1. Group 6 (11 AM):Bailey Anderson, Tucker DeVinny, Angela Chavez
Corporate Strategy
Group 6 (11 AM):Bailey Anderson, Tucker DeVinny, Angela Chavez

2. Chapter outline
The concepts of economies of scope, how to manage cost complexities, and understand firm's boundaries
The rationale behind multi-business activity
The advantages and disadvantages of change in the firm's scope
Trends in diversification and integration
The techniques of portfolio analysis and understand how to apply corporate strategies

3. The Scope of the firm Corporate strategy vs. Business strategy
The scope often changes over time
Ask the question "what business are we in?"
The range of product/market activities the firm undertakes includes:
Product scope: How specialized the firm is in the range of products it supplies
Vertical scope: The range of vertically linked activities the firm encompasses
Geographical scope: The geographical spread of activities in the firm

4. American Airlines Approach
Mission statement: "American Airlines is a founding member of the oneworld® alliance, which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members and members-elect serve more than 900 destinations with more than 10,000 daily flights to 149 countries and territories." 
Narrow or broad?
Narrow
Merged the parent company of US airways, US Airways Group with American Airlines parent company, AMR corporation
Helps with increase in revenue and decrease in costs
Less competition and higher prices

5. Key concepts for analyzing firm scope
Firms will expand or reduce their scope because they feel it is in the company's best interest
Goal is to       Revenue       Costs
Three key concepts:
Economies of scope
Transaction costs
The cost of corporate complexity

6. Diversification
The expansion of an existing firm into another product like or field of operation
Can be related or unrelated to their current field
Concentric – Related
Conglomerate – Unrelated

7. Diversification in Air Transportation

8. Diversification In American airlines
American Airlines focused on transporting U.S. mail in the 1930s to keep themselves afloat.
By the late 1930s, American Airlines started branching out to passenger flights and began creating revenue this way.
They started flying daily between New York and DFW, and was the first airline to make a profit from solely transporting passengers.

9. Benefits of Diversification
Growth
Keeping companies from staying stagnant
Better chances of sticking to a market
Risk Reduction
"Don’t put all your eggs in one basket"
One common ownership brings more stable profit
Stable profits means job security

10. Porter's Essential Tests
Test to check the long-run profitability of a firm trying to diversify
The Attractiveness Test: industries must be structurally attractive
The Cost-Of-Entry Test: cost must not outweigh future profits
The Better-Off Test: new unit must gain competitive advantage from its link with corporation or vice versa
The Better-Off test is the most important test when making diversification decisions.

11. Vertical integration
Vertical integration refers to a firm's ownership of vertically related activities, or owning not only the company but the suppliers and distributors.
One of the goals of vertical integration is making products in house rather than outsourcing.
The more a firm makes rather than buys, the lower its costs, and the more revenue increases

12. Types of Vertical integration
Vertical integration had two types:
Backward: Firm acquires ownership and control over the production of its own inputs
Forward: Firm acquires ownership and control of activities undertaken by customers
Full: All components of products are manufactured, distributed, and sold through the company
Partial: Some components are manufactured, distributed, and sold but allows for outsourcing.
Backwards: manufacturing
Forward: Adverising

13. Vertical Integration in American Airlines
American Airlines utilizes forwards vertical integration by selling flights through their website directly to customers
By not involving a retailer, they maximize their profits

14. Managing the corporate portfolio
GE/McKinsey Matrix: 
The industry attractiveness axis combines: market size, market growth rate, market profitability, cyclicality, and international potential.
This analysis can guide:
Allocating resources between businesses based on each business's market attractiveness and competitive position 
Formulating business unit strategy
Analyzing portfolio balance
Setting performance targets based on each business's market attractiveness and competitive position 

15. MANAGING THE CORPORATE PORTFOLIO
BCG’s growth-share matrix
Similar to the GE/McKinsey matrix, however, it uses a single indicator as a proxy for each of these dimensions: industry attractiveness is measured by rate of market growth and competitive advantage by relative market share

16. MANAGING THE CORPORATE PORTFOLIO
The Heartland Matrix
The value-creating potential of a business within a company’s business portfolio depends on the characteristics of the business as well as the characteristics of the parent. 

17. References
strategy/corporate-strategy/
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