CHAPTER 6 Corporate-Level Strategy.pptVIP

CHAPTER 6Corporate-Level Strategy KNOWLEDGE OBJECTIVES Define corporate-level strategy and discuss its purpose. Describe different levels of diversification with different corporate-level strategies. Explain three primary reasons firms diversify. Describe how firms can create value by using a related diversification strategy. Explain the two ways value can be created with an unrelated diversification strategy. Discuss the incentives and resources that encourage diversification. Describe motives that can encourage managers to overdiversify a firm. The Role of Diversification Diversification strategies play a major role in the behavior of large firms. Product diversification concerns: The scope of the industries and markets in which the firm competes. How managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm. Two Strategy Levels Business-level Strategy (Competitive) Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets. Corporate-level Strategy (Companywide) Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets. Corporate-Level Strategy: Key Questions Corporate-level Strategy’s Value The degree to which the businesses in the portfolio are worth more under the management of the company than they would be under other ownership. What businesses should the firm be in? How should the corporate office manage the group of businesses? Levels of Diversification: Low Level Levels of Diversification: Moderate to High Related Constrained Less than 70% of revenue comes from a single business and all businesses share product, technological and distribution linkages. Related Linked (mixed related and unrelated) Less than 70% of revenue comes from the dominant business, and there are only limited links between busin