19-Jun-16

BRAC University
BRAC Business School

MGT 601; Sec. 1

Strategic Management
Summer Semester, 2016
Lecture 7

Fig. From Thinking Strategically about the

Companys Situation to Choosing a Strategy:
Where are we at?

Todays lecture outline

Generic competitive strategies
Corporate-level strategy
Types of Diversification
Related diversification
Unrelated diversification

Strategic Options
Withdraw- close business; sell?
Maintain current position- defend?
Grow- how?

Corporate-level Strategy
Corporate-level strategy is an action
taken to gain a competitive advantage
through the selection & management of
a mix of businesses competing in several
industries or product markets

Corporate-Level Strategy
How do we sustain competitive advantages in our
current business? What new businesses or industries do
we wish to enter?
Corporate strategy is used to identify:
1. Businesses/industries firm should be in
2. Value creation activities firm should perform
3. Methods to enter/exit businesses/industries to
maximize long-run profitability
Companies must adopt a long-term perspective
in formulating a corporate-level strategy.

19-Jun-16

Diversification

A Primary approach to
corporate-level strategy
is diversification

Diversification
Fortune 500 companies with >25%
revenues from diversified activities
1950 38%
1974 63%
1988 47%
2016

WHY??

Diversification is a form of growth strategy

Growth strategies involve a significant
increase in performance objectives (usually
sales or market share) beyond past levels of
performance
Diversification strategies are used to expand
firms' operations by adding markets, products,
services, or stages of production to the
existing business
The purpose of diversification is to allow the
company to enter lines of business that are
different from current operations

Diversification
When?

Opportunity or threat
Why?

Tax laws
Diversification

Low performance
Uncertain future cash flows
Risk reduction
How?

Why? Reasons for diversification

Transfer of Competencies at Philip Morris

Value-creating diversification
Economies of scope
Sharing activities
Transferring core competencies
Market power
Blocking competitors through multipoint competition
Efficient internal capital allocations
Purchasing other corporations & restructuring their assets
Financial economies
Cost savings through improved allocations of financial
resources
Internal information may be source of competitive
advantage
Investments inside or outside firm

19-Jun-16

Sharing Resources at Procter & Gamble

Types of Diversification
Firm earns >30% of its sales volume outside a dominant
business and businesses related to each other classified as
related diversification (Based on transferring/leveraging
competencies, sharing resources, & bundling products):

Economies of scope
Sharing activities
Transferring core competencies
Market power
Blocking competitors through multi-point competition
Firm earns >30% ... but no relationships between businesses
classified as unrelated diversification (Based on only general
organizational competencies to increase profitability of all business units):

Financial economies
Efficient internal capital allocation
Business restructuring

Related Diversification
Gillette
Blades & razors
Toiletries
Oral-B toothbrushes
Writing instruments & stationery
Braun shavers, coffee makers, alarm clocks
Duracell batteries

Coordination Among Related Business Units

Related Diversification
Pepsico
Soft drinks (e.g. Pepsi, Mountain Dew)
Fruit juices (e.g. Tropicana)
New age & other beverages (e.g. Lipton
ready to-drink (RTD) tea, Starbucks RTD
coffee)
Snack foods (e.g. Ruffles, Lays, Doritos)

Unrelated Diversification
Samsung
Operations in more than 60 countries
Electronics
Machinery & heavy industry
Automotive (passenger cars, commercial
trucks)
Chemicals
Financial services
Other (e.g. theme parks, hotels, medical
centers, film, music & TV)

19-Jun-16

Sonys Web of Corporate-Level Strategy

Levels & types of diversification

Low levels of diversification
Single business

Dominant business

Levels & types of diversification

Moderate to high levels of diversification
Related constrained

Related linked (mixed

related & unrelated)

Less than 70 % of
revenue comes from
the dominant
business, & all
businesses share
product, technological
& distribution linkages
Less than 70 % of
revenue comes from
the dominant
business, & there are
only limited links
between businesses

A
B

Levels & types of diversification

Unrelated
C

Between 70 & 95 per

cent of revenue
comes from a single
business

Very high levels of diversification

A
B

More than 95 per

cent of revenue
comes from a single
business

Less than 70 % of
revenue comes
from the
dominant
business, & there
are no common
links between
businesses

Presentation Schedule
Lecture & Date

Topic

Lecture 8; 15 July; 3:30pm; [makeup of 2 July]

The Collapse of General Motors

Lecture 9; 16 July; 6:30pm; [regular]

Kodak Strategy

Lecture 10; 22 July; 3:30pm; [makeup of 9 July] The Golden Arches in India
Lecture 11; 23 July; 6:30pm; [regular]

The Tata Nano

30 July; Final Exam. 6:30pm-8:30pm; Lecture Room