Strategy at the Corporate Level

_{© ©} _{The University of West Alabama The University of West Alabama} _{PowerPoint Presentation by Charlie Cook PowerPoint Presentation by Charlie Cook} _{2007 Thomson/South - 2007 Thomson/South - Western. Western.} Concepts and Cases _{Michael A. Hitt} _{All rights reserved.}

• R. Duane Ireland • Robert E. Hoskisson
level strategy and discuss its purpose. level strategy and discuss its purpose.

level strategies.

4. Describe how firms can create value by using a related Describe how firms can create value by using a related diversification strategy. diversification strategy.

7. Describe motives that can encourage managers to Describe motives that can encourage managers to overdiversify overdiversify a a firm. firm.

6. Discuss the incentives and resources that encourage Discuss the incentives and resources that encourage diversification. diversification.

5. Explain the two ways value can be created with an unrelated Explain the two ways value can be created with an unrelated diversification strategy. diversification strategy.

Explain three primary reasons firms diversify.

3. Explain three primary reasons firms diversify.

level strategies.

2. Describe different levels of diversification with different corp Describe different levels of diversification with different corp orate orate

1. Define corporate Define corporate

Studying this chapter should provide you with the strategic

management knowledge needed to:

Diversification strategies play a major role in the Diversification strategies play a major role in the behavior of large firms. behavior of large firms.

Product diversification concerns: Product diversification concerns:

The scope of the industries and markets in which the

The scope of the industries and markets in which the firm competes. firm competes.

How managers buy, create and sell different

businesses to match skills and strengths with

businesses to match skills and strengths with opportunities presented to the firm. opportunities presented to the firm.

group of different businesses competing in several

competitive advantage by selecting and managing a

Specifies actions taken by the firm to gain a

level Strategy (Companywide) level Strategy (Companywide)

Corporate Corporate

level strategy as its means of competing in

level strategy as its means of competing in individual product markets. individual product markets.

business

Each business unit in a diversified firm chooses a

level Strategy (Competitive)

Business Business

group of different businesses competing in several industries and product markets. industries and product markets.

group of businesses? Business Units

group of businesses?

office manage the

How should the corporate

the firm be in?

What businesses should

are worth more under the management of the company than they would be under other ownership. company than they would be under other ownership.

are worth more under the management of the

The degree to which the businesses in the portfolio

’ ’ s Value s Value

level Strategy level Strategy

Corporate Corporate

Level Strategy: Key Questions Level Strategy: Key Questions

Business Units

Dominant Business

Between 70% and 95% of

revenue comes from a single

revenue comes from a single business. business.

B B

Single Business

More than 95% of revenue

More than 95% of revenue comes from a single business. comes from a single business.

A A A A

Levels of Diversification: Moderate to High Levels of Diversification: Moderate to High

Related Constrained Related Linked (mixed

Less than 70% of revenue
related and unrelated)

Less than 70% of revenue related and unrelated)

comes from a single comes from a single

Less than 70% of revenue Less than 70% of revenue business and all business and all comes from the dominant comes from the dominant businesses share businesses share business, and there are only business, and there are only product, technological product, technological limited links between limited links between and distribution linkages. and distribution linkages. businesses. businesses.

A A

Unrelated Diversification Unrelated Diversification

Less than 70% of revenue comes from the dominant

business, and there are no common links between

business, and there are no common links between businesses. businesses.

C C B B

Levels and Types of Diversification

Source: Adapted from R. P. Rumelt, 1974, Strategy, Structure and Economic Performance, Boston: Harvard Business School.

Antitrust regulation
Tax laws
Low performance
Uncertain future cash flows
Risk reduction for firm
Tangible resources
Intangible resources
Economies of scope (related diversification)
Sharing activities
Transferring core competencies
Market power (related diversification)
Blocking competitors through multipoint competition
Vertical integration
Financial economies (unrelated diversification)
Efficient internal capital allocation
Business restructuring
Increasing managerial compensation

6.1

Reasons for Diversification Value-Creating Diversification

Value-Neutral Diversification

Value-Reducing Diversification

Value Creating Strategies of Diversification

Value Creating Strategies of Diversification - Operational and Corporate Relatedness High Related Constrained Related Constrained Both Operational and Both Operational and Diversification Diversification _{(Rare capability that creates} _{(Rare capability that creates} Corporate Relatedness Corporate Relatedness

