chapter 9 corporate strategy

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Chapter 9 Corporate Strategy


Related Diversification

HORIZONTAL INTEGRATION

• When businesses sharing similar activities are brought together, three relationships among business are important to creating competitive advantage: tangible interrelationships, intangible relationships, and competitor relationships.

• Tangible relationships arise from the ability to share activities in the value chain because of common customers, channels, technology, and other factors.

• Intangible relationships arise from the ability to transfer know-how among separate value chains.

• Competitive relationships arise from the actual or potential competition with competitors that spill over into others of the corporation’s businesses.



VERTICAL INTEGRATION

• Vertical integration is the term applied when a corporation diversifies by extending the activities included in its value chain.

• Shermag Inc., headquartered in Sherbrooke, Quebec, designs, produces, markets, and distributes high-quality residential furniture.

• The company is a vertically integrated manufacturer and importer with its own cutting rights, sawmill, veneer facility, manufacturing operations, and global sourcing division.



UNRELATED DIVERSIFICATION

• A corporation with two or more businesses engaged in entirely unrelated industries is called a conglomerate.

• Capturing benefits when holding such businesses in the corporate portfolio is very difficult.

• Building competitive advantage rests on the capabilities and skills of corporate managers.


Strategies for Entering Attractive New Businesses

FOCUS ON A NICHE

• The generic positions for strategy in Chapter 5 were low-cost leadership, differentiation, focus cost leadership, and focus differentiation.

• An entry that is focused involves pursuing a niche in the market and appears less threatening to the incumbents because it seems to have modest goals.

• Consequently, it attracts little attention and is not likely to provoke retaliatory behaviour.



USING A REVOLUTIONARY STRATEGY

• This affords some protection from competition because such a strategy breaks with the convention of the way business is done by the incumbents.

• When it is very different, incumbents are predisposed to think such a strategy is inferior, unwise, or risky.

• Only after such a strategy proves successful will incumbents rally to try to protect their ground, but by then they are often too late.



LEVERAGING EXISTING RESOURCES

• The business can take its existing capabilities and pursue businesses that build on these capabilities.

• This can be encouraged by a corporate venture unit, a distinct organization unit controlled by the parent company that is responsible for investing in business opportunities that are new to the corporation.

• Such units may engage in a variety of forms of investment, from making small investments in independent start-ups, to incubating internal business ideas, to spinning out businesses.



COMBINATION STRATEGIES

• Several entry strategies have elements of two or more of the strategies.

• For instance, Skype combined its reconfigured value chain strategy with a niche strategy; it specifically targeted price-sensitive customers who would tolerate inferior quality.


Competitive Advantage and Corporate Strategy

Arenas

Specialized GeneralOrgani-zationalstructure

Systems/Processes

People/Rewards

Resources Implementation



ARENAS

• Theoretically, a company can compete in any combination of discrete business arenas.

• In practice, companies rarely enter arenas randomly but rather select those that are logically connected to the arenas in which they already participate.



RESOURCES

• We saw in Chapter 3 that resources and capabilities are tangible or intangible, and their usefulness in creating a competitive advantage depends on five factors:

1. how valuable they are

2. whether they’re rare in the industry

3. whether they’re costly to imitate

4. the availability of substitutes

5. whether the company has complementary capabilities to exploit them



Specialized Resources

• Specialized resources have a narrow range of applicability.

• Knowledge about fibre optics, for example, is fairly specialized, whereas managerial know-how and skill are more general in nature.

General Resources

• General resources can be exploited across a wide range of activities.

• Many companies have created significant shareholder value by leveraging expertise in efficient manufacturing and mass-marketing techniques across different businesses engaged in a variety of industries.


Corporate Strategy in Stable and Dynamic Contexts

CORPORATE STRATEGY IN STABLE CONTEXTS

• Many ideas of the relationship between diversification and corporate strategy are based on analyses of companies operating in relatively stable contexts.

• Historically, a company may have diversified into a high-growth industry because growth prospects in its current industry were unattractive.

CORPORATE STRATEGY IN DYNAMIC CONTEXTS

• The same factors described in Chapter 6 that create the need for a dynamic strategy also apply to corporate strategy: competitive interaction, industry evolution, and technological change.

• The evolution of the Corel Corporation shows how the corporation needs to be flexible when dealing in a dynamic context.

chapter 9 corporate strategy

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