Corporate-Level Strategy.ppt

Corporate-Level Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Levels and Types of Diversification Levels and Types of Diversification Levels and Types of Diversification Levels and Types of Diversification Reasons for Diversification Reasons for Diversification Value-creating Strategies of Diversification: Operational and Corporate Readiness Adding Value by Diversification Diversification most effectively adds value by either of two mechanisms: Economies of scope: cost savings attributed to transferring the capabilities and competencies developed in one business to a new business Market power: when a firm is able to sell its products above the existing competitive level or reduce the costs of its primary and support activities below the competitive level, or both Diversification and Multidivisional Structure Three major benefits more accurate monitoring of the performance of each business, simplifying problems of control facilitate comparisons between divisions, improving resource allocation process stimulate managers of poorly performing divisions to look for ways of improving performance Alternative Diversification Strategies Related Diversification Strategies sharing activities transferring core competencies Unrelated Diversification Strategies efficient internal capital market allocation restructuring Alternative Diversification Strategies Sharing Activities: Sharing activities often lowers costs or raises differentiation Sharing activities can lower costs if it: achieves economies of scale boosts efficiency of utilization helps move more rapidly down the Learning Curve Sharing activities can enhance potential for or reduce the cost of differentiation Must involve activities that are crucial to competitive advantage Sharing Activities: Strong sense of corporate identity Clear corporate mission that emphasizes the importance of integrating business units Incentive system that rewards more than just business unit performance Alternative Diversifica