Vertical Integration Vertical Integration Operational _{(Market Power)} _{(Market Power)} _{diseconomies of scope)} _{diseconomies of scope)} Relatedness: Sharing Activities

Related Linked Related Linked Unrelated Unrelated between Diversification Diversification Diversification Diversification Businesses _{(Financial Economies)} _{(Financial Economies)} _{(Economies of Scope) (Economies of Scope)} Low

^6.2 - ^6.2 - FIGURE Value Creating Diversification Strategies: FIGURE Value Creating Diversification Strategies:

Firm creates value by building upon or Firm creates value by building upon or extending: extending:

Resources

Capabilities

Core competencies

Economies of Scope Economies of Scope

Cost savings that occur when a firm transfers

capabilities and competencies developed in one of its

capabilities and competencies developed in one of its businesses to another of its businesses. businesses to another of its businesses.

Operational relatedness in sharing activities
Corporate relatedness in transferring skills or

Value is created from economies of scope Value is created from economies of scope through: through:

Operational relatedness in sharing activities

Corporate relatedness in transferring skills or corporate core competencies among units. corporate core competencies among units.

The difference between sharing activities and The difference between sharing activities and

transferring competencies is based on how the

resources are jointly used to create economies

of scope. of scope.

unit ties create links between outcomes.

Operational Relatedness Operational Relatedness

Created by sharing either a primary activity such as

inventory delivery systems, or a support activity such

inventory delivery systems, or a support activity such as purchasing. as purchasing.

Activity sharing requires sharing strategic control over

Activity sharing requires sharing strategic control over business units. business units.

Activity sharing may create risk because business

unit ties create links between outcomes.

Corporate Relatedness Corporate Relatedness

Using complex sets of resources and capabilities to

link different businesses through managerial and

technological knowledge, experience, and expertise. technological knowledge, experience, and expertise.

Creates value in two ways: Creates value in two ways:

Eliminates resource duplication in the need to allocate

resources for a second unit to develop a competence

resources for a second unit to develop a competence that already exists in another unit. that already exists in another unit.

Provides intangible resources (resource intangibility)

that are difficult for competitors to understand and

that are difficult for competitors to understand and imitate. imitate.

A transferred intangible resource gives the unit receiving it an A transferred intangible resource gives the unit receiving it an immediate competitive advantage over its rivals. immediate competitive advantage over its rivals.

Reduce the costs of its primary and support activities

Market power exists when a firm can: Market power exists when a firm can:

Sell its products above the existing competitive level

and/or

Reduce the costs of its primary and support activities below the competitive level. below the competitive level.

a firm operates its own

—

Forward integration

— a firm produces its own inputs. a firm produces its own inputs.

—

Backward integration

Vertical Integration Vertical Integration

Two or more diversified firms simultaneously compete in the same product areas or geographic markets. in the same product areas or geographic markets.

Two or more diversified firms simultaneously compete

Multipoint Competition Multipoint Competition

’ ’

(cont (cont

a firm operates its own distribution system for delivering its outputs. distribution system for delivering its outputs.

Involves managing two sources of knowledge

Operational forms of economies of scope
Corporate forms of economies of scope

Simultaneous Operational Relatedness and Simultaneous Operational Relatedness and

Corporate Relatedness Corporate Relatedness

Involves managing two sources of knowledge

simultaneously:

Operational forms of economies of scope

Corporate forms of economies of scope

Many such efforts often fail because of

Many such efforts often fail because of implementation difficulties. implementation difficulties.

Financial Economies Financial Economies

Are cost savings realized through improved

Are cost savings realized through improved allocations of financial resources. allocations of financial resources.

Based on investments inside or outside the firm Based on investments inside or outside the firm

Create value through two types of financial

economies:

Efficient internal capital allocations Efficient internal capital allocations

Purchase of other corporations and the restructuring their Purchase of other corporations and the restructuring their assets assets

Corporate office gains access to information about those Corporate office gains access to information about those businesses businesses

competitors than are gains from operational and

financial economies are more easily duplicated by

Conglomerates have a fairly short life cycle because

’ ’ actual and prospective performance. actual and prospective performance.

Corporate office distributes capital to business divisions to create value for overall company. divisions to create value for overall company.

Corporate office distributes capital to business

Efficient Internal Capital Market Allocation Efficient Internal Capital Market Allocation

’ ’

competitors than are gains from operational and

corporate relatedness. corporate relatedness.

technology businesses.

Restructuring creates financial economies Restructuring creates financial economies

A firm creates value by buying and selling other firms

’

’ assets in the external market. assets in the external market.

