu...
Restructuring Assumptions Requires keen management insight in selecting firms with depressed values or unforeseen potentia...
Diversification & Firm Performance Performance Level of Diversification Dominant Business Unrelated Business Related Const...
Incentives to Diversify External Incentives <ul><li>Relaxation of Anti-Competition regulation allows </li></ul><ul><li>mor...
Summary Model of the Relationship   between Firm Performance & Diversification Resources Incentives Managerial Motives Div...
The Strategic  Management  Process Chapter 5:  Bus.-Level Strategy Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition ...
Upcoming SlideShare
Loading in...5
×

Strategic Management Ch07

4,662

Published on

Published in: Education
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
4,662
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
392
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • 11
  • 15
  • 17
  • 18
  • 19
  • 19
  • 24
  • 29
  • 36
  • 24
  • 41
  • 44
  • 24
  • 51
  • 54
  • 24
  • 58
  • 60
  • 67
  • 61
  • 19
  • Strategic Management Ch07

    1. 1. Corporate-Level Strategy Chapter Seven © 2006 by Nelson, a division of Thomson Canada Limited.
    2. 2. The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness
    3. 3. Corporate–Level Strategy <ul><li>Knowledge Objectives: </li></ul><ul><li>Define corporate-level strategy and discuss its importance to the diversified firm. </li></ul><ul><li>Describe the advantages & disadvantages of single-business strategies and dominant-business strategies. </li></ul><ul><li>Explain 3 primary reasons why firms move from single- & dominant-business strategies to more diversified ones </li></ul><ul><li>Describe how related-diversified firms create value by sharing or transferring core competencies </li></ul><ul><li>Explain the two ways value can be treated with an unrelated-diversification strategy </li></ul><ul><li>Discuss incentives & resources that encourage divers-ification & motives that encourage over-diversifcation </li></ul>
    4. 4. Corporate Strategy concerns 2 key questions: Corporate-level strategy specifies actions to be taken by the firm to gain a competitive advantage by selecting & managing a group of different businesses competing in several industries & product markets 1. What businesses should the firm in? 2. How should the corporate office manage the array of business units?
    5. 5. Firms Vary by Degree of Diversification A Single-business > 95% of revenues from a single business unit Low Levels of Diversification Dominant-business Between 70% & 95% of revenues from a single business unit B A Unrelated-Diversified Business units not closely related High Levels of Diversification A B C Moderate to High Levels of Diversification < 70% of revenues from dominant business; bus.s share product, technological & distribution links Related constrained Related linked (mixed) < 70% of revenues from dominant business, only limited links exist A B C B A C
    6. 6. Reasons for Diversification * Motives to Enhance Strategic Competitiveness <ul><li>Economies of Scope </li></ul><ul><li>Market Power </li></ul><ul><li>Financial Economies </li></ul>Resources Incentives Managerial Motives
    7. 7. Reasons for Diversification Resources Incentives Managerial Motives <ul><li>Anti-Competition Regulation </li></ul><ul><li>Tax Laws </li></ul><ul><li>Low Performance </li></ul><ul><li>Uncertain Future Cash Flows </li></ul><ul><li>Firm Risk Reduction </li></ul><ul><li>Tangible Resources </li></ul><ul><li>Intangible Resources </li></ul>Incentives & Resources with Neutral Effects of Strategic Competitiveness
    8. 8. Reasons for Diversification Resources Incentives Managerial Motives * <ul><li>Managerial Motives Causing Value Reduction </li></ul><ul><li>Diversifying Managerial </li></ul><ul><li>Employment Risk </li></ul><ul><li>Increasing Managerial Compensation </li></ul>
    9. 9. Summary Model of the Relationship between Firm Performance & Diversification Resources Incentives Managerial Motives Diversification Strategy
    10. 10. Value-creating Strategies of Diversification Operational and Corporate Relatedness <ul><li>Related Linked </li></ul><ul><li>Diversification </li></ul><ul><li>(Economies of Scope) </li></ul><ul><li>Unrelated </li></ul><ul><li>Diversification </li></ul><ul><li>(Financial Economies) </li></ul><ul><li>Both Operational and Corporate Relatedness </li></ul><ul><li>(Rare & can create diseconomies of scope) </li></ul><ul><li>Related Constrained Diversification </li></ul><ul><li>Vertical Integration </li></ul><ul><li>(Market Power) </li></ul>Corporate Relatedness: Transferring Skills Into Business Through Corporate Headquarters Low High Sharing: Operational Relatedness Between Business High Low
    11. 11. Alternative Diversification Strategies Transferring Core Competencies 2 Efficient Internal Capital Market Allocation Unrelated Diversification Strategies 3 Restructuring 4 Sharing Activities 1 Related Diversification Strategies
