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Chapter 6 Notes

by: Mackenzie Bauer

Chapter 6 Notes Mgmt 491 - Arvin Sahaym

Mackenzie Bauer
GPA 3.5
Mgmt 491
Arvin Sahaym

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Mgmt 491
Arvin Sahaym
Class Notes
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This 3 page Class Notes was uploaded by Mackenzie Bauer on Friday February 20, 2015. The Class Notes belongs to Mgmt 491 - Arvin Sahaym at Washington State University taught by Arvin Sahaym in Spring2014. Since its upload, it has received 131 views. For similar materials see Mgmt 491 in Business at Washington State University.

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Date Created: 02/20/15
CHAPTER 6 CORPORATE LEVEL STRATEGY Johnson amp Johnson 0 Pharmacy 0 Baby 0 Paper Products 0 Medical Products gt Diversification It would not make sense for J ampJ to diversify into an industry such as cell phones they do not that the human capital necessary to do so gt You need to diversify your company in similar industries in which you have the human capital Corporate Level Strategy 0 Integrated set of actions for competitive advantage by selecting and managing a group of different businesses competing in different product markets 0 Corporatelevel strategies are used by firms to diversify their operations into several markets or businesses 0 Firms use corporatelevel strategies to create value through economies of scope and market power Economies of scale mass production of a product decreases price Economies of scope Three Questions of Corporate Strategy 0 Where to compete 0 What businesses should we be in 0 How should these be managed Diversi cation Strategy 0 Firms generally start with specific productmarkets 0 Diversification A corporate strategy that extends products and markets in which the firm competes Product diversification Geographic diversification 0 Product diversification concerns Use of productrelated competencies to extend the scope of the industries and markets in which the firm competes How managers buy create and sell different businesses to match skills and strengths with opportunities presented to the firm by environment Disney MoviesCartoons I Theme Parks I TV I Hotels El Cruise Ships Why Use CorporateLevel Strategy Value Proposition 0 Measurement of CorporateLevel Strategy s Value The degree to which the businesses in the portfolio are worth more under the management of the company than they would be under other ownership Reasons to Diversify 0 Value creating Value neutral gt Economies of scope Antitrust regulation gt Market power TaX laws gt Financial economies LOW performance 0 Value reducing Uncertain future cash ows gt Diversifying managerial employment risk Risk reduction for firm gt Increasing managerial compensation Tanglble resources Intangible resources VVVVVVV Levels of Diversi cation Low Level 0 Single Business More than 95 of revenue comes from a single business EX Wrigley gum 0 Dominant Business Between 7 and 95 of revenue comes from a single business ex UPS Levels of Diversi cation Moderate to High Level 0 Related Constrained Less than 70 of revenue comes from a single business and all bsuesses share product development technological and distribution capabilities and linkages EX Microsoft Disney 0 Related Linked missed related and unrelated Less than 70 of revenue comes from the dominant business and there are only limited links sharing between businesses Ex GE in year 2000 Levels of Diversi cation Very High Levels 0 Unrelated Diversification Less than 70 of revenue comes from the dominant business and there are no common links between businesses EX Virgin Daewoo 1 Operational Relatedness 0 Sharing Activities and Resources Created by sharing activities such as purchasing supplychain and distribution channels Activity sharing requires sharing strategic control business units Activity sharing by create risk because businessunit ties create links between outcomes Ex PampG J ampJ paper towels tissues diapers 2 Corporate Relatedness 0 Transferring Core Competencies across divisionsunits Using complex sets of resources and capabilities to link different businesses through managerial and technological knowledge experience and experts 0 Creates value in two ways Eliminates resource duplication in the need to allocate resources for a second unit to develop a competence that already exists in another unit Provides intangible resources that are difficult for competitors to understand and imitate 3 Value through Market Power 0 Market power exists when a firm can Sell it s products above the existing competitive level andor Reduce the costs of its primary and support activities below the competitive level 0 Vertical Integration Acquisitions Developing the ability to save on its operations Avoiding market costs Improving product quality Protecting it s technology from imitation by rivals Value Creation Using Related Diversification 0 Reap benefits of Economies of Scope Cost savings that occur when a firm transfers capabilities and competencies developed in 0 Value is created f Operational r Corporate rel High among un1ts Dperatinnal Relatedness Sha ng Activities Between Businsses Low Low High


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