Resource allocation decisions may become Resource allocation decisions may become complex, so success often requires: complex, so success often requires:

Focus on mature, low

technology businesses.

Focus on businesses not reliant on a client

Focus on businesses not reliant on a client orientation. orientation.

Antitrust laws in 1960s and 1970s Antitrust laws in 1960s and 1970s discouraged mergers that created discouraged mergers that created increased market power (vertical or increased market power (vertical or horizontal integration. horizontal integration.

Mergers in the 1960s and 1970s thus Mergers in the 1960s and 1970s thus tended to be unrelated. tended to be unrelated.

Relaxation of antitrust enforcement Relaxation of antitrust enforcement results in more and larger horizontal results in more and larger horizontal mergers. mergers.

Early 2000: antitrust concerns seem to Early 2000: antitrust concerns seem to be emerging and mergers now more be emerging and mergers now more closely scrutinized. closely scrutinized.

Anti Anti

trust trust

Legislation Legislation External Incentives to Diversify (cont

d) External Incentives to Diversify (cont

d) ’

’

trust Anti

Anti trust corporate shift from dividends to corporate shift from dividends to

High tax rates on dividends cause a High tax rates on dividends cause a

Legislation Legislation

buying and building companies in high buying and building companies in high - performance industries. performance industries.

Tax Laws Tax Laws

1986 Tax Reform Act 1986 Tax Reform Act

Reduced individual ordinary income tax Reduced individual ordinary income tax rate from 50 to 28 percent. rate from 50 to 28 percent.

Treated capital gains as ordinary Treated capital gains as ordinary income. income.

Thus created incentive for shareholders

Thus created incentive for shareholders

to prefer dividends to acquisition to prefer dividends to acquisition investments. investments.

Firms plagued by poor Firms plagued by poor

High performance eliminates the

High performance eliminates the need for greater diversification. need for greater diversification.

Low performance acts as

Low performance acts as incentive for diversification. incentive for diversification.

performance often take higher

performance often take higher risks (diversification is risky). risks (diversification is risky).

Low Low

Performance Performance

_{FIGURE FIGURE The Curvilinear Relationship between}

Product line matures.
Product line is threatened.

’ ’

Diversification may be Diversification may be defensive strategy if: defensive strategy if:

Product line matures.

Product line is threatened.

Firm is small and is in mature

Firm is small and is in mature or maturing industry. or maturing industry.

Low Low

Performance Performance

Uncertain Uncertain

Future Cash Future Cash

Flows Flows

Risk Risk

Synergy and Synergy and

Flows Flows

Future Cash Future Cash

Uncertain Uncertain

Performance Performance

Low Low

A firm may reduce level of technological A firm may reduce level of technological change by operating in more certain change by operating in more certain environments. environments.

A firm may become risk averse and A firm may become risk averse and constrain its level of activity sharing. constrain its level of activity sharing.

… … but synergy creates joint but synergy creates joint interdependence between business interdependence between business units. units.

Synergy exists when the value created Synergy exists when the value created by businesses working together by businesses working together exceeds exceeds the value created by them the value created by them working independently working independently

’ ’

Reduction Reduction

The resources required to create value through The resources required to create value through

cash and tangible resources (e.g.,

Desire for increased compensation

Managerial Motives to Diversify Managerial Motives to Diversify

Value creation is determined more by Value creation is determined more by

appropriate use of resources than by incentives

to diversify. to diversify.

plant and equipment)

cash and tangible resources (e.g.,

—

diversification

Incentives to diversify

A firm must have both: A firm must have both:

Managerial risk reduction Managerial risk reduction

Desire for increased compensation

_{FIGURE FIGURE}

6.4 ^6.4 Summary Model of the Summary Model of the Relationship between Relationship between Firm Performance and Firm Performance and Diversification Diversification _{© 2007 Thomson/South-Western. All rights reserved.}

_{perspectives, Journal of Management, 16: 498.}

_{diversification: A review and critique of theoretical}

_{Antecedents and performance outcomes of} Source: R. E. Hoskisson & M. A. Hitt, 1990, ₆

Strategy at the Corporate Level

A A A A

A A

Dokumen yang terkait

The Policy Analysis Positions Mutation and Its Implication to the Government Performance in Soppeng Regency

