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CHAPTER SUMMARIES:

CHAPTER 1 (strategic management and corporate strategy):

Firms use the strategic management process to achieve strategic


competitiveness and earn above-average returns. Strategic
competitiveness is achieved when a firm has developed and learned
how to implement a value-creating strategy. Above-average returns
(in excess of what investors expect to earn from other investments
with similar levels of risk) provide the foundation a firm needs to
simultaneously satisfy all of its stakeholders.
The fundamental nature of competition is different in the current
competitive landscape. As a result, those making strategic decisions
must adopt a different mind-set, one that allows them to learn how
to compete in highly turbulent and chaotic environments that are
producing disorder and a great deal of uncertainty. The globalization
of industries and their markets and rapid and significant
technological changes are two primary factors contributing to the
turbulence of the competitive landscape.
Vision and mission are formed in light of the information and
insights gained from studying a firms internal and external
environments. Vision is a picture of what the firm wants to be and,
in broad terms, what it wants to ultimately achieve. Flowing from
the vision, the mission specifies the businesses in which the firm
intends to compete and the customers it intends to serve. Vision
and mission provide direction to the firm and signal important
descriptive information to stakeholders.
Stakeholders are those who can affect, and are affected by, a firms
strategic outcomes. Because a firm is dependent on the continuing
support of stakeholders, they have enforceable claims on the
companys performance.
Strategic leaders are people located in different parts of the firm
using the strategic management process to help the firm reach its
vision and mission. Strategic leaders predict the potential outcomes
of their strategic decisions. To do this, they must first calculate
profit pools in their industry that are linked to value chain activities.
Predicting the potential outcomes of their strategic decisions
reduces the likelihood of the firm formulating and implementing
ineffective strategies.

CHAPTER 2 (strategy at the corporate level: diversification):

The primary reason a firm uses a corporate-level strategy to


become more diversified is to create additional value. Using a single
or dominant business corporate-level strategy may be preferable to
seeking a more diversified strategy, unless a corporation can
develop economies of scope or financial economies between
businesses, or unless it can obtain market power through additional
levels of diversification. Economies of scope and market power are
the main sources of value creation when the firm diversifies by
using a corporate-level strategy with moderate to high levels of
diversification.
The related diversification corporate-level strategy helps the firm
creates value by sharing activities or transferring competencies
between different businesses in the companys portfolio.
Sharing activities usually involves sharing tangible resources
between businesses. Transferring core competencies involves
transferring core competencies developed in one business to
another business. It also may involve transferring competencies
between the corporate headquarters office and a business unit.
Sharing activities is usually associated with the related constrained
diversification corporate-level strategy. Activity sharing is costly to
implement and coordinate, may create unequal benefits for the
divisions involved in the sharing, and may lead to fewer managerial
risk-taking behaviours.
Transferring core competencies is often associated with related
linked (or mixed related and unrelated) diversification, although
firms pursuing both sharing activities and transferring core
competencies can also use the related linked strategy.
Diversification is sometimes pursued for value-neutral reasons.
Incentives from tax and antitrust government policies, performance
disappointments, or uncertainties about future cash flow are
examples of value-neutral reasons that firms may choose to
become more diversified.
Managerial
motives
to
diversify
(including
to
increase
compensation) can lead to over-diversification and a subsequent
reduction in a firms ability to create value. Evidence suggests,
however, that the majority of top level executives seek to be good
stewards of the firms assets and avoid diversifying the firm in ways
and amounts that destroy value.
Managers need to pay attention to their firms internal organization
and its external environment when making decisions about the

optimum level of diversification for their company. Of course,


internal resources are important determinants of the direction that
diversification should take. However, conditions in the firms
external environment may facilitate additional levels of
diversification, as might unexpected threats from competitors.