Slides%205%20Corporate%20Level%20Strategy

Slides%205%20Corporate%20Level%20Strategy - Strategic...

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Strategic Management/ Strategic Management/ Business Policy Business Policy Slides 5 Corporate Strategy
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Corporate Level Strategy Corporate Level Strategy corporate-level strategy  is an action  taken to gain a competitive advantage  through the selection and management  of a mix of businesses competing in  several industries or product markets. What businesses should the firm be in? How should the corporate office manage  its group of businesses?
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Corporate Level Strategy Corporate Level Strategy Vertical Integration Diversification  (corporate portfolio  management) To add value , a corporate strategy should enable a company, or one of its business units, to perform one or more of the  value creation functions at a  lower cost , or in a way which  supports a  differentiation advantage .  Corporate strategy is  the way a company creates value through the configuration  and coordination of  multi-market activities .
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Vertical Integration Vertical Integration Defining Vertical Integration The number of stages in a product’s or service’s  value chain  that a particular firm engages in  defines that firm’s level of vertical integration. Forward integration :  When Coca-Cola began buying  its previously franchised independent bottlers. Backward integration :  When Home Box Office began  producing its own movies for screening on the HBO  Cable Channel.
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Vertical Integration Vertical Integration Why vertically integrate? Market Power entry barriers down stream price maintenance up stream power over price Efficiency specialized assets & the holdup problem protecting product quality improved scheduling
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Transactions Costs and the Scope of the Firm Which is more efficient : several specialist firms linked by markets, or the combination of these specialist firms under common ownership. VERTICAL PRODUCT GEOGRAPHICAL AREAS SINGLE V 1 P 1 P 2 P 3 A 1 A 2 A 3 FIRM V 2 V 3 SEVERAL V 1 P 1 P 2 P 3 A 1 A 2 A 3 SPECIALIZED V 2 FIRMS V 3 Common Issue --- What are TRANSACTION COSTS of markets compared with administrative costs of the firm?
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Vertical Integration Vertical Integration In order to avoid confusion on the vertical  coordination problem it is important for the manager  to separate two distinct issues: Issue #1:  What is the objective  for vertical  coordination?  Or put differently, what  efficiencies, risk sharing, or market power  advantages are being sought? Issue #2:  What organizational form  (e.g., vertical  contracts, equity joint ventures, mergers &  acquisitions) best achieves the desired  objective(s)?
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Diversification Diversification Diversification Issues 1.  Motives for diversification 2.  Mode of diversification 3.  Measurement of diversification
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This note was uploaded on 08/18/2011 for the course BADM 449 taught by Professor Fertig during the Spring '11 term at University of Illinois at Urbana–Champaign.

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Slides%205%20Corporate%20Level%20Strategy - Strategic...

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