What type of diversification is most likely to create value through financial economies?

Business-Level Strategy (Compeve)each business unit in a diversifed frm chooses a business-level strategy as its means o compeng in its individual product marketsCorporate-Level Strategyspecifes acons taken by the frm to gain a compeve advantage by selecng and managing a group o dierent businesses compeng in dierent product markets2 Key Issues or Corporate Strategy1) in what product markets and businesses should the frm compete in?2) how should corporate hq manage those business?Value o Corporate Strategythe degree to which the businesses in the porolio worth more under the mgmt o the frm than they would be under other ownershipGoals o Corporate Strategyincrease the frm's valueincrease strategic compevenessearn above-average returnsKey Corporate-level Strategies- market development- product development- horizontal integraon- vercal integraonMarket Developmentmoving into dierent geographic marketsProduct Developmentdeveloping new products and/or signifcantly improving exisng ones

Horizontal Integraonacquiring competors who are operang at the same point on the value chainVercal Integraonacquiring frms who are operang above or below the frm on the value chainDiversifcaongrowing into new business areas that are either similar or unrelated to current businessesoperate in mulple dierent product marketsmust have both corporate-level and business-level strategieseach business within a diversifed frm must have its own business-level strategyBenefts o Diversifcaonfrm can reduce variability in proftability as earnings are generated rom dierent businessesprovides exibility to shi resources and investments to those markets with the greatest returnsideal diversifed porolio balances the costs and benefts o diversifcaonValue through Diversifcaonsharing o resourcestranserring o core competenciesmanagerial moves to diversiy can actually hurt some o the frm's valueLevels o Diversifcaonsingle-business and dominant-business frms have relavely low levels o diversifcaonmore ully diversifed frms are classifed by the level o connecon between business (related/unrelated)

Related Diversifcaonbuilds links between businesses'...- products- technologies- distribuon channelsRelated Constrainedfrms with businesses that share many linksUnrelated Diversifcaonfrms with businesses that share no common linksLOW Diversifcaon- single business- dominant businessSingle Businessgreater than 95% o revenues come rom a single businessex. Wm. Wrigley CompanyDominant Businessbetween 70% and 95% o revenue comes rom a single businessex. United Parcel Service (UPS)MODERATE to HIGH Diversifcaon- related constrained- related linked (mixed related and unrelated)Related Constrainedless than 70% o revenue comes rom a single business and all businesses share product, technological and distribuon linkagesex. Kra, P&G, MerckRelated Linked

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Chapter 06: Corporate-Level Strategy

True / False

1. In the Chapter 6 Opening Case, Disney achieved growth and diversification through mergers and acquisitions.

a. True

b. Fals

e

ANSWER: Fals

e

2. Disney (discussed in the Chapter 6 Opening Case) is an example of a company that was successful because its

corporate strategy added value across its set of businesses above what the individual businesses could create individually.

a. True

b. Fals

e

ANSWER: True

3. Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a

single market into several product markets and, most commonly, into several businesses.

a. True

b. Fals

e

ANSWER: Fals

e

4. If the businesses in the corporate portfolio are not worth more under the management of the corporation than they

would be under any other ownership, then the corporate-level strategy has failed.

a. True

b. Fals

e

ANSWER: True

5. An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be

without the strategy and contributes to the firm's strategic competitiveness and ability to earn above-average returns.

a. True

b. Fals

e

ANSWER: True

6. A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes

under the control of corporate headquarters.

a. True

b. Fals

e

ANSWER: Fals

e

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Which type of diversification is most likely to create value through financial economics?

Which type of diversification strategy shows the best performance?

Which reason for diversification does not create value?

What are the 3 primary reasons Firms Diversify?