PENGARUH KOMUNIKASI TERAPEUTIK PERAWAT TERHADAP KEPUASAN PASIEN DI RUANG PERAWATAN MAWAR LANTAI II RSU WISATA UIT MAKASSAR (Effect Of Terapeutic Nurse Communication On The Level Of Satisfaction Patient Care Hospital In The Floor Ii Tour Uit Hospital Makas

The Influence of the Academic Supervision of the School Superintendent, head master Leadership and Working Environment on the Performance of Vocational high school teachers Throughout at Tamalate Makassar City

The Influence of Work Discipline, Career Development, and Compensation to Employees Performance at the Permatabank Makassar

PENGARUH KOMPETENSI, MOTIVASI DAN LINGKUNGAN KERJA TERHADAP TINGKAT KEAKURATAN DATA RETRIBUSI PADA BADAN PENGELOLAAN KEUANGAN DAERAH KABUPATEN SOPPENG The Impact of Competence, Motivation and Work Environment on the Accurcy Level of the Retribution Data i

The Effect of Organizational Commitment, Resource and the Prin- ciple of Budgeting to the Performance Employees in the Trade, Industry, Cooperatives and UKM Office Soppeng Regency

PENGARUH PENDIDIKAN FORMAL, KOMPETENSI, DAN PELATIHAN TERHADAP KINERJA PEGAWAI PADA DINAS PENDIDIKAN PROVINSI SULAWESI SELATAN The Influence of Formal Education, Competence, and Training on Employee Performance at Education Department of South Sulawesi Pr

PENGARUH TINGKAT PENDIDIKAN, MOTIVASI DAN KEDISIPLINAN TERHADAP KINERJA PEJABAT PENGELOLA INFORMASI DAN DOKUMENTASI (PPID) LINGKUP PEMERINTAH KABUPATEN BANTAENG Influence of Education Level, Motivation, and Discipline to the Performance of Information and

Redesain Balanced Scorecard Strategy Map Berdasar Konsep KPI dan KRI

View of Pengaruh Kinerja Keuangan Dan Corporate Social Responsibility (CSR) Terhadap Nilai Perusahaan Perbankan Di Bursa Efek Indonesia

Dukungan

Links

Strategy at the Corporate Level

A A A A

A A

Dokumen yang terkait

The Policy Analysis Positions Mutation and Its Implication to the Government Performance in Soppeng Regency

PENGARUH KOMUNIKASI TERAPEUTIK PERAWAT TERHADAP KEPUASAN PASIEN DI RUANG PERAWATAN MAWAR LANTAI II RSU WISATA UIT MAKASSAR (Effect Of Terapeutic Nurse Communication On The Level Of Satisfaction Patient Care Hospital In The Floor Ii Tour Uit Hospital Makas

The Influence of the Academic Supervision of the School Superintendent, head master Leadership and Working Environment on the Performance of Vocational high school teachers Throughout at Tamalate Makassar City

The Influence of Work Discipline, Career Development, and Compensation to Employees Performance at the Permatabank Makassar

PENGARUH KOMPETENSI, MOTIVASI DAN LINGKUNGAN KERJA TERHADAP TINGKAT KEAKURATAN DATA RETRIBUSI PADA BADAN PENGELOLAAN KEUANGAN DAERAH KABUPATEN SOPPENG The Impact of Competence, Motivation and Work Environment on the Accurcy Level of the Retribution Data i

The Effect of Organizational Commitment, Resource and the Prin- ciple of Budgeting to the Performance Employees in the Trade, Industry, Cooperatives and UKM Office Soppeng Regency

PENGARUH PENDIDIKAN FORMAL, KOMPETENSI, DAN PELATIHAN TERHADAP KINERJA PEGAWAI PADA DINAS PENDIDIKAN PROVINSI SULAWESI SELATAN The Influence of Formal Education, Competence, and Training on Employee Performance at Education Department of South Sulawesi Pr

PENGARUH TINGKAT PENDIDIKAN, MOTIVASI DAN KEDISIPLINAN TERHADAP KINERJA PEJABAT PENGELOLA INFORMASI DAN DOKUMENTASI (PPID) LINGKUP PEMERINTAH KABUPATEN BANTAENG Influence of Education Level, Motivation, and Discipline to the Performance of Information and

Redesain Balanced Scorecard Strategy Map Berdasar Konsep KPI dan KRI

View of Pengaruh Kinerja Keuangan Dan Corporate Social Responsibility (CSR) Terhadap Nilai Perusahaan Perbankan Di Bursa Efek Indonesia

Dokumen yang Anda mencari sudah siap untuk unduhkan