1. Corporate-level Strategy Diversification (Related and Unrelated)
Integration (Vertical and Horizontal)
Contraction Strategies
Resource Allocation Decisions
BCG Matrix
Industry Attractiveness/Competitive Strength

2. What are the three levels of strategy?
What does each level deal with?
How does one know that a firm is pursuing a
corporate-level strategy?

3. Corporate-level or strictly Business-level?
Disney?
Wal-Mart?
General Electric?

4. Corporate-level Strategy
Corporate-level strategy is guided by a vision of how “the firm
as a whole can create economic value.”
Philip Morris
(Cigarettes)
Kraft Foods
Miller Brewing
P.M. Capital

5. Philip Morris Corporation (Altria)
Kraft Foods
Divested 3/07
P.M.
Capital
Philip Morris
(Cigarettes)
Miller
Brewing
Divested for
$5.6 billion
The corporation is seen as a system of interdependent parts.

6. Corporate-level Strategies
Expansion strategies include:
Diversification (Related and Unrelated)
Vertical Integration
Horizontal Integration
Contraction Strategies include:
Divestiture (including Spin-off)
Liquidation
Corporate Turnaround
Corporate Retrenchment
Portfolio Restructuring

7. Diversification Why do firms diversify? (Rationale Tests)
Stabilize Cash Flows (seasonal fluctuations)
Attractiveness test (Porter’s Five Forces, size, growth rate,
remote environmental conditions, industry profit margins)
Cost of Entry (Barriers to entry, capital investments, debt)
Better off tests (economies of scope, possible strategic fits)

8. Diversification There are two kinds of diversification Unrelated
Ex. Virgin: (Five industries):
Airlines, music, beverage, retailing, e-commerce, financial services
Related
Ex. Johnson and Johnson (at least 6 industries):
Baby products, Health and Personal Care Products, Pharmaceutical,
Medical Devices, Contact Lenses.

9. Economies of Scope:
When it is less costly for two or more businesses to operate
under one centralized management than to remain independent.
(Linking value chain activities)

10. Related Diversification
Firms start or acquire businesses in different industries; value chains
for both businesses should have strategic fits (or links).
Four kinds of strategic fits:
Technology (using same/similar technological infrastructure)
Operating (manufacturing processes)
Market (similar or the same distribution
channels or customers)
Managerial (management know-how or expertise)

11. Benefits of Strategic Fits
Strategic Fits provide opportunities for skills transfer
or cost savings.
Firms are able to:
Transfer valuable expertise, technological know-how or other capabilities
(Hotels and Assisted Living Facilities)
Combine the related activities of separate businesses into a single operation to
achieve lower costs of operations or administration (Economies of Scope)
Exploit brand equity by using a well-known brand name (Johnson and Johnson)
Cross-business collaboration to create or leverage valuable resources
or capabilities.

12. Opportunities for Costs Savings or Skills Transfer
Support Activities
Purchased
Supplies
Inbound
Logistics
Distribution
and
Outbound
Logistics
Sales
and
Marketing
Operations
Service
Opportunities for Costs Savings or Skills Transfer
Purchased
Supplies
Inbound
Logistics
Distribution
and
Outbound
Logistics
Sales
and
Marketing
Operations
Service
Support Activities

13. How do firms develop an advantage
at the corporate level?

14. Resource Based View – Corporate Level Strategy
Companies should diversify around their core businesses;
and the creation of synergies by appropriately leveraging the
firm’s resources.
Even at the corporate level, resources are still king!!!
New Criteria for diversification:
1. Strategic fits
2. Ability to exploit core competencies across different
businesses (e.g., brand management, R&D, innovation)
3. Managerial skills and know-how

15. DISNEY Parks Studio And Entertainment Resorts Consumer Media Products
Networks

16. RESOURCES PROVIDE THE BASIS
FOR RELATEDNESS

17. Horizontal Integration
Firms seek ownership or increased control over competitors.
(e.g., consolidation, mergers and acquisitions)
Motivations for horizontal integration:
Achieve economies of scale/rationalization
Technology exchanges
Co-opting or blocking competition
Facilitate international expansion
Pfizer Warner Lambert Pfizer
SmithKline Beckman + Beecham Group SmithKline Beecham
SmithklineBeecham + GlaxoWellcome GlaxoSmithkline

18. Conditions Favoring Horizontal Integration
1. When an organization can gain monopolistic characteristics
without being challenged by the federal government.
2. Growing and mature industries.
3. When economies of scale will lead to a competitive advantage.
4. When the organization has both the capital and managerial talent
needed to fully manage the expanded organization.
5. When competitors are faltering due to lack of managerial
experience or lack of key resources.

