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| Corporate level strategie |
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Definition
| help companies select new strategic positions that are expected to increase the firm’s value; expected to help |
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| moving into different geographic markets |
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| developing new products and/or significantly improving on existing products |
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| acquisition of competitors; horizontal movement at the same point in the value chain |
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| becoming your own supplier or distributor through acquisition; |
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| corporate level strategy value |
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| is ultimately determined by the degree to which “the businesses in the portfolio are worth more under the management of the company than they would be under any other ownership” |
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| growing into new business areas either related (similar to existing business) or unrelated (different from existing business); allows a firm to create value by productively using excess resources |
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| diversified firm operates |
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Definition
| in several different and unique product markets and likely in several businesses; it forms two types of strategies: corporate-level (or company-wide) and business-level (or competitive) |
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| a primary form of corporate-level strategies; concerns the scope of the markets and industries in which the firm competes |
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| The ideal portfolio of businesses balances diversification’s costs and benefits: |
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Definition
| Reduction in profitability variability as earnings are generated from different businesses |
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| value creation; low – high levels of diversification |
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Definition
● The sharing of resources (the related constrained strategy)
● The transferring of core competencies across the firm’s different businesses (the related linked strategy)
● Managerial motives to diversify can |
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| A firm is related through its diversification when its businesses share links across: |
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Definition
■ PRODUCTS (goods or services)
■ TECHNOLOGIES
■ DISTRIBUTION CHANNELS |
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Term
| low level single business strategy |
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Definition
| Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business area |
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| low level Dominant Business Diversification Strategy |
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| Corporate-level strategy whereby firm generates 70-95% of total sales revenue within a single business area |
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Term
Moderate to High Levels
Related Constrained Diversification Strategy |
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Definition
Less than 70% of revenue comes from the dominant business
Direct links (i.e., share products, technology, and distribution linkages) between the firm's businesses |
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Moderate to High Levels
Related Linked Diversification Strategy (mixed related and unrelated) |
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Definition
Less than 70% of revenue comes from the dominant business
Mixed: Linked firms sharing fewer resources and assets among their businesses (compared with related constrained), concentrating on the transfer of knowledge and competencies among the |
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| very high levels: unspecified |
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Definition
Less than 70% of revenue comes from dominant business
No relationships between businesses |
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BY BUILDING UPON OR EXTENDING:
Resources
Capabilities |
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Term
| VALUE-CREATING DIVERSIFICATION: RELATED CONSTRAINED AND RELATED LINKED DIVERSIFICATION purpose |
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Definition
| gain market power relative to competitors |
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| VALUE-CREATING DIVERSIFICATION: RELATED CONSTRAINED AND RELATED LINKED DIVERSIFICATION advantage |
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| Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to |
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| The difference between sharing activities and transferring competencies |
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| is based on how the resources are jointly used to create economies of scope |
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| CORPORATE RELATEDNESS: TRANSFERRING OF CORE COMPETENCIES |
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Definition
| Complex sets of resources and capabilities linking different businesses through managerial and technological knowledge, experience, and expertise |
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Term
| operational relatedness- sharing activities |
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Definition
Can gain economies of scope
■ Share primary or support activities (in value chain), e.g., a primary activity such as inventory delivery systems, or a support activity such as purchasing
■ Risky as ties create links between outcomes
■ Related constrained share activities in order to create value
■ Not easy, often synergies not realized as planned |
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Term
| 2 sources of value creation |
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Definition
| Expense incurred in first business and knowledge transfer reduces resource allocation for second business |
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| CORPORATE RELATEDNESS: TRANSFERRING OF CORE COMPETENCIES |
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Definition
| ■ One way managers facilitate the transfer of corporate-level core competencies is by moving key people into new management positions |
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| Exists when a firm is able to sell its products above the existing competitive level, to reduce costs of primary and support activities below the competitive level, or both |
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Term
| Related diversification strategy may include: |
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Definition
● Vertical integration
Backward integration: a firm produces its own inputs
Forward integration: a firm operates its own distribution system for delivering its outputs |
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| Exists when two or more diversified firms simultaneously compete in the same product or geographic markets |
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| developing independent supplier networks - the focus of many manufacturing firms, such as Intel and Dell, and Ford and General Motors |
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Term
| SIMULTANEOUS OPERATIONAL RELATEDNESS AND CORPORATE RELATEDNESS |
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Definition
| The ability to simultaneously create economies of scope by sharing activities (operational relatedness) and transferring core competencies (corporate relatedness) is difficult for competitors to understand and learn |
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| SIMULTANEOUS OPERATIONAL RELATEDNESS AND CORPORATE RELATEDNESS- Involves managing two sources of knowledge simultaneously: |
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Definition
Operational forms of economies of scope
Corporate forms of economies of scope |
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Term
| If the cost of realizing both types of relatedness is not offset by the benefits created |
