Management and Organizational Studies 4410A/B Study Guide - Midterm Guide: Vertical Integration, Market Power, Transaction Cost

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Chapter 6: corporate level strategy: creating value through diversification. Corporate-level strategy: the choice of businesses a corporation should compete in and how those businesses should be managed to jointly create more value than if they were free- standing units. Diversification initiative must be justified by the creation of value for shareholders. Synergy: achieved by diversifying into related business benefit come from sharing intangible resources and tangible resources, thus spreading costs over large revenue base. Also firms can enhance their market power by increasing dominance in a market. Becoming more critical supplier to their customers. Increasing their hold on business through vertical integration: diversify into unrelated business- benefits derive from value created by the corporate office eg leveraging some of the support activities in the value chain. Benefits derived from related and unrelated relationships are not mutually exclusive. Related diversification enable s a firm to benefit by leveraging core competencies and sharing activities.