Analyzing the administrative cost of diversification:
1. Negotiation costs with suppliers and distributers
2. Contracting costs
3. Monitoring costs
4. Enforcement costs
5. Coordination costs
Usually if administrative costs are higher than transaction cost
Chapter 6 Corporate-Level Strategy
Corporate strategy involves:
1. What business should we compete in?
2. How can we compete in that business?
Creating value by:
A. Diversifications: Intel & Microsoft, Exxon and Mobil
B. Mergers (how about Mercedes Bens a
Why should firms use BCG matrix?
It helps managers to determine where to spend money and where to cut costs. Some benefits
1. Firms can allocate resources
2. Firms take $ from cash cow and invest into stars
3. Firms use BCG to design managers and emp
3. Antitakeover tactics:
Unfriendly or hostile takeover may occur when stock decline. To avoid it, managers may take
some actions so that their jobs would be secure.
These actions are:
a. Greenmail: the company buys its own stocks (usually at a higher pri
B. Joint Ventures: when two or more corporations contribute their equity (needs third party to
1. Firms can enter new markets
2. Firms can reduce manufacturing costs
3. Firms can develop and use new technology
Mergers & Acquisitions: When firms buy other business
1. Helps to share knowledge and leverage their resources
2. Helps offer more product / services
3. Helps increase profit and market power (P&G and Gillette)
4. Helps to have less competitio
A2. Sharing activities:
Firms can use economies of scope and revenue enhancement by sharing their activities like
manufacturing activities, accounting activities etc. (Read strategy spotlight 6.1).
This should be done if:
a. Cost saving can be achieved by
3. Related diversification:
Related diversification is done by sharing activities such as manufacturing, facilities, etc. to save
money, boost revenue, and build market power. We have 2 ways to do this:
A. Economic of scope and revenue enhancement
Real Option Analysis:
Firms dont have to spend all their money at once and upfront
1. Back solver dilemma
How the managerial motives can erode value creation?
1. Growth for growths sake:
C. Corporate office contributes to parenting and restructuring:
Firms use their corporate office to diversify. Corporate office can help with some decision
making for example:
1. Wise choice in acquisition
2. Manufacturing performance
3. Budgeting and hum
Porters 4 forces diamond of national advantage is used when firm sets up
A. Corporate strategy
B. Business level strategy
C. Differentiation strategy
D. Overall cost leadership strategy
In the business-level strategy, as markets mature, firms should attem
The only possible exception to this rule is when we:
1. Need a specific (or high) product quality and/or bargaining power
2. Need to expand in global market
3. Need to differentiate our product
4. None of the above
Which one of the following is FALSE?
Combination Strategy: Firms integrations of various strategies to provide multiple types of
value to customers. This is the strategy that combines the Overall Cost Leadership and the
Usually firms use 3 approaches to combine th
II. Industry Life Cycle Stages: The stages of introduction, growth, maturity, and decline that
typically occur over the life of an industry.
There are 4 stages for every industry or every product that is called the industry or the product
VIDEO: Jeremy Clarkson driving the Reliant Robin.
Many brilliant minds designed this car for:
Lower taxes (motor cycle)
No need for drivers license
Not funny (sad and dangerous design) but yet very funny!
C. Focus Strategy: A firms generic strategy
B. Differentiation Strategy: A firms generic strategy based on creating differences in the firms
product or service offering by creating something that is perceived industry-wide as unique and
valued by customers. This strategy is achieved by creating a d
A. Overall Cost Leadership Strategy A firms generic strategy based on appeal to the
industry-wide market using a competitive advantage based on low cost. This strategy is achieved
by managing various relationships in the value chain.
To achieve Cost Leade
The Boston Consulting Group (BCG) developed the experience curve in 1968. Look at exhibit
2. Product Change Time: Lower the time it takes to switch plant line from five hours to
Example: NASCAR The CEO of General Mills, came up with an ide
How does Internet affect the 3 competitive strategies?
Overall Cost Leadership:
Online bidding and order processing eliminate the need for sales calls and minimize
Online purchase orders have made many transactions paperless, thu
Personalized online access provides customers with their own site within a site: in
which their prior orders, status of current orders, and requests for future orders are
processed directly on the suppliers website.
Online access to r
3. Maturity stage: The third stage of the product life cycle, characterized by (1) slowing demand
growth, (2) saturated markets, (3) direct competition, (4) price competition, and (5) strategic
emphasis on efficient operations. The stage that the demand f
After the Decline stage:
After the decline stage, it doesnt mean that the firm cannot do anything. Firms find a way to
turn-it-around. An example of this stage is the Apple and IBM Corporation.
Turnaround Strategy A strategy that reverses a firms declin