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Definition
| the result is DISECONOMIES because the cost of organization and incentive structure |
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Term
| UNRELATED DIVERSIFICATION |
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Definition
| Creates value through two types of FINANCIAL ECONOMIES |
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| Cost savings realized through improved allocations of financial resources based on investments inside or outside firm |
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Definition
| Efficient internal capital market allocation |
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| Restructuring of acquired assets |
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| Firm A buys firm B and restructures assets so it can operate more |
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| investors take equity positions (ownership) with high expected future cash-flow values. |
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| debt holders try to improve the value of their investments by taking stakes in businesses with high growth and profitability |
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Definition
This discount results from analysts not knowing how to value a vast array of large businesses with complex financial reports
■ Stock markets apply a “Conglomerate Discount” of 20% on unrelated diversified firms, which means that investors believe that the value of conglomerates is 20% less than the value of the sum of their parts
■ To overcome this discount, many unrelated diversifiers or conglomerates have sought to |
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| financial economies are more easily |
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Definition
| duplicated by competitors than are gains from operational and corporate relatedness |
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| external incentives to diversify |
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Definition
■ Antitrust regulations
■ Tax laws |
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| internal incentives to diversify |
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Definition
■ Low performance
■ Uncertain future cash flows
■ Synergy and Firm Risk Reduction |
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Incentives to diversify
The resources required to create value through diversification—cash and tangible resources (e.g., plant and equipment) |
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| managerial motives to diversify |
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Definition
■ Managerial risk reduction
■ Desire for increased compensation |
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Term
| a business level strategy |
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Definition
| integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product market |
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| a process used to cluster people with similar needs into individual and identifiable groups |
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| integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competition |
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| integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them |
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Definition
| integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment |
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| integrated cost leadership/differentiation strategy |
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Definition
| involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation |
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Definition
| a managerial innovation that emphasizes an organization's total commitment to the customer and to continuous improvement of every process through the use of data-driven, problem-solving approaches based on empowerment of employee groups and teams |
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Term
| corporate level core competencies |
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Definition
| are complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience and expertise |
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Definition
| cost savings realized through improved allocations of financial resources based on investments inside or outside the firm |
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| exists when the value created by business units working together exceeds the value that those same units create working independently |
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| international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market |
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| is an international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by the home office |
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| international strategy through which firm seeks to achieve both global efficiency and local responsiveness |
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| the establishment of a new wholly owned subsidiary is referred to as a |
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| international diversification |
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Definition
| strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets |
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Definition
| cooperative strategy in which firms combine some of their resources and capabilities to create competitive advantage |
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Definition
| strategic alliance in which 2 or more firms creat a legally independent company to share some of their resources and capabilities to develop a competitive advantage |
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Term
| equity strategic alliance |
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Definition
| alliance in which 2 or more firms own different %s of the company the have formed by combining some of their resources and capabilities to creat a competitive advantage |
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| nonequity strategic alliance |
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Definition
| alliace in which 2 or more firms develop a contractual relationship to share some of their unique resources and capabilities to creat a competitive advantage |
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| business-level cooperative strategy |
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Definition
| utilized by firsm to grow and improve its performance in individual product markets |
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| complimentary strategic alliances |
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Definition
| business-level alliances in which firms share some of their resources and capabilities in complimentary ways to develop competitive advantage |
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Term
| cop rate level cooperative strategy |
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Definition
| utilized by a firm to help it diversify in terms of products offered or markets served, or both |
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Term
| diversifying strategic alliances |
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Definition
| corporate level cooperative strategy in which firms share some of their resources and capabilities to diversify into new product or market ares |
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Definition
| corporate-level cooperative strategy in which a firm (the franchisor) uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with partners (the franchisee) |
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| cross-border strategic alliances |
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Definition
| international cooperative strategy in which firms with headquarters in different nations decide to combine some of their resources and capabilities to create a competitive advantage |
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Term
| network cooperative strategy |
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Definition
| cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives |
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