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Unformatted text preview: Chapter 6: Corporate-Level Strategy Chapter 6 Corporate-Level Strategy KNOWLEDGE OBJECTIVES 1. Define corporate-level strategy and discuss its purpose. 2. Describe different levels of diversification with different corporate-level strategies. 3. Explain three primary reasons firms diversify. 4. Describe how firms can create value by using a related diversification strategy. 5. Explain the two ways value can be created with an unrelated diversification strategy. 6. Discuss the incentives and resources that encourage diversification. 7. Describe motives that can encourage managers to overdiversify a firm. CHAPTER OUTLINE Opening Case Fosters Group Diversification into the Wine Business LEVELS OF DIVERSIFICATION Low Levels of Diversification Moderate and High Levels of Diversification REASONS FOR DIVERSIFICATION VALUE-CREATING DIVERSIFICATION: RELATED CONSTRAINED AND RELATED LINKED DIVERSIFICATION Operational Relatedness: Sharing Activities Corporate Relatedness: Transferring of Core Competencies Strategic Focus Oracles Related Constrained Diversification Strategy Market Power Simultaneous Operational Relatedness and Corporate Relatedness UNRELATED DIVERSIFICATION Efficient Internal Capital Market Allocation Strategic Focus Johnson & Johnson Uses Both Operational and Corporate Relatedness Restructuring of Assets Strategic Focus Danaher and ITW: Serial Acquirers of Diversified Industrial Manufacturing Businesses VALUE-NEUTRAL DIVERSIFICATION: INCENTIVES AND RESOURCES Incentives to Diversify Resources and Diversification VALUE-REDUCING DIVERSIFICATION: MANAGERIAL MOTIVES TO DIVERSIFY SUMMARY REVIEW QUESTIONS EXPERIENTIAL EXERCISES VIDEO CASE NOTES 6-1 Chapter 6: Corporate-Level Strategy LECTURE NOTES Chapter Introduction : Chapters 4 and 5 looked at strategy at the level of the business and focused on the factors and approaches that can lead to competitive advantage and superior performance. Chapter 6 takes this a step further by standing back to consider strategy at a higher levelcorporate strategy. The concern here is for the performance benefits that are derived from putting together an effective portfolio of businessesthat is, putting businesses together in a way that makes sense and can generate synergies between units. The discussion of this chapter builds toward a summary presented in Figure 6.4 . It might be helpful to review that figure carefully before starting into the material of the chapter. OPENING CASE Fosters Group Diversification into the Wine Business Fosters is a well known Australian manufacturer and distributor of beer. However, in 2001 it entered the wine business with the purchase of Beringer Wine Estates of California. The subsequent purchase of Southcorp, another premium wine maker, in 2005 made Fosters one of the worlds biggest wine companies. In 2008, wine contributed 76 percent of the companys sale earnings....
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- Spring '11