BPL 5100 Midterm 2 Study Guide(chapter 6,7,10)
I. Chapter. 6 Corporate-Level Strategy:
A. A strategy that focuses on gaining long-term revenue, profits, and market value
through managing operations in multiple businesses.
B. Making diversification work: an overview
1. Why does some diversification efforts work and others don’t? Ask 2
questions:
(a) What businesses should a corporation compete in?
(b) Hoe should these businesses be managed to jointly create more value
than if they were freestanding units?
2. Diversification initiative types
(a) Mergers & Acquisitions
(b) Strategic alliance
(c) Joint venture
(d) Internal development
3. Why bother with diversifications?
(a) SYNERGY “working together”
C. Related Diversification: Economies of Scope and Revenue Enhancement
1. Related diversification: a firm entering a different business in which it can
benefit from leveraging core competencies, sharing activities, or building market
power
2. Leveraging Core Competencies Tree example (strong roots)
(a) Reflects the collective learning in an organization
(b) How to coordinate diverse production skills, integrate multiple streams
of technologies, and market diverse products and services
, (c) For a core competence to create value and provide a viable basis for
synergy among the businesses in a corp. it must meet:
(1) The core competence must enhance competitive advantage(s)
by creating superior customer value ex. Gillette’s technology in their
blades
(2) Different businesses in the corporation must be similar in at
least one important way related to the core competence
(3) The core competencies must be difficult for competitors to
imitate or find substitutes for
3. Sharing activities: two or more business value chains done by one of the
businesses transferring accumulated skills and expertise across business units
(a) Cost savings most common type of synergy and easiest to estimate
(b) Revenue enhancements
4. Enhancing revenue achieving a higher level of sales growth than what
either company could do on its own ex. Starbucks &Teavanna
5. Market power: firm’s abilities to profit through restricting or controlling supply
to a market or coordinating with other firms to reduce investment
(a) Pooled negotiating power: improvement in bargaining position relative
to suppliers and customers
6. Vertical Integration: an expansion or extension of the firm by integrating
preceding or successive production processes
(a) Benefits
(1) A secure source or raw materials or distribution channels
(2) Protection of and control over valuable assets
(3) Proprietary access to new tech developed by the unit
(4) Simplified procurement and administrative procedures
(b) Risks
(1) Costs and expenses associated with increased overhead and
capital expenditures
(2) Loss of flexibility resulting from large investments
(3) Problems associated with unbalanced capacities along the value
chain ( ex in house supplier has to be larger than your needs in order
to benefit from economies of scale in that market)
(4) Additional admin costs associated with managing a more
complex set of activities
I. Chapter. 6 Corporate-Level Strategy:
A. A strategy that focuses on gaining long-term revenue, profits, and market value
through managing operations in multiple businesses.
B. Making diversification work: an overview
1. Why does some diversification efforts work and others don’t? Ask 2
questions:
(a) What businesses should a corporation compete in?
(b) Hoe should these businesses be managed to jointly create more value
than if they were freestanding units?
2. Diversification initiative types
(a) Mergers & Acquisitions
(b) Strategic alliance
(c) Joint venture
(d) Internal development
3. Why bother with diversifications?
(a) SYNERGY “working together”
C. Related Diversification: Economies of Scope and Revenue Enhancement
1. Related diversification: a firm entering a different business in which it can
benefit from leveraging core competencies, sharing activities, or building market
power
2. Leveraging Core Competencies Tree example (strong roots)
(a) Reflects the collective learning in an organization
(b) How to coordinate diverse production skills, integrate multiple streams
of technologies, and market diverse products and services
, (c) For a core competence to create value and provide a viable basis for
synergy among the businesses in a corp. it must meet:
(1) The core competence must enhance competitive advantage(s)
by creating superior customer value ex. Gillette’s technology in their
blades
(2) Different businesses in the corporation must be similar in at
least one important way related to the core competence
(3) The core competencies must be difficult for competitors to
imitate or find substitutes for
3. Sharing activities: two or more business value chains done by one of the
businesses transferring accumulated skills and expertise across business units
(a) Cost savings most common type of synergy and easiest to estimate
(b) Revenue enhancements
4. Enhancing revenue achieving a higher level of sales growth than what
either company could do on its own ex. Starbucks &Teavanna
5. Market power: firm’s abilities to profit through restricting or controlling supply
to a market or coordinating with other firms to reduce investment
(a) Pooled negotiating power: improvement in bargaining position relative
to suppliers and customers
6. Vertical Integration: an expansion or extension of the firm by integrating
preceding or successive production processes
(a) Benefits
(1) A secure source or raw materials or distribution channels
(2) Protection of and control over valuable assets
(3) Proprietary access to new tech developed by the unit
(4) Simplified procurement and administrative procedures
(b) Risks
(1) Costs and expenses associated with increased overhead and
capital expenditures
(2) Loss of flexibility resulting from large investments
(3) Problems associated with unbalanced capacities along the value
chain ( ex in house supplier has to be larger than your needs in order
to benefit from economies of scale in that market)
(4) Additional admin costs associated with managing a more
complex set of activities
