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.