Ch6-1 Chapter 6 Corporate-Level Strategy Michael A. Hitt R. Duane Ireland Robert E. Hoskisson ©2000 South-Western College Publishing Ch6-2 Chapter 3 Internal Environment Chapter 2 External Environment The Strategic The Strategic Management Management Process Process The Strategic The Strategic Management Management Process Process Strategic Intent Strategic Mission Strategic Competitiveness Above Average Returns Feedback Strategy Formulation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Strategy Implementation Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes Ch6-3 How to create value for the corporation as a whole How to create value for the corporation as a whole 2. Corporate-Level Strategy 2. Corporate-Level Strategy (Companywide Strategy) (Companywide Strategy) - low cost - low cost - differentiation - differentiation - integrated low cost/differentiation - integrated low cost/differentiation - focused low cost - focused low cost - focused differentiation - focused differentiation How to create competitive advantage in each How to create competitive advantage in each business in which the company competes business in which the company competes 1. Business-Level Strategy 1. Business-Level Strategy (Competitive Strategy) (Competitive Strategy) A Diversified Company A Diversified Company Has Two Levels of Strategy Has Two Levels of Strategy Ch6-4 1. What businesses should the corporation 1. What businesses should the corporation be in? be in? 2. How should the corporate office manage 2. How should the corporate office manage the array of business units? the array of business units? Corporate Strategy Corporate Strategy is what makes the corporate whole is what makes the corporate whole add up to more than the sum of its business unit parts add up to more than the sum of its business unit parts Key Questions of Corporate Strategy Key Questions of Corporate Strategy Levels and Types of Diversification Levels and Types of Diversification Low Levels of Diversification Low Levels of Diversification Moderate to High Levels of Diversification Moderate to High Levels of Diversification Very High Levels of Diversification Very High Levels of Diversification Related linked (mixed) Related linked (mixed) < 70% of revenues from dominant < 70% of revenues from dominant business, and only limited links exist business, and only limited links exist A A A A B B B B C C C C Single business Single business > 95% of revenues from a single > 95% of revenues from a single business unit business unit A A A A Dominant business Dominant business Between 70% and 95% of Between 70% and 95% of revenues from a single business revenues from a single business unit unit B B B B A A A A Unrelated-Diversified Business units not closely related Business units not closely related A A A A B B B B C C C C < 70% of revenues from dominant < 70% of revenues from dominant business; all businesses share product, business; all businesses share product, technological and distribution linkages technological and distribution linkages Related constrained Related constrained A A A A B B B B C C C C Ch6-6 Motives, Incentives, and Resources Motives, Incentives, and Resources for Diversification for Diversification Motives to Enhance Motives to Enhance Strategic Competitiveness Strategic Competitiveness Economies of Scope Economies of Scope Market Power Market Power Financial Economies Financial Economies Resources Resources Managerial Managerial Motives Motives Incentives Incentives Ch6-7 Incentives and Resources Incentives and Resources with Neutral Effects of with Neutral Effects of Strategic Competitiveness Strategic Competitiveness Anti-Trust Regulation Anti-Trust Regulation Tax Laws Tax Laws Low Performance Low Performance Uncertain Future Cash Flows Uncertain Future Cash Flows Firm Risk Reduction Firm Risk Reduction Tangible Resources Tangible Resources Intangible Resources Intangible Resources Managerial Managerial Motives Motives Resources Resources Incentives Incentives Motives, Incentives, and Resources Motives, Incentives, and Resources for Diversification for Diversification Ch6-8 Managerial Motives Managerial Motives Causing Value Reduction Causing Value Reduction Diversifying Managerial Diversifying Managerial Employment Risk Employment Risk Increasing Managerial Increasing Managerial Compensation Compensation Managerial Managerial Motives Motives Resources Resources Incentives Incentives Motives, Incentives, and Resources Motives, Incentives, and Resources for Diversification for Diversification Ch6-9 Summary Model of the Summary Model of the Relationship Between Firm Relationship Between Firm Performance and Diversification Performance and Diversification Diversification Diversification Strategy Strategy Managerial Managerial Motives Motives Resources Resources Incentives Incentives Ch6-10 Adding Value by Diversification Adding Value by Diversification Diversification most effectively adds value Diversification most effectively adds value by either of two mechanisms: by either of two mechanisms: By developing economies of scope between By developing economies of scope between business units in the firms which leads to business units in the firms which leads to synergistic benefits synergistic benefits By developing market power which leads to By developing market power which leads to greater returns greater returns [...]... Model of the Relationship Between Firm Performance and Diversification Resources Capital Market Intervention and Market for Managerial Talent Incentives Diversification Strategy Firm Performance Managerial Motives Internal Governance Strategy Implementation Ch6-28 ... Restructuring Key Characteristics: Seek out undeveloped, sick or threatened organizations or industries Parent company (acquirer) intervenes and frequently: - Changes sub-unit management team - Shifts strategy - Infuses firm with new technology - Enhances discipline by changing control systems - Divests part of firm - Makes additional acquisitions to achieve critical mass Frequently sell unit after... Strategies Efficient Internal Capital Market Allocation Restructuring Ch6-18 Alternative Diversification Strategies Efficient Internal Capital Market Allocation Key Characteristics: Firms pursuing this strategy frequently diversify by acquisition: Acquire sound, attractive companies Acquired units are autonomous Acquiring corporation supplies needed capital Portfolio managers transfer resources from . to create value for the corporation as a whole 2. Corporate-Level Strategy 2. Corporate-Level Strategy (Companywide Strategy) (Companywide Strategy) - low cost - low cost - differentiation -. Business-Level Strategy 1. Business-Level Strategy (Competitive Strategy) (Competitive Strategy) A Diversified Company A Diversified Company Has Two Levels of Strategy Has Two Levels of Strategy Ch6-4 1 Average Returns Feedback Strategy Formulation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter