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BUS 800 Final: tb07

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Department
Business
Course
BUS 800
Professor
Phil Walsh
Semester
Winter

Description
CHAPTER 7 CORPORATE STATEGY CHAPTER LEARNING OBJECTIVES 1. Be familiar with the concepts of economies of scope, transaction costs, and the costs of managing complexity, and understand how these ideas help to explain firm boundaries and the shift s in firm boundaries over time. Economies of scope provide cost savings from sharing and transferring resources and capabilities, but those cost savings can be achieved by simply selling or licensing the use of resources and capabilities to other companies. Entering into market contracts results in firms incurring transaction costs. On the other hand, internalizing transactions involves the firm in administrative costs. We would expect profitseeking firms to seek the leastcost options and for the boundaries of the firm to reflect this. Over time, firm boundaries change because the transaction costs of market contracts and the administrative costs of diversified activities change relative to each other. 2. Understand the rationale behind multibusiness activity and the potential benefits and costs of extending the horizontal or vertical scope of a firm. We have primarily looked at the ways in which extensions to product and vertical scope can create (or destroy) value by reducing (or increasing) costs and by creating (or destroying) competitive advantage, but we also noted that managers sometimes act in their own selfinterest rather than that of shareholders. Managers may pursue multiple business activities for reasons of growth or risk reduction rather than profit. 3. Be able to evaluate the advantages and disadvantages of changing a firms scope and the different ways of exploiting opportunities for value creation. Porter suggests that there are three essential tests to be applied to diversification: the attractiveness test, the costofentry test, and the betteroff test. 4. Appreciate the trends in diversification and vertical integration over time and understand the role mergers, acquisitions, and strategic alliances play. In recent years the dominant trend in product scope has been refocusing on the core business. Many large diversified conglomerates have been broken up. The picture with regard to vertical scope has been more complex with a trend toward more hybrid collaborative arrangements. Mergers and acquisitions and strategic alliances are two common strategic manoeuvres used to successfully diversify and vertically integrate but they require diligence in assessing compatible corporate cultures. 5. Be familiar with the techniques of portfolio analysis and be able to apply these to corporate strategic decisions. Three portfolio approaches have been outlined: the GEMcKinsey matrix, the BCG matrix, and the Ashridge portfolio display. All three approaches assist managers to make sense of complex multibusiness activities but all require some element of subjective judgement and insight into the fundamental strategic characteristics of the businesses. Copyright 2015 John Wiley Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
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