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Lecture6Corporate-LevelStrategyHowtocreatevalueforthecorporationasawhole2.Corporate-LevelStrategy(CompanywideStrategy)-lowcost-differentiation-integratedlowcost/differentiation-focusedlowcost-focuseddifferentiationHowtocreatecompetitiveadvantageineachbusinessinwhichthecompanycompetes1.Business-LevelStrategy(CompetitiveStrategy)ADiversifiedCompanyHasTwoLevelsofStrategy1.Whatbusinessesshouldthecorporationbein?2.Howshouldthecorporateofficemanagethearrayofbusinessunits?CorporateStrategyiswhatmakesthecorporatewholeadduptomorethanthesumofitsbusinessunitpartsKeyQuestionsofCorporateStrategyProductDiversificationProductdiversification,aprimaryformofcorporate-levelstrategies,concernsthescopeofthemarketsandindustriesinwhichthefirmcompetesaswellas“howmanagersbuy,createandselldifferentbusinessestomatchskillsandstrengthswithopportunitiespresentedtothefirm.”Successfuldiversificationisexpectedtoreducevariabilityinthefirm’sprofitabilityasearningsaregeneratedfromdifferentbusinesses.LevelsandTypesofDiversificationLowLevelsofDiversificationModeratetoHighLevelsofDiversificationVeryHighLevelsofDiversificationRelatedlinked(mixed)70%ofrevenuesfromdominantbusiness,andonlylimitedlinksexistABCSinglebusiness95%ofrevenuesfromasinglebusinessunitADominantbusinessBetween70%and95%ofrevenuesfromasinglebusinessunitBAUnrelated-DiversifiedBusinessunitsnotcloselyrelatedABC70%ofrevenuesfromdominantbusiness;allbusinessesshareproduct,technologicalanddistributionlinkagesRelatedconstrainedABCWm.WrigleyJr.Company,theworld’slargestproducerofchewingandbubblegums,historicallyusedasingle-businessstrategywhileoperatinginrelativelyfewproductmarkets.Wrigley’strademarkchewinggumbrandsincludeSpearmint,Doublemint,andJuicyFruit,althoughthefirmproducesotherproductsaswell.Sugar-freeExtra,whichholdsthelargestshareoftheU.S.chewinggummarket,wasintroducedin1984.Alpineisa“throatrelief”gumandin2005remainedtheonlygumofthistypeinthemarket.Example:Wrigleyisbeginningtodiversifyitsproductportfoliotobecomeanimportantplayerintheconfectionerymarket.In2005,WrigleyacquiredcertainconfectionaryassetsfromKraftFoodsInc.,includingthewell-knownbrandsLifeSaversandAltoids.Thepurposeofthisdiversificationistoweavethefirm’s“brandsevendeeperintothefabricofeverydaylifearoundtheworld.”19Withincreasingdiversificationofitsproductlines,Wrigleymaysoonbeginusingthedominantbusinesscorporate-levelstrategy.Example:CablefirmssuchasComcastandTimeWarnerInc.,forexample,sharetechnology-basedresourcesandactivitiesacrosstheirtelevisionprogramming,high-speedInternetconnection,andphoneservicebusinesses.Currently,ComcastandTimeWarnerareseekingtoaddanotherrelatedproductoffering,wirelessservices,totheirportfoliosofbusinesses.Foreachfirm,addingwirelesswouldprovideanotheropportunitytoshareresourcesandactivitiestocreatemorevalueforstakeholdersExample:In2004,GEreorganizeditsbusinessesinanefforttobettermanagethemandtofacilitatethefirm’stransitionfromanindustrialfirmtoamoretechnology-drivencompany.GEisseekingtocreatevaluethroughitscorporatelevelstrategybothintermsofthechoicesmadeaboutthebusinessesinwhichthefirmwillcompeteandhowtomanagethosebusinesses.Example:HWLisaleadinginternationalcorporationcommittedtoinnovationandtechnologywithbusinessesspanningtheglobe.22Portsandrelatedservices,telecommunications,propertyandhotels,retailandmanufacturing,andenergyandinfrastructureareHWL’sfivecorebusinesses.Thesebusinessesarenotrelatedtoeachother,andthefirmmakesnoeffortstoshareactivitiesortotransfercorecompetenciesbetweenoramongthem.Eachofthesefivebusinessesisquitelarge;forexample,theretailingarmoftheretailandmanufacturingbusinesshasmorethan6,200storesin31countries.Groceries,cosmetics,electronics,wine,andairlineticketsaresomeoftheproductcategoriesfeaturedinthesestoresExample:Motives,Incentives,andResourcesforDiversificationMotivestoEnhanceStrategicCompetitivenessEconomiesofScopeMarketPowerFinancialEconomiesResourcesManagerialMotivesIncentivesValue-CreatingValue-creatingStrategiesofDiversificationOperationalandCorporateRelatednessSharing:OperationalRelatednessBetweenBusinessCorporateRelatedness:TransferringSkillsIntoBusinessThroughCorporateHeadquartersLowHighHighLowRelatedLinkedDiversification(EconomiesofScope)UnrelatedDiversification(FinancialEconomies)BothOperationalandCorporateRelatedness(RareCapabilityandCanCreateDiseconomiesofScope)RelatedConstrainedDiversificationVerticalIntegration(MarketPower)AlternativeDiversificationStrategiesRelatedDiversificationStrategiesUnrelatedDiversificationStrategiesSharingActivitiesTransferringCoreCompetenciesEfficientInternalCapitalMarketAllocationRestructuringEconomiesofScopeFinancialEconomiesBlockingCompetitorsthroughMultipointCompetitionVerticalIntegrationMarketPowerAlternativeDiversificationStrategiesSimultaneousOperationalRelatednessandCorporateRelatedness•Theabilitytosimultaneouslycreateeconomiesofscopebysharingactivitiesandtransferringcorecompetenciesisrare.•Firmsthatfailintheireffortstosimultaneouslyobtainoperationalandcorporaterelatednessmaycreatetheoppositeofwhattheyseek—namely,dise