BA 495.009. Corporate-Level Strategy. Chapter Six. Today’s Agenda. Diversification: Corporate-Level Strategy Levels of Diversification Value-Creating Diversification Value-Neutral Diversification Wrap-up. Diversification: Corporate-Level Strategy. The Role of Diversification.
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Corporate-level Strategy’s Value: The degree to which the businesses in the portfolio are worth more under the management of the company than they would be under other ownership.
Source: Adapted from R. P. Rumelt, 1974, Strategy, Structure and Economic Performance, Boston: Harvard Business School.
Between 70% and 95% of revenue comes from a single business.
BLevels of Diversification: Low Level
More than 95% of revenue comes from a single business.
Less than 70% of revenue comes from a single business and all businesses share product, technological and distribution linkages.
Related Linked (mixed related and unrelated)
Less than 70% of revenue comes from the dominant business, and there are only limited links between businesses.
BLevels of Diversification: Moderate to High
BLevels of Diversification: Very High Levels
Related Constrained Diversification
Related Linked Diversification
Both Operational and Corporate RelatednessValue-Creating Strategies of Diversification
Operational and Corporate Relatedness
Operational Relatedness: Sharing Activities between Businesses
Corporate Relatedness: Transferring Skills into Businesses through Corporate Headquarters
Diversification & Performance
Tax LawsExternal Incentives to Diversify
Uncertain Future Cash FlowsInternal Incentives to Diversify
Uncertain Future Cash Flows
Synergy and Risk ReductionInternal Incentives to Diversify
Source: R. E. Hoskisson & M. A. Hitt, 1990, Antecedents and performance outcomes of diversification: A review and critique of theoretical perspectives, Journal of Management, 16: 498.