1. Corporate Strategy
Chapter 10

2. Learning Objectives
Compare corporate strategy decisions to business level strategy decisions.
Historical acquisition performance and reasons why.
Why companies diversify.
Related versus unrelated diversification.
Why companies use either type.
Tools for managing diversified companies.

3. Corporate versus Business Strategy
Value chain, Resources, Differentiation versus Low Cost approach
Corporate strategy
Decide which industries to enter / exit
Combine divisions in Strategic Business Units
Establish investment priorities across SBUs
Transfer resources and management between SBUs
Structure the multi-divisional company

4. Historical Perspective on Diversification
Diversification among Fortune 500
1949 …………. 30%
1974 …………. 64%
2014 …………. 89%
Mergers & acquisition activity
2008: $1.5 Trillion (14% of U.S. GDP)
2017: $1.7 Trillion (8% of U.S. GDP)
Sources: Rumelt 1982, Financial Times 2014; West 2016

5. Motivations for Diversification
Growth
Market power
Market entry
Risk spreading

10. Types of Diversification

11. Related Diversification
Achieve synergies with existing businesses
Synergies depend on fit in parts of value chain
Source of Synergies Market Fit Operational Fit Management Fit
Results of Synergies Scope Economizing Economizing; Resources Leverage

12. Unrelated Diversification
No synergies anticipated
Depends on financial market imperfections
Management identifies under-valued firms with significant growth prospects
Unfavorable view of entire industry includes target firm
Target firm is unable to access market financing on favorable terms

13. Diversification Performance
Wide distribution, slightly positive average

14. Favorable Diversification Performance
Selecting attractive industries
Good strategic rationale
Strong due diligence
Capturing estimated synergies
Post-acquisition integration

15. Unfavorable Diversification Performance
Acquisition premiums
Poor due diligence, Bidding wars, CEO hubris, bandwagon effects
Capturing estimated synergies*
Loss of focus on core businesses
Accelerating growth is difficult
Post-acquisition integration*
(* Note: also in list of favorable factors – must do these well ! )

16. Evaluating "Parenting Advantage" Fit

17. Portfolio Management

18. Portfolio Management

19. Portfolio Management Drawbacks
Evaluates SBUs on market-related factors.
Value chain, extraordinary resources, core competences are less important.
Static views – do not account for how resources can be shared / leveraged.
BCG matrix depends on assumption that high market share is related to superior profitability – not universally true.

20. Restructuring & Divestiture
Downscoping
Shedding divisions to strategically re-focus
Divestiture
Some of the parts are worth more than the sum of the parts
Decision process for divestiture
Consider same factors as for diversification, only in reverse
Unattractive industry, no strategic rationale, inability to capture synergies any longer