Notes on Corporate Level Strategy

Introduction to Corporate Level Strategy

• Marty’s return to discuss corporate strategy highlights the need for firms to maintain their competitive advantage.

• Corporate level strategy focuses on multi-industry operations.

Definition of Corporate Level Strategy

• Refers to decisions made by strategic managers to gain and sustain competitive advantage in various industries and markets.

• Distinction from business level strategy, which focuses on competition within a single industry through differentiation and cost leadership.

Key Dimensions of Corporate Level Strategy

1. Industry Value Chain

• Involves backward and forward vertical integration.

• Understanding the entire value chain within and across industries is crucial.

1. Products and Services

• Relates to diversification; considerations of whether to develop in-house or acquire competitors (horizontal integration).

1. Geographic Scope

• Deciding where to compete; looking at regional, national, or international markets.

Importance of Corporate Level Strategy

• Helps firms determine growth, manage costs, reduce risk, and motivate management.

• Understanding transaction costs aids in deciding whether to perform activities in-house or outsource.

Vertical Integration Explained

• Backward Vertical Integration: Acquiring control over suppliers (e.g., farmers, manufacturers).

• Forward Vertical Integration: Acquiring control over distribution channels and buyers (e.g., retailers).

• Transaction Cost Economies: Evaluating internal and external costs associated with conducting business exchanges.

Diversification in Corporate Strategy

• Definition: Increasing product variety or entering new geographical markets.

• Types of Diversification:

1. Single Business: 95% or more revenue comes from one business.

2. Dominant Business: 70-95% revenue from a primary business with other activities contributing marginally.

3. Related Diversification: Two types -

   • Related Constrained: All SBUs share core competencies.

   • Related Linked: Some competencies shared among SBUs.

4. Unrelated Diversification: Less than 70% revenue from a single business with few linkages.

Performance Gains from Diversification

• Related diversification more likely leads to improved performance due to synergies, economies of scale and scope.

Portfolio Management

• BCG Matrix: Categorizes SBUs into four categories:

1. Cash Cow: High market share in a low growth market.

2. Dog: Low market share in a low growth market.

3. Question Mark: Low market share in a high growth market.

4. Star: High market share in a high growth market.

• Introduced GE McKenzie Matrix, adding industry attractiveness and SBU strength factors.

Conclusion and Recap

• Corporate level strategy is about where firms compete, integrating vertical strategies, diversification types, and effectively managing a portfolio of SBUs to drive competitive advantage and strategic growth.