BPS 4305 Lecture Notes - Lecture 6: Planning Fallacy, Birds Eye, Opportunism
6 Sep 2016
School
Department
Course
Professor
BPS
2-18
Logic of Corporate Level Strategy
- Corporate level strategy should create value:
o1. Such that the value of the corporate whole increases
o2. Such that businesses forming the corporate whole are worth more than they would
be under independent
o3.
oBring in synergies
The Curvilinear Relationship between Diversification and Performance
- Diversification increases performance when up to certain type
- Performance decline when unrelated business areas
Imitability of Diversification
- Duplication of Economies of Scope
oLess Costly-to-Duplicate
Employee Compensation
Tax Advantages
Risk Reduction
Shared Activities
Codified/tangible
oCostly-to-Duplicate
Core Competencies
Internal Capital Allocation
Great decision maker ability
Multipoint Competition
Exploiting Market Power
Tacit/intangible
The Strategic Management Process
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Document Summary
Corporate level strategy should create value: 1. Such that the value of the corporate whole increases: 2. Such that businesses forming the corporate whole are worth more than they would be under independent: 3, bring in synergies. Diversification increases performance when up to certain type. Duplication of economies of scope: less costly-to-duplicate. Mission objectives external, internal analysis strategic choice strategy implementation . Strategic choice: corporate level strategy which businesses to enter. What are the boundaries of the firm. Value chain economies: created by integrating a market transaction into the boundaries of the firm. Transaction cost theory explains not just the boundaries of firms, also the existence of firms. Key issue transaction costs of the market vs. administrative costs of firms. Where transaction costs high-firm (vertical integration) is more efficient means of organization. Transaction costs comprise costs of search, contract, negotiating, monitoring, and enforcement. Backward integration a firm produces its own inputs.
