Module 05 - Corporate Strategy(1)

Module 05 - Corporate Strategy(1) - Corporate Strategy...

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Corporate Strategy Module 5
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The Corporate Level Highest location in corporate hierarchy is the corporate level Units under the corporate umbrella are business-level
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Key Issues in Corporate Strategy What businesses should a corporation compete in? How should these businesses be managed to jointly create more value than if they were freestanding units? This module concentrates on the ‘growth’ based corporate strategies; turnaround approaches, through retrenchment, are not covered beyond their definitions (e.g., harvest, divest, liquidate) 6-3
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Theories of Corporate Expansion Bain argued that expansion by an entrant is likely when: No absolute cost advantage over potential entrant firms No product differentiation advantage over potential entrant firms Negligible economies of scale advantage Penrose argued that expansion likelihood varies because: Resources are often indivisible (cannot be split for expansion) Resources can be used differently under different circumstances New productive services are continually created in the ordinary processes of operation and expansion Montgomery and Hariharan put Bain’s and Penrose’s ideas together: the probability of a firm entering a new industry depends on (i) the firm’s internal characteristics, (ii) the industry’s characteristics, and (iii) the fit between the firm’s characteristics and the industry’s characteristics 6-4
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Types of Corporate Strategies (of Growth) Integration (growth based) Horizontal Vertical (this is actually done through a highly specific natured diversification! It is still called integration as it integrates the value chain) Diversification (growth based) Related Unrelated 6-5
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Horizontal Integration
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  • Spring '14
  • AlanB.Eisner
  • unrelated diversification, potential entrant firms, relatedly diversified firm

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