Chapter 6 - STRATEGY
Corporate level strategy = actions a firm takes to gain a competitive advantage
by selecting and managing a group of different businesses competing in
different product markets
– This way firms can diversify their operations from a single business
competing in a single market, into several product markets and into
several businesses
Prime corporate strategy -> diversification
= the scope of markets and industries in which a firm competes
3
If diversification is successful would reduce variability in profits as earning are
generated from different businesses
Levels of diversification:
. Low levels
– A firm pursuing a low level of diversification uses either a single or
a dominant business, corporate level strategy
○ Single-business diversification strategy = a corporate-level
strategy where the firm generates 95% or more of its sales
revenue from its core business area
○ Dominant-business diversification strategy = the firm generates
between 70-95% of its total revenue from a single business area
2 . Moderate to high levels
– A firm generating more than 30% of its revenue outside a dominant
business and who businesses are related to each other in some
manner
○ When the diversified firm’s businesses are directly linked -> a
related constrained diversification strategy is used
◆ = a firm shares resources and activities across its businesses
○ A diversified companies where its businesses only have a few links
1 -> use related linked diversification strategy
◆ = related linked firms share fewer resources and assets
between their businesses (concentrate more of transferring
knowledge and core competencies between them
. Very high levels
– Less than 70% of revenue comes from the dominant business
○ A highly diversified firm that has no relationships between its
businesses -> uses an unrelated diversification strategy.
◆ A firm makes no effort to share resources or core
competencies among its businesses
◆ Firms using this strategy are called conglomerates.
, Reasons for diversification;
-> to increase value (value is created when a firm can increase its revenue or
reduce costs while implementing their business-level strategies)
VALUE-CREATING DIVERSIFICATION:
A firm using the related diversification strategy wants to develop and exploit
economies of scope between its businesses
= (for firms operating in many product markets or industries) cost savings
that the firm creates by successfully sharing some of its resources and
capabilities of transferring one or more corporate-level core competencies that
were developed in one of its businesses to another of its businesses.
Corporate level strategy = actions a firm takes to gain a competitive advantage
by selecting and managing a group of different businesses competing in
different product markets
– This way firms can diversify their operations from a single business
competing in a single market, into several product markets and into
several businesses
Prime corporate strategy -> diversification
= the scope of markets and industries in which a firm competes
3
If diversification is successful would reduce variability in profits as earning are
generated from different businesses
Levels of diversification:
. Low levels
– A firm pursuing a low level of diversification uses either a single or
a dominant business, corporate level strategy
○ Single-business diversification strategy = a corporate-level
strategy where the firm generates 95% or more of its sales
revenue from its core business area
○ Dominant-business diversification strategy = the firm generates
between 70-95% of its total revenue from a single business area
2 . Moderate to high levels
– A firm generating more than 30% of its revenue outside a dominant
business and who businesses are related to each other in some
manner
○ When the diversified firm’s businesses are directly linked -> a
related constrained diversification strategy is used
◆ = a firm shares resources and activities across its businesses
○ A diversified companies where its businesses only have a few links
1 -> use related linked diversification strategy
◆ = related linked firms share fewer resources and assets
between their businesses (concentrate more of transferring
knowledge and core competencies between them
. Very high levels
– Less than 70% of revenue comes from the dominant business
○ A highly diversified firm that has no relationships between its
businesses -> uses an unrelated diversification strategy.
◆ A firm makes no effort to share resources or core
competencies among its businesses
◆ Firms using this strategy are called conglomerates.
, Reasons for diversification;
-> to increase value (value is created when a firm can increase its revenue or
reduce costs while implementing their business-level strategies)
VALUE-CREATING DIVERSIFICATION:
A firm using the related diversification strategy wants to develop and exploit
economies of scope between its businesses
= (for firms operating in many product markets or industries) cost savings
that the firm creates by successfully sharing some of its resources and
capabilities of transferring one or more corporate-level core competencies that
were developed in one of its businesses to another of its businesses.
