Strategic Management – Chapter 6: Corporate-Level Strategy & Diversification

Vocabulary flashcards covering key terms and concepts from Chapter 6 (Corporate-Level Strategy & Diversification) of Hitt, Ireland, & Hoskisson, as discussed in Dr. Flint’s lecture. These cards aid in recognizing definitions and understanding motives, levels, and outcomes of diversification.

Corporate-Level Strategy

Actions a firm takes to gain competitive advantage by selecting and managing a portfolio of businesses.

Diversification

Entering different product lines or markets to reduce dependence on a single business and create value.

Synergy

Additional value that results when the combined performance of two or more business units exceeds their individual contributions.

Levels of Diversification

Categories describing the proportion of revenue from the dominant business: single, dominant, related constrained, related linked, unrelated.

Single Business Strategy

When ≥ 95 % of a firm’s revenue comes from one business area.

Dominant Business Strategy

When 70 – 95 % of revenue is generated by one primary business.

Related Constrained Diversification

A strategy in which business units share many links such as common products, technologies, or distribution channels.

Operational Relatedness

Value created through functional-level sharing of activities (e.g., joint manufacturing, common sales force).

Related Linked Diversification

Diversification where businesses share only limited links, often through knowledge transfer or a corporate brand.

Corporate Relatedness

Value creation by transferring corporate-level core competencies (intangibles) among business units.

Unrelated Diversification

Owning businesses with few, if any, similarities—commonly called a conglomerate approach.

Conglomerate

A firm that pursues unrelated diversification by operating in completely different industries.

Economies of Scope

Cost savings achieved when resources or capabilities are shared across multiple businesses.

Market Power

Ability to influence prices, control supply, or affect competition through diversified positions.

Multipoint Competition / Blocking

Rivalry across several markets that allows firms to deter competitive attacks by responding in other markets.

Vertical Integration

Diversifying by moving into upstream suppliers or downstream distribution channels.

Financial Economies

Cost advantages and value created through superior financing, investment, or restructuring decisions.

Efficient Internal Capital Allocation

Corporate advantage gained by distributing capital among units more effectively than external markets can.

Restructuring

Acquiring underperforming firms, improving them, and later divesting for a profit.

Value-Creating Diversification

Expansion pursued to generate shareholder value via economies of scope, market power, or financial economies.

Value-Neutral Diversification

Diversification done mainly to address external pressures or stabilize performance, not necessarily to add value.

Non-Market Environment Response

Entering new businesses to cope with political, social, or regulatory forces rather than direct competition.

Low Performance Motive

Diversifying because existing operations are underperforming.

Cash-Flow Volatility Reduction

Smoothing earnings by spreading cash flows across different businesses.

Risk Reduction Motive

Diversifying primarily to lower overall firm risk exposure.

Value-Reducing Diversification

Expansion that benefits managers at shareholders’ expense, often lowering firm value.

Managerial Employment Risk Reduction

Diversification aimed at decreasing executives’ job-loss risk if one business fails.

Managerial Compensation Increase

Pursuing diversification that enlarges firm size and thus executive pay tied to sales or assets.

Personal Reputation

Managers diversifying to build a legacy or public stature rather than to maximize shareholder wealth.

Managerial Hubris

Executive overconfidence leading to overestimation of ability to manage diversified firms and poor acquisition decisions.