Chapter 7 Developing Corporate Strategy. OBJECTIVES . 1. Define corporate strategy. Understand the roles of economies of scope and revenue-enhancement synergy in corporate strategy. 2. 3. Explain the different forms of diversification. 4.
Chapter 7Developing Corporate Strategy
Define corporate strategy
Understand the roles of economies of scope and revenue-enhancement synergy in corporate strategy
Explain the different forms of diversification
Understand when it makes sense for a firm to own a particular business
Explain the corporate strategy implications of the stable and dynamic perspectives
Explain the profit pool and portfolio perspectives of corporate strategic expansion
Types of businesses
Heavy reliance on acquisition
Many seemingly un-related businesses
Many businesses clustered in a few related industries
Product extensions/new product lines
Few related product lines
In which business arenas should a
Also, how do we create synergiesbetween our busi-nesses?
Which vehicles should it use to enter/exita business?
What underlining economic logic makes it sensible to compete in multiple businesses?
The Answers can change
What businesses should
we be in?
PC’s and Mainframes
P & G manufactures paper towels
Can a paper production plant
Does this createvalue?
Fed Ex acquired Kinko’s
Drop off and pick up points for packages
Economies of scope
Valuation of profit
Fit among parent-subsidiary resources
Fit of parent-subsidiary dominant logic
More efficient for investors to diversify themselves
Rarely results in higher share- holder value or margins
Acquisition motivated by executive pay - a bigger company usually impliesa bigger pay check -rarely creates value
Coke andPepsi expandedinto water
Pulte HomesInc. created Pulte Mortgage LLC)
The U.S. Automobile Industry’s Profit Pool