Ch06MBA - Chapter 6: Corporate-Level Strategy Overview:...

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1 Chapter 6: Corporate-Level Strategy Overview: Define and discuss corporate-level strategy Different levels and types of diversification Three primary reasons firms diversify Value creation: related diversification strategy Value creation: un related diversification strategy Incentives and resources encouraging diversification Management motives for overdiversification
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2 Introduction Business-level Strategy An integrated and coordinated set of commitments and actions the firm uses to gain competitive advantage by exploiting core competencies in specific product markets Corporate-level Strategy Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets Expected to help firm earn above-average returns Value ultimately determined by degree to which “the businesses in the portfolio are worth more under the management of the company then they would be under any other ownership”
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3 Introduction Corporate-level strategy is concerned with: What product markets and businesses the firm should compete in How corporate headquarters should manage those businesses Product Diversification: primary form of corporate-level strategy Concerns: The scope of the markets and industries firm competes in How the firm manages their portfolio of businesses Diversification is often looked at as a growth strategy
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4 Introduction Diversified firms vary according to level and type of diversification (Figure 6.1) Level – # of different industries a firms competes in Type – degree of relatedness between business units Corporate-level strategy is also concerned with: Capturing economies of scope or synergies between business units (Related) Capturing financial synergies (Unrelated)
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5 Levels and Types of Diversification Low Levels Single Business Strategy Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business area Wrigley Dominant Business Diversification Strategy Corporate-level strategy whereby firm generates 70-95% of total sales revenue within a single business area UPS, Ford, American Airlines
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6 Levels and Types of Diversification Moderate to High Levels Related Constrained Diversification Strategy Less than 70% of revenue comes from the dominant business
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Ch06MBA - Chapter 6: Corporate-Level Strategy Overview:...

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