    12. 12. Sharing Activities Sharing Activities can lower costs if it: Example : Laboratory costs forcing drug companies to merge in order to continue R&D efforts Sharing Activities can enhance differentiation if it: Example : Shared order processing may allow discovery of new features customers value from a group of products 1 Key Characteristics * Achieves economies of scale * Boosts efficiency of utilization * Helps move more rapidly down Learning Curve Involves activities crucial to competitive advantage *
    13. 13. Sharing Activities Assumptions 1 * * Incentive system that rewards more than just business unit performance Strong sense of corporate identity * Clear corporate mission that emphasizes the importance of integrating business units *
    14. 14. Alternative Diversification Strategies Sharing Activities 1 Related Diversification Strategies Efficient Internal Capital Market Allocation Unrelated Diversification Strategies 3 Restructuring 4 Transferring Core Competencies 2
    15. 15. Transferring Core Competencies Key Characteristics 2 * Exploits Interrelationships among divisions * Start with Value Chain analysis Identify ability to transfer skills or expertise among similar value chains Exploit ability to share activities Two firms can share the same sales force, logistics network or distribution channels.
    16. 16. Transferring Core Competencies Assumptions Transferring Core Competencies leads to competitive advantage only if the similarities among business units meet the following conditions: 2 Activities involved in the businesses are similar enough that sharing expertise is meaningful. * Transfer of skills involves activities which are important to competitive advantage. * The skills transferred represent significant sources of competitive advantage for the receiving unit. *
    17. 17. Alternative Diversification Strategies Transferring Core Competencies 2 Restructuring 4 Sharing Activities 1 Related Diversification Strategies Efficient Internal Capital Market Allocation Unrelated Diversification Strategies 3
    18. 18. Efficient Internal Capital Market Allocation Portfolio managers transfer resources from units that generate cash to those with high growth potential and substantial cash needs. <ul><li>Add professional management/control to sub-units </li></ul><ul><li>Sub-unit managers’ compensation based on unit </li></ul><ul><li>results. </li></ul>Key Characteristics Firms using this strategy often diversify by acquisition: 3 <ul><li>Acquire sound, attractive companies </li></ul><ul><li>Acquired units are autonomous </li></ul><ul><li>Acquiring corporation supplies needed capital </li></ul>
    19. 19. Efficient Internal Capital Market Allocation Assumptions Managers have more detailed knowledge of firm relative to outside investors. Firm can reduce risk by allocating resources among diversified businesses, although shareholders can generally diversify more economically on their own. Firm need not risk competitive edge by disclosing sensitive competitive information to investors. 3 Efficient Internal Capital Market Allocation
    20. 20. Alternative Diversification Strategies Efficient Internal Capital Market Allocation Unrelated Diversification Strategies 3 Transferring Core Competencies 2 Sharing Activities 1 Related Diversification Strategies Restructuring 4
    21. 21. Restructuring Key Characteristics <ul><li>Seek out undeveloped, sick or threatened </li></ul><ul><li>organizations or industries </li></ul>Often sells unit after making one-time changes since parent no longer adds value to ongoing operations. <ul><li>Parent firm (acquirer) intervenes & frequently: </li></ul>4 - Changes sub-unit management team - Shifts strategy - Divests part of firm - Makes additional acquisitions to achieve critical mass - Infuses firm with new technology - Enhances discipline by changing control systems
    22. 22. Restructuring Assumptions Requires keen management insight in selecting firms with depressed values or unforeseen potential. Must do more than restructure companies. Need to initiate restructuring of industries to create a more attractive environment. 4 *
    23. 23. Diversification & Firm Performance Performance Level of Diversification Dominant Business Unrelated Business Related Constrained
    24. 24. Incentives to Diversify External Incentives <ul><li>Relaxation of Anti-Competition regulation allows </li></ul><ul><li>more related acquisitions than in the past. </li></ul><ul><li>Poor performance may lead some firms to diversify to </li></ul><ul><li>attempt to achieve better returns in new industries. </li></ul><ul><li>Firms may diversify into different businesses in order to </li></ul><ul><li>reduce risk. </li></ul>Internal Incentives <ul><li>Firms may diversify to balance uncertain future cash </li></ul><ul><li>flows. </li></ul><ul><li>Managers often have incentives to diversify to raise </li></ul><ul><li>their compensation & reduce employment risk. </li></ul><ul><li>(Effective governance mechanisms may restrict such abuses) </li></ul>
    25. 25. Summary Model of the Relationship between Firm Performance & Diversification Resources Incentives Managerial Motives Diversification Strategy Firm Performance Capital Market Intervention and Market for Managerial Talent Internal Governance Strategy Implementation
    26. 26. The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×