Chapter 6 - Corporate-Level Strategy & Diversification

Diversification

The process of firms expanding their operations by entering new businesses.

Related Diversification

Entering a different business by leveraging core competencies, sharing activities, or building market power.

Unrelated Diversification

Entering a different business that has little horizontal interaction with other businesses of a firm.

Economies of Scope

Cost savings from leveraging core competencies or sharing related activities among businesses.

Core Competencies

A firm's strategic resources that reflect the collective learning in the organization.

Sharing Activities

Having activities of two or more businesses' value chains done by one of the businesses.

Market Power

Firms' abilities to profit through restricting or controlling supply or coordinating to reduce investment.

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

The choice of governance structure is influenced by transaction, search, negotiating, contracting, and monitoring costs.

Parenting Advantage

Positive contributions of the corporate office to a new business as a result of expertise and support.

Restructuring

Corporate office intervention that substantially changes assets, capital structure, and/or management of a business.

Portfolio Management

Assessing business portfolios, suggesting strategic alternatives, and identifying resource allocation priorities.

Acquisitions

The incorporation of one firm into another through purchase via stock, cash, or debt.

Mergers

The combining of two or more firms into one new legal entity.

Strategic Alliance

A cooperative relationship between two or more firms.

Joint Ventures

New entities formed within an alliance where parents contribute equity to form a new legal entity.

Internal Development

Entering a new business through investment in new facilities, also known as corporate entrepreneurship.

Managerial Motives

Managers acting in their own self-interest rather than to maximize long-term shareholder value.

Growth for Growth's Sake

Managerial actions to grow firm size to serve self-interest rather than increase long-term profitability.

Related Linked Diversification

Diversification where business units only share a few resources across the corporation.

Related Constrained Diversification

Diversification where there are a large number of resource links between business units.

Divestment

The exit of a business from a firm's portfolio to cut losses or refocus on core areas.

Backward Integration

Corporate expansion moving closer to the original source of raw materials.

Forward Integration

Corporate expansion moving closer toward the ultimate consumer or retail distribution.

BCG Growth/Share Matrix

A portfolio model plotting strategic business units by relative market share and industry growth rate.

Stars (BCG Matrix)

SBUs competing in high-growth industries with relatively high market shares, requiring substantial investment.

Cash Cows (BCG Matrix)

SBUs with high market shares in low-growth industries that generate current cash flows.

Dogs (BCG Matrix)

SBUs with weak market shares in low-growth industries, recommended for divestment.

Question Marks (BCG Matrix)

SBUs competing in high-growth industries with relatively weak market shares requiring enhanced investment.