ch. 6 Flashcards
(36 cards)
Corporate-Level Strategy
a strategy that focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses
Diversification
the process of firms expanding their operations by entering new businesses
Related Diversification
a firm entering different businesses in which it can benefit from economies of scope (leveraging core competencies and sharing activities), or building market power; businesses share parts of the value chain
Economies of scope
cost savings from leveraging core competencies and sharing related activities among businesses in a corporation
Leveraging core competencies
a firm’s strategic resources that reflect the collective learning in the organization
Sharing activities
having activities in two or more businesses’ value chains done by one of the businesses
Market Power
firms’ abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investments; able to act like a monopolist and set the price
Pooled negotiating power
the improvement in bargaining position relative to suppliers and customers
Vertical integration
an expansion or extension of the firm by integrating preceding or successive production processes
Transaction cost perspective
vertical integration is better that market transactions when the transaction costs are high
Transaction costs
search, negotiating, contracting, monitoring, and enforcement costs
Benefits of Vertical Integration
- Secure source of raw materials or distribution channels
- Control of valuable assets
Risks of Vertical Integration
- High overhead costs
- Loss of flexibility
Unrelated diversification
a firm entering a different business that has little horizontal interactions w/ other businesses in a firm (Think “Virgin” company)
Horizontal interactions
relationships among business units (core competencies, sharing activities, market power)
Vertical Interactions
Relationships between business units and corporate office (corporate parenting, restructuring, portfolio management)
Parenting advantage
the positive contributions of the corporate office to a new business as a result of experience and support provided and not as a result of substantial changes in assets, captial structure, or management
Restructuring
intervention of a corporate office in a new business that substantially changes assets, capital structure, and/or management (e.g. selling parts of a business, changing management, downsizing, reducing costs, etc.)
Portfolio management
a method for a) assessing the competitive position of a portfolio of businesses within a corporation, b) suggesting strategic alternative for each business, and c) identifying priorities for the allocation of resources across the business
BGC Matrix - Star
High industry growth rate and high market share; should continue to receive funding
BCG Matrix- Dog
Low industry growth and low market share; should be divested
BGC matrix- Cash cow
Low industry growth and high market share; limited long-run potential but a source of cash flow
BCG Matrix- Question mark
high industry growth and low market share
Merger
combining 2 or more firms into one new legal entity; shut down smaller company and use the $ to buy stocks from larger company, entering the equity structure of the larger company, creating one unified board of directors
