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MGMT 101 Outline1 RM

Cost leadership is used later in the cycle once we

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Cost Leadership is used later in the cycle once we really understand what the product is; here, there is low/no market growth, many segments, intense competition, and low emphasis on product design. Focus may come in much later, often during decline. In decline, the decision to consolidate, harvest, or exit is a Corporate-Level Decision . Lecture Five: Corporate-Level Strategy Choosing new markets to be in is a corporate-level strategy decision. Corporate-Level Strategy determines which industries you should be in and answers the question, how do we derive advantage across businesses? Doing so involves Diversification , the act of entering into a new business (a product market line, for example). 5
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What, Where, Why, and How must be explained to properly address questions about Diversification. Start by understanding the shareholders/stakeholders. Understand what each group’s goals are. What/Where: Categories of Diversification o Related v. Unrelated o Vertical Integration v. Horizontal Why: what logic underlies your choice to diversify? How: the means by which to diversify o M&A; Strategic Alliances; Joint Ventures; Internal Development o Forward or Backward (Upstream or Downstream) Diversification should create Value through synergy; all shareholders should be better off. Synergy is often not created in real-life diversification attempts. Approximately 33% of M&A’s create value. Related (Horizontal) Diversification includes sharing tangible or intangible resources. You must argue that your firm has resources that will allow you to create some synergy with another business. The majority of diversification is related and it tends to historically created the most value. 1. Core Competencies : something that your firm is particularly good at and is not easily imitated or substituted by your competitors. Synergy and value are created using the strategic logic of Economies of Scope . This usually requires a lot of R&D and some unique, particular knowledge. a. The glue that binds existing businesses together; value created through collective learning b. Examples: Intel’s chips, 3M’s ability to make sticky things, Apple’s innovative reputation i. Apple used its core competency of innovation to enter the cell phone industry 2. Sharing Activities : synergy achieved by sharing tangible and value-creating activities across their business units. The strategic logic here is Economies of Scope or Increased Market Power . a. Examples: common manufacturing facilities, distribution channels, sales forces b. Lead to Cost Savings and Revenue Enhancements 3. Pooled Negotiating Power : similar businesses working together can have stronger bargaining position relative to suppliers, customers, or competitors. This is a Horizontal movement, creating value with the strategic logic of Increased Market Power .
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