The document discusses various corporate strategies for diversification including portfolio management, restructuring, transferring skills, and sharing activities. It states that diversification can only create shareholder value if the company has skills relevant to the new industries and manages diversification in a way that fits the strategy. Industry structure must also be attractive. Simply diversifying or entering fast-growing industries is not enough without considering whether the structure can support long-term growth. Companies need to identify relationships between business units and select core businesses to facilitate resource sharing through diversification.

1. Group 1

2.  Two Basic of Strategies level
• Business Strategy
• Corporate Strategy
 Corporate Strategy Concerns 2 Questions
◦ What Business the corporation should be in?
◦ How Corporate should manage business unit?
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3.  How to measure diversification?
 Market Value after mergers
 Main Objective of company.
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4. From competitive advantage to Corporate strategyGroup 1
 Competition occurs at the business
unit level
 Diversification inevitably adds to costs
& constraints
 Shareholders can diversify themselves

5. I) The Attractive
Test
II) The Cost-to-
entry Test
III) The better-
off Test
•Attractive Industry
•Unattractive Industry
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6.  Diversification cannot create value for
shareholders, unless have favourable structure
 If not, should consider restructuring of the firm
 Poor Industry structure can lead to unhappy
diversification
 Ex: Royal Dutch Shell and other leading oil companies have
had this unhappy experience in a number of chemicals
businesses.
 Don’t‘ rush into Fast-Growing
◦ Mistake early growth for long term.
◦ Personal Computer, Video Game, Robotics
Attractive Industry
•High Average return
•Difficult to enter
•High entry barriers
•Bargaining power
(supplier-buyer)
•Substitute products or
service are few
•The rivalry among
competitors is stable
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7.  Cost of entry into new business > expected returns :
can’t build shareholder value
 Enter new industries
1. Acquisition
2. Start-Up
- Entry Barriers
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8.  Corporation must bring some significant
competitive advantage to the new unit.
 If the benefit is one-time, it is best to sell the
unit once got the benefits
◦ Ex: the merger of Baxter Travenol and American
Hospital Supply

9. Portfolio
Management
Restructuring
Transferring
Skill
Sharing Activity
From competitive advantage to Corporate strategyGroup 1

10.  The Corporation acquires sound attractive
companies with competent managers who
agree to stay on.
 Autonomous business unit
 Categorize units by potential
 Common Pitfalls: Ignoring the fact that
industry structure is not attractive
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11.  Undeveloped, sick, or threatened
organization or industries on the threshold of
significant change
 Parent intervenes, Frequently changing the
management team, shifting strategy, infusing
the company with new technology.
 Common Pitfalls: Mistake rapid growth,
Ignoring the fact that industry structure is not
attractive.
From competitive advantage to Corporate strategyGroup 1

12.  Hanson Trust, one of several skillful followers
of restructuring concept.
 Becoming Britain’s largest company.
 Hanson target: An attractive structure,
customer and supplier power is low, and
rivalry with competitors moderate.
 Hanson target: A market leader, rich in assets
but formerly poor in management.
 Hanson strategy: emphasizes low costs and
tight financial controls.

13. From competitive advantage to Corporate strategyGroup 1
 Company’s ability to transfer skills or
expertise among similar value chain.(transfer
“How to”).
 Newly enter industries can benefit from
expertise of existing units.
 Companies which diversified using this
concept: 3M and Pepsico.

14. From competitive advantage to Corporate strategyGroup 1
 Transferring skills will lead to competitive
advantage when:
1. Activities are similar enough that sharing
expertise is meaningful.
2. Activities are important to competitive
advantage.
3. The expertise or skills to be transferred are
both advance enough to be beyond the
capabilities of competitors.

15.  Company’s ability to share activity between
each business unit Ex. Sales force or logistics
network. (share “Activities”).
 Sharing must involve activities that are
significant to competitive advantage, not just
any activity.
 Companies which diversified using this
concept: P&G, Dupont, IBM, Marriott.

16.  Benefit
 Can lower costs if it achieves economy of scale.
 Can enhance the potential for differentiation
Ex. A shared order-processing system, may
allow new features and services that a buyer
will value.
 Can reduce the cost of differentiation
Ex. A shared services network.
 Costs (that benefit must cover)
 Greater coordination to manage a shared activity.
 Compromise (greatly erodes the unit effectiveness)
Ex. Shared salesperson to handling the
products of two business units

17. • Each concept of corporate strategy allows the
diversified company to create shareholder value.
• Companies can succeed with any concepts :
• Clearly define the corporation’s role and objective.
• Have the skills necessary.
• Manage diversify in a way that fits the strategy.
• Find an appropriate capital market environment.
• Portfolio management.
• Sharing activities.
From competitive advantage to Corporate strategyGroup 1

18. • None of the concepts of corporate strategy
works when industry structure is poor or
implementation is bad, no matter how related
the industries are.
 Ex. XEROX
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19. From competitive advantage to Corporate strategyGroup 1
 Identify the interrelationships among units.
 Select core business
 Facilitate interrelationships
 Diversify via shared activities
 Diversify via transfer of skills
 Diversify via restructuring
 Pay dividend instead

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