Chapter 08

Topics: Strategic management, Strategic business unit, Management Pages: 19 (5990 words) Published: December 13, 2014
Chapter 8—Corporate-Level Strategy

Chapter 8: Corporate-Level Strategy
CHAPTER SUMMARY
This chapter focuses on the use of corporate-level strategies to define the arenas in which organizations will participate. Diversification strategy is the primary vehicle used at the corporate level to create value for a portfolio of businesses that exceeds the value potential of the individual businesses under different ownership. Diversification is examined at various levels of connectedness amongst the individual businesses within a corporation. Value-creating reasons for firms to use corporate-level strategies are explored, with a look at vertical integration as a means to gain power over competitors. Value-neutral and value-reducing reasons for diversifying are also presented, along with the design of organizational structure that facilitates implementation for each type of corporatelevel strategy discussed.

CHAPTER OUTLINE
Levels of Diversification
Low Levels of Diversification
Moderate and High Levels of Diversification
Reasons for Diversification
Diversification and the Multidivisional Structure
Related Diversification
Operational Relatedness: Sharing Activities
Using the Cooperative Form of the Multidivisional Structure to Implement the Related Constrained Strategy
Corporate Relatedness: Transferring of Core Competencies
Using the Strategic Business-Unit Form of the Multidivisional Structure to Implement the Related Linked Strategy
Market Power through Multimarket Competition and Vertical Integration Simultaneous Operational Relatedness and Corporate Relatedness Unrelated Diversification
Efficient Internal Capital Market Allocation
Restructuring
Using the Competitive Form of the Multidivisional Structure to Implement the Unrelated Diversification Strategy
Value-Neutral Diversification: Incentives and Resources
Incentives to Diversify
Resources and Diversification
Value-Reducing Diversification: Managerial Motives to Diversify Summary

KNOWLEDGE OBJECTIVES
1. Define corporate-level strategy and discuss its importance to the diversified firm. 2. Describe the advantages and disadvantages of single and dominant business strategies.

8–1

Chapter 8—Corporate-Level Strategy
3. Explain three primary reasons why firms move from single and dominant business strategies to more diversified strategies to enhance value creation. 4. Describe the multidivisional structure (M-form) and controls and discuss the difference between strategic controls and financial controls. 5. Describe how related diversified firms create value by sharing or transferring core competencies.

6. Explain the two ways value can be created with an unrelated diversification strategy. 7. Explain the use of the three versions of the multidivisional structure (M-form) to implement different diversification strategies.

8. Discuss the incentives and resources that encourage diversification. 9. Describe motives that can be incentives for managers to overdiversify a firm.

LECTURE NOTES
See slides 1-3.

Key Terms
ƒ Corporate-Level Strategy - specifies actions a firm takes to gain a competitive advantage by selecting and managing a portfolio of businesses that compete in different product markets or
industries.

See slide 4.

1.

Describe product diversification.
a. It is the primary form of corporate-level strategy.
b. It is concerned with the scope of the industries and
markets in which the firm competes.
c. It defines how managers buy, create, and sell different
businesses to match skills and strengths with
opportunities.
d. It is expected to reduce variability in the firm’s
profitability, generating earnings from several different
business units.
e. There is a cost to developing and monitoring a
diversification strategy, which must be balanced with
benefits to establish an ideal portfolio of businesses.

Levels of Diversification - This section introduces the different levels of diversification that vary...
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