1. Corporate Strategy (Foundations of Strategy CH.7)
Aaron Phillips
James Blanton
Lauren Defrancisco

2. Scope of the Firm “What business are we in”
Three dimensions of a firm (Product, Vertical, and Geographical Scope)
Often changes over time (Phillips)
Under Armour
Product Scope: Tangible aspect of the firm dealing with actual products
Vertical Scope: Presence along the industry value chain
Geographical Scope: what geographical markets will it compete in
Refoucsing on core business is a common trend
Phillips getting rid of product lines other than healthcare, lighting, and consumer well-being

3. Tesco: From food to finance
History
British grocery store that started in 1919 by Jack Cohen
Grew in the 1960’s by acquisitions and a strategy of “piling it high and selling it cheap”
Cohen steps down in 1973 after sales start slipping
Repositioning of the company
Opened up Tesco Personal Finance (TSP) in 1997
What went wrong
Trust Issues
Internal Complexity

4. Key Concepts for Analysing Scope
Economies of Scope
Transaction Costs
Costs of Corporate Complexity
Economies of scope: When using a resource across multiple activities actually uses less than it would if each action was performed individually
Transaction Costs: How much do they spend on transactions
How to minimize this is through overtaking the buyer or seller on the other side of the transaction
Costs of Corporate Complexity: The more transactions costs you get rid of the more you will start to grow your corporate complexity.

5. Scope of Tesco’s activities
2014 Company Scope
Telecommunication Services, Entertainment, Financial services, CRM, Family Restaurants, as well as different store formats
International diversification

6. Diversification
Expansion of an existing firm into another product line or field of operation
Concentric/Conglomerate
Related Vs. Unrelated diversification
Not always as easy as it seems at first glance
Diversification: expansions of an existing firm into another product line or field of operation
Types of diversification:
Related diversification (concentric diversification): this occurs when a company expands into a similar field of operation.
Example used:
Honda: they expanded their field of operations by expanding their product line from motorcycles to cars
Under armor: athletic clothing/ apparel to footwear
Unrelated diversification (conglomerate diversification): this occurs when a company adds an additional product line that is VERY different from the firms core business
It is often difficult to distinguish which type of diversification is present within these companies
Example: Honda: diversification is difficult to distinguish due to what someone would mean by relatedness
One could argue that Honda isrelated or concentric diversification due to the fact that motorcycles and cars are similar on an operational level
Therefore: classifying diversification as related or unrelated requires an understanding of the overall strategic approach of the company and recognition of its corporate-level management capabilities

7. Benefits and Costs of Diversification
Growth
Risk Reduction
Value Creation (Porter’s Essential Tests)
Attractiveness Test
The Cost-of-entry
The Better-off test
Diversification is beneficial ONLY if it helps the firm to achieve its objective
Diversification can be used to help firms improve profitability and shareholder value.
However, sometimes corporate diversification appear to have been motivated by the desire for growth or risk reduction,which might not always be in the shareholders interest

8. Growth Without diversification Exxon Mobil Stagnant Declining industry
Expanding their operations
Conglomerate diversification
Without diversification, firms may become stagnant or their industry may began to decline.
Ex:Exxon Mobil: in the 1980's their business was declining but they diversified their operations by expanding into copper and coal mining, electric motors, computers and office equipment.
This diversification allowed them to grow their company by utilizing conglomerate diversification

9. Risk Reduction “Don’t put all your eggs in one basket.” Allows for:
Expansion into various operations
Common ownership
Stable profit earnings
Who benefits the most?
Managers
" don’t put all your eggs in one basket"
If one operation fails, it wont affect the business as much as it would if you had various operations that helped your cash-flow
Therefore, bringing different businesses together under common ownership results in stable profit earnings.
Who benefits from risk reduction the most?
Managers: they tend to benefit the most because stable profits allow them to keep their jobs due to job security.

10. Value Creation: Porters Essential Tests
Creates value for shareholders
Used to increase long-run profitability
3 Essential Tests:
The Attractiveness Test
Must be structurally attractive of have the capability to being made attractive
The Cost-of-Entry Test
Cost of entry must not outweigh all future profits
The Better-off Test
New unit must gain a competitive advantage from its link with the corporation of vice versa
In order to ensure that diversification creates value for shareholders through increasing the long-run profitability of the firm, Michael Porter proposed three essential tests
Attractiveness test: although diversification allows a firm access to more attractive opportunities than are available in its own industry, it faces many challenges when entering a new industry. Therefore, industry attractiveness is insufficient on its own
Cost-of-Entry Test: for a firm seeking to enter a new industry, the cost of entry may eat upthe BENEFITS of being in the industry.
So cost of entry recognizes that an industry offers above-average profitability to its participants because it is PROTECTED BY BARRIES TO ENTRY
Better-off Test:
If it doesnt allow for competitive advantage, then maybe it’s not worth investing in the expansion into that industry/market

11. Exploiting Economies of Scope
Tangible Resources
Distribution Networks, Information Technology Systems, Sales Forces, and Research Labs
Shared Service Organizations
Intangible Resources
Brand, Corporate Reputation, Technology
Brand Extension

12. Economies of Scope at Tesco
Became Diversified which has allowed shared use of tangible and intangible resources
Tesco’s Brand Name and Reputation
Tesco’s Market Analytics and Information Processing
Tesco’s Land and Property Management

13. A firm’s ownership of vertically related activities
Vertical Integration
A firm’s ownership of vertically related activities
Can be Backwards, Forwards, Full, or Partial
Grown unpopular over the past 25 years
Companies putting emphasis on outsourcing to focus on their core competencies