1. Corporate strategies
Chapter 6

2. Corporate strategy
Corporate strategy involves the firm’s definition of its domain – the selection of business areas in which the organization will compete. A firm’s growth strategy dictates its propensity to expand its domain – into a different group of products or markets (including international markets).
Approaches to corporate strategy:
Single-business concentration
Vertical integration
Diversification

3. Single-business concentration
Advantages:
The firm can master one business and industry environment.
All resources and capabilities are directed at doing one thing well.
It can prevent the proliferation of management levels and staff functions that are usually needed to manage multi-business firms.
The firm can invest profits back into the business.
Disadvantages:
Dependence on one business can create uneven cash flow and profitability.
Product obsolescence and industry maturity can leave the firm without a growth area.
It becomes more difficult for the company to develop new competencies.
It can lead to organizational inertia and limited career path for managers.

4. Avenue for growth: Vertical integration
Component Manufacturing
Assembly
Retail

5. Avenue for growth: diversification
RELATED DIVERSIFICATION
UNRELATED DIVERSIFICATION

6. Reasons for diversification
Strategic Reasons:
Risk reduction
Improvement of earnings
Lack of growth in mature businesses
Application of resources and capabilities to related areas (synergy)
Economies of scope (ability to support multiple businesses)
Use of excess debt capacity
Desire to learn new technologies
Increase in market power
Desire to turn around a failing business
CEO Motives:
Desire to increase power and status
Desire to increase compensation from running a large enterprise
Desire to increase value of the firm
Craving for a more interesting and challenging management environment

7. Portfolio management BUSINESS GROWTH RATE High Low Strong Average Weak
INDUSTRY ATTRACTIVENESS
Stars
Question Marks
Cash Cows
Dogs
High
High
Medium
Low
Low
RELATIVE MARKET SHARE
COMPETITIVE POSITION
BOSTON CONSULTING GROUP (BCG) MATRIX
GENERAL ELECTRIC (GE) BUSINESS SCREEN