19. Vertical Integration
Firms attempt to gain ownership or increased control over
suppliers or distribution channels.
Assumption underlying a vertical integration strategy:
Control over inputs or distribution channels increases opportunities
for cost savings or value creation.

20. Advantages of Vertical Integration include:
A secure source of “raw materials” or distribution channels.
Protection of or control over valuable assets, proprietary technology
Access to new business opportunities
Simplified procurement and administrative procedures
Greater control over costs of components
Reduction in transactions cost
Ability to maintain or cultivate a reputation for outstanding quality or service

21. Disadvantages of Vertical Integration include:
Costs and expenses associated with increased overhead and capital expenditures
Loss of flexibility from large investments
Problems associated with unbalanced capacities along the industry value chain.
Low demand can lead to underutilization of capacity
High demand can result in a dependence on outside suppliers
Higher administrative costs associated with managing a more complex set of activities.
Transfer pricing dilemmas

22. Merck & Co., Inc. Neuroscience Biotechnology Animal Health Products
Managed Care
Pharmaceuticals

23. Merck & Co., Inc. (C-L Strategy) Related Diversification
Animal
Health Products
Related Diversification
Management Fits
Operating Fits
Technology Fits
Managed
Care
Prescriptions
Biotechnology
Pharmaceuticals
Backward integration Forward integration

24. Contraction Strategies
Divestiture: Selling off business units (as a whole)
Spin-off: Business Unit gains financial and managerial
independence (parent company may retain some ownership)
Liquidation: Selling off a business’ assets
Corporate Retrenchment: When then company attempts to reduce
the overall scope of its diversification
Portfolio Restructuring: Changing the mix of industries that are
represented in the corporate portfolio.
Corporate Turnaround: Asset Reduction and/or Cost Reduction

25. Resource Allocation Decisions are Complex
Corporate-level managers must grasp the relative merits of
investment proposals coming from a range of businesses:
in DIFFERENT sectors
with DIFFERENT time horizons
in DIFFERENT competitive positions
from management teams with DIFFERING credibilities

26. Investment decisions require a balance of: Financial considerations
Growth considerations

27. Boston Consulting Group Matrix
Market Share
High
Low
Industry Sales
Growth Rate
High
Moo!!
Low

28. Stars Star businesses: Have a strong competitive position in rapidly
growing industries
Are major contributors to corporate revenue
Offer excellent profit potential
What about the cash?

29. Question Marks
Question Marks operate in high growth industries but have
relatively low market shares
Rapid growth makes them attractive from an industry
standpoint but
What about the cash?

30. Cash Cows Why are cash cows particularly valuable?
What about the cash?
They can be milked for cash to:
Pay corporate dividends
Finance new acquisitions
Invest in young stars and question marks
Moo!!

31. Dogs Dogs have a weak market position and low profit potential
Dogs are unable to generate attractive cash flows
Are Dog business units good for anything?

32. What are the limitations of the
BCG Matrix?

33. Industry Attractiveness
Market Size and Projected Growth Rate
Intensity of Competition
Emerging Opportunities and threats
Cross-industry Strategic Fits
Resource Requirements
Seasonal/Cyclical Influences
Macro Factors (Social/Political/Legal/etc)
Industry Profitability
Industry Uncertainty and Business Risk

34. Competitive Strength Relative Market Share
Costs relative to Competitors’ Costs
Ability to Match or Beat Rivals on Key Product Attributes
Ability to benefit from Strategic Fits
Bargaining Power over Suppliers and Buyers
Caliber of Alliances
Brand Image and Reputation
Competitively Valuable Capabilities
Profitability Relative to Competitors

35. Industry Attractiveness – Competitive Strength Matrix
Competitive Strength/Market Position
Strong
Weak 10
6.7
3.3
High
High
Priority
Low
Priority
High
Priority
6.7
Industry
Attractiveness
High
Priority
Low
Priority
Medium
Priority
3.3
Low
Priority
Medium
Priority
Medium
Priority
Low