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Corporate-Level Strategy
Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
Incentives to Diversify
Internal Incentives: Poor performance may lead some firms to diversify to attempt to achieve better returns Firms may diversify to balance uncertain future cash flows Firm may diversify into different businesses in order to reduce risk Managers often have incentives to diversify in order to increase their compensation and reduce employment risk, although effective governance mechanisms may restrict such abuses
How to create competitive advantage in each business in which the company competes
- low cost - focused low cost - differentiation - focused differentiation - integrated low cost/differentiation
2. Corporate-Level Strategy
(Companywide Strategy)
Dominant business
A C
Firm need not risk competitive edge by disclosing sensitive competitive information to investors
Firm can reduce risk by allocating resources among diversified businesses, although shareholders can generally diversify more economically on their own
Low
High
Performance
Dominant Business
Related Constrained
Unrelated Business
Level of Diversification