Allow company to perform value creation functions at

lower cost or in way allowing differentiation & premium

price.
Corporate-Level Strategy
Used to identify:
1. Businesses/industries in which company
should compete
2. Value creation activities company should
perform in those businesses
3. Method to enter or leave businesses or
industries in order to maximize its long-run
profitability
Strategy of Diversification
Types of diversification:
Related diversification
Unrelated diversification
Methods to implement
diversification strategy:
Internal new ventures
Acquisitions
Joint ventures
Value Chain Functions
Enables Company to Perform
1) At lower cost
2) In way that allows differentiation
and gives pricing options
3) Helps manage industry rivalry
better
Ways to Diversify
= Increase Profitability
! Transfer
competencies
! Leverage
competencies
! Share Resources
& Capabilities
! Product bundling
! General organizational
competencies

Transferring Competencies
Competencies transferred must
involve activities important to
establish competitive advantage
Taking a distinctive competency developed
in one industry and implanting it in
EXISTING business unit in another
industry
For strategy to work, the distinctive
competency being transferred must have
real strategic value.
Increase profitability when:

1) Lowers cost structure of one
or more business units
2) Enables one or more business
units to better differentiate
products
Taking a distinctive competency
developed by a business in one
industry and using it to create a NEW
business unit in a different industry
Leveraging Competencies
Economies of scope arise when
business units effectively pool, share,
& utilize expensive resources or
capabilities = possible only when
significant commonalities between
one or more value-chain functions.
Sharing resources and capabilities across
two or more business units in different
industries to realize economies of scope.
Allows customers to reduce
suppliers for convenience &
cost savings
Examples
" Telecommunications
" Medical equipment
Differentiate products/expand product lines to
satisfy customers needs for package of related
products.
Product Bundling
Capabilities help business unit perform at
higher level than operated as individual:
1) Entrepreneurial encourage risk taking
2) Organizational design create structure,
culture, & control systems
3) Superior strategic management effectively
manage managers of business units
Skills transcend individual functions or business units.
General Organizational
Competencies
Types of Diversification
# Related - entry into new business in different
industry:
Related to companys existing business/activities
Has commonalities between one or more
components of each activitys value chain
Based on transferring/leveraging competencies,
sharing resources, & bundling products
# Unrelated - entry into industries with no connection
to any of companys activities in present industry or
industries
Based on only general organizational competencies
to increase profitability of all business units
Disadvantages/Limits
of Diversification
1. Changes in Industry/Company
Unpredictable future
Willing to divest business units
2. Diversification for the Wrong Reasons
Clear vision of how value will be created.
Extensive diversification can reduce profitability.
3. Bureaucratic Costs of Diversification
Costs are function of number of business units
portfolio
Extent coordination is required to gain benefits.
Conditions = diversification disadvantageous:
Coordination Among
Related Business Units
Choosing Strategy
o Related
Competencies can be applied across greater
number of industries
Superior capabilities to control bureaucratic costs
o Unrelated
Functional competencies have few uses across
industries
Organizational design skills to build competencies

Depends on comparison of benefits of each strategy
versus cost of pursuing it:
May pursue both strategies simultaneously
Internal New Ventures
Pitfalls:
! Scale of Entry
! Commercialization
! Poor Implementation
Process of transferring/creating new
business unit/division in new industry.
Successful Internal New Venturing
! Place funding for research in hand of
business unit managers
! Effective use of R & D competency
! Foster close links between R & D and
marketing
! Large-scale entry leads to greater long-
term profits
Attractions of Acquisitions
o Lack of distinctive competencies
o Need to move quickly
o Perceived as less risky than
internal new ventures
o Attractive way to enter new
industry protected by high barriers
to entry
Principle strategy to
start horizontal integration:
Acquisition Pitfalls
o Integrating the acquired company
o Overestimating economic benefits
o Expense of acquisitions
o Inadequate preacquisition screening
Guidelines for
Successful Acquisition
# Identification and screening
# Bidding strategy
# Integration
# Learning from
experience
Joint Ventures
Attractions:
o Avoid risks/costs of building new operation
o Sharing complementary skills/assets
increase probability of success

Pitfalls:
o Sharing profits if new business succeeds
o Venture partners must share control
conflicts can cause failure
o Risk of giving know-how away to joint
venture partner