1. Corporate Strategy: Leveraging Resources to Extend Advantage
Chapter 7
Corporate Strategy: Leveraging Resources to Extend Advantage
by Robert Pitts
& David Lei
Slides prepared by
John P. Orr
Cameron University
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

2. What you will learn… The concept of corporate strategy
Slide 1 of 2
The concept of corporate strategy
The notion of a “resource-based view” of corporate strategy
How effective corporate strategy can be used to extend and leverage a firm’s distinctive competence
The broad types of corporate strategy, including vertical integration, related diversification, and unrelated diversification.
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

3. What you will learn…
Slide 2 of 2
Economic forces that motivate the pursuit of different corporate strategies.
How to balance the benefits and costs of diversification
Benefits of sharing and leveraging resources among businesses or activities
Costs accompanying diversification and the limits of sharing
Why corporations undertake restructuring
How spin-offs and divestitures represent a form of restructuring designed to regain focus
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

4. Kellogg’s Corporate Strategy
Addressing slowdown in growth of earnings
Moving into vegetarian and alternative foods
Finding growth through snack foods
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5. Tyco’s Corporate Strategy
A finely tuned acquisition strategy
A broad array of businesses
Medical products
Electronics products
Security systems
Recent initiatives
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6. Resources and Strategy
Resource-Based View of the Firm
An evolving set of strategic management ideas that place considerable emphasis on the firm’s ability to distinguish itself from rivals by means of investing in hard-to-imitate and specific resources, such as:
Technologies
Skills
Capabilities
Assets
Management approaches
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

7. Resource-Based View: Key Concepts
Ideally, distinctive resources are hard for competitors to duplicate
A firm’s resources should be highly specialized and durable
Firms need to monitor the environment so that their corporate resources do not suffer from easy substitution by rivals
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

8. Ex. 7-1. Common Avenues to Enlarging the Firm’s Scope of Operations
Entrance into…
New stages of activity
(i.e., vertical integration)
New businesses/ industries
(i.e., industry-based diversification)
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9. Ex. 7-2. Benefits of Diversification
More attractive terrain
Faster growth
Greater profitability
More stability
Access to resources
Physical assets and access to markets
Technologies and skills
Expertise
Sharing of activities (any activity)
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10. Ex. 7-3. Sharing Expertise Among Businesses Slide 1 of 6
Hewlett-Packard
Partial List of Businesses
Computer/workstations
Calculators
Laser printers
Digital imaging
Engineering systems
Microprocessors
Shared Expertise
Engineering skills
Rapid product development
Distinctive manufacturing quality
Leverage design skills
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11. Ex. 7-3. Sharing Expertise Among Businesses Slide 2 of 6
Banc-One
Partial List of Businesses
Nationwide system of low-cost, super-efficient banks
Shared Expertise
Efficient management of banking activities (especially electronic data processing)
New product introduction (e.g., leasing, commercial lending
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12. Ex. 7-3. Sharing Expertise Among Businesses Slide 3 of 6
Nutri/System
Partial List of Businesses
Weight loss centers
Cosmetic dentistry centers
Shared Expertise
Operation of retail centers devoted to enhancing physical appearance
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13. Ex. 7-3. Sharing Expertise Among Businesses Slide 4 of 6
KOA
Partial List of Businesses
Campgrounds
Printing shops
Shared Expertise
Franchising expertise
Selling franchises to small investors
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14. Ex. 7-3. Sharing Expertise Among Businesses Slide 5 of 6
PepsiCo
Partial List of Businesses
Soft drinks (Pepsi, Mountain Dew)
Snack food (Frito Lay)
Gatorade
Quaker Oats
Tropicana juices
Shared Expertise
Operating a wide geographic network of franchised outlets
Marketing research
Segmentation skills
Consumer advertising
Brand development
Advertising
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15. Ex. 7-3. Sharing Expertise Among Businesses Slide 6 of 6
Medtronic
Partial List of Businesses
Heart devices
Pacemakers
Spinal surgery
Nervous system disorders
Shared Expertise
Shared R&D skills
Wireless initiatives
Advanced techniques for less invasive medicine
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16. Ex. 7-4. Sharing Activities Among Businesses Slide 1 of 2
Firm
Partial List of Businesses
Key Shared Activities 3M
Sandpaper, tapes, fabric treatments, sealants, weather-stripping, Post-It notes, medical patches, signs
Technology development, coatings adhesives, thin-film substrates
Philip-Morris
Cigarettes, packaged foods, consumer notdurables
Marketing: distribution, advertising, market research, promotion
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17. Ex. 7-4. Sharing Activities Among Businesses Slide 2 of 2
Firm
Partial List of Businesses
Key Shared Activities
IBM
Semiconductors, computers, network systems, disk drives, software, electronic commerce
Technology: silicon etching, systems integration, advanced materials, miniaturization.
Fidelity Investments
Mutual funds, brokerage, securities, annuities
Operations: network management, telecommunications, internal logistics.
Marketing: distribution, sales, service, Internet
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18. Ex. 7-5: Costs of Diversification
Ignorance
(about newly
entered fields)
Neglect
(of core
business)
Coordination
Communication
Compromise
Accountability
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19. Ex. 7-6. Balancing the Benefits & Costs of Diversification
• More attractive terrain
• Access to key resources
• Sharing resources
• Ignorance
• Neglect
• Coordination
© South-Western Publishing
Slide 6-10
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20. Ex. 7-7. Conditions Leading to Powerful Diversification Benefits
Achieving more attractive terrain
(This is rarely a source of powerful benefits for all stakeholders)
Transferring resources which are…
• Competitively important to receiving businesses
• Difficult for receiving businesses to duplicate on their own
• Hard for competitors to imitate
Shared activities must be…
• Large in dollar terms
• Susceptible to economies of scale & experience
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21. Ex. 7-8. Limiting Diversification Costs
Limit Costs of Ignorance by...
• entering familiar fields
• entering new areas internally rather than by acquisition
Limit Costs of Neglect by...
• ensuring new businesses fit easily with existing ones
• leveraging a distinctive competence systemwide
Limit Costs of Cooperation by…
• carefully managing the sharing of activities
• designing organizational support systems that promote
that promote interrelationships
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22. Ex. 7-9. Steps in Corporate Restructuring
Selective focus on carefully chosen activities or niches
Divestitures and spinoffs
Corporation
SBU-1
SBU-2
SBU-n
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