Chapter 7 Notes

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Management (MGS)
Professor Constantinou

Chapter 7 Developing Corporate Strategy NotesCorporate Strategy y synergycondition under which combined benefits of activities in 2 or more arenas are greater than simple sum of those benefits y after all corporatelevel strategy must maintain strategic coherence across business units and facilitate cooperation or competition among units in order to create value for shareholders y thus although fundamentally related to each other through the common goal of achieving competitive advantage business strategy and corporate strategy have different objectives y diversificationdegree to which a firm conducts business in more than one arenaEconomic Logic of Diversification SynergyEconomyofScope Synergies y economy of scopecondition under which lower total average costs result from sharing resources to produce more than one product or service can be represented by formula Average costs X YAverage costs XAverage costs Y y economies of scope are possible when the company can leverage a resource or value chain activity across more than one product service or geographic arena are possible in all valuechain activities not simply production y economy of scope savings generally result when a firm uses common resources across business units RevenueEnhancement Synergies y revenueenhancement synergywhen total sales are greater if two products are sold and distributed within one company than when they are owned by separate companies represented by formula Total revenues X YTotal revenues XTotal revenues Y y revenueenhancement synergy may result from a variety of tactics such as bundling products that were previously sold separately sharing complementary knowledge in the interest of newproduct innovation or increasing shared distribution opportunities Limits of Diversification Benefits y diseconomies of scopecondition under which joint output of two or more products within a single firm resulted in increased AC y unrelated diversificationform of diversification in which the business units that a firm operates are highly dissimilar y related diversificationform of diversification in which the business units operated by a firm are highly related Types of Diversification Vertical Scope y vertical scopethe extent to which a firm is vertically integrated y vertical expansion in scope is often a logical growth option because a company is familiar with the arena that its entering y in some cases a firm can create value by moving into suppliers or buyers value chains if it can bundle complementary products y although a firms business segments lie adjacent along an industrys value cha
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