6: Corporate-Level Strategy 152

Opening Case: Procter and Gamble’s Diversification Strategy 153

Levels of Diversification 155
Low Levels of Diversification 155
Moderate and High Levels of Diversification 156
Reasons for Diversification 157
Value-Creating Diversification: Related Constrained and Related
Linked Diversification 158
Operational Relatedness: Sharing Activities 159
Corporate Relatedness: Transferring of Core Competencies 160
Market Power 161
Simultaneous Operational Relatedness and Corporate Relatedness 163
Unrelated Diversification 163
Strategic Focus: Operational and Corporate Relatedness: Smith & Wesson
and Luxottica 164
Efficient Internal Capital Market Allocation 165
Restructuring of Assets 166
Value-Neutral Diversification: Incentives and Resources 166
Strategic Focus: Revival of the Unrelated Strategy (Conglomerate): Small Firms Acquire
Castoffs from Large Firms and Seek to Improve Their Value 167
Incentives to Diversify 168
Resources and Diversification 171
Value-Reducing Diversification: Managerial Motives to Diversify 172
Summary 174 • Review Questions 174 • Experiential Exercises 175 • Notes 175
7: Acquisition and Restructuring Strategies 180
Opening Case: The Increased Trend Toward Cross-Border
Acquisitions 181
The Popularity of Merger and Acquisition Strategies 183
Mergers, Acquisitions, and Takeovers: What Are the Differences? 184
Reasons for Acquisitions 184
Increased Market Power 184
Strategic Focus: Oracle Makes a Series of Horizontal Acquisitions While
CVS Makes a Vertical Acquisition 185
Overcoming Entry Barriers 187
Cost of New Product Development and Increased Speed to Market 188
Lower Risk Compared to Developing New Products 189
Increased Diversification 189
Reshaping the Firm’s Competitive Scope 190