Textbook Notes (270,000)
CA (160,000)
Western (10,000)
MOS (2,000)
Chapter 6

Management and Organizational Studies 4410A/B Chapter Notes - Chapter 6: Egotism


Department
Management and Organizational Studies
Course Code
MOS 4410A/B
Professor
John White
Chapter
6

This preview shows pages 1-2. to view the full 8 pages of the document.
MOS 4410
Chapter 6 Notes
Corporate Level Strategy: Creating Value Through Differentiation
What went wrong at Bell Canada Enterprises?
oSlow to develop a cohesive internet strategy and to fully appreciate the
potential threat posed by cable companies
oInstead of expanding throughout Canada and the US, decided to acquire
the rest of Teleglobe which was practically worthless by 2003 and Bell
had to write it off
oWas barely holding its revenue lines
Making Diversification Work: An Overview
oDiversification initiatives must be justified by the creation of value for
shareholders
oSynergy: can be achieved in many different ways (combination of two
businesses creates more value)
A firm may diversify into related businesses
Primary benefits to be derived come from intangible
resources across multiple businesses that use the same
resources and spread their costs over a larger revenue base
E.g. Maple Leaf
Can increase dominance in a market
A firm may diversify into unrelated businesses
Primary potential benefits derive largely from value created
by the corporate office
E.g. leveraging support activities
Benefits derived from related and unrelated relationships are not
mutually exclusive
Related Diversification: Economies of Scope and Revenue Enhancement
oRelated diversification enables a firm to benefit from relationships across
different businesses within the diversified corporation by leveraging core
competencies and sharing activities
Benefit from economies of scope – costs savings from leveraging
Leveraging Core Competencies
oThink of core competencies of the diversified corporation as a tree
oCore competencies reflect the collective learning in organizations
oInvolves transferring accumulated skills and expertise across business
units
oFor a core competency to create value and provide a viable basis for
synergy among the businesses in a corporation, it must meet three criteria:
The core competence must enhance CA by creating superior
customer value
Different businesses in the corporation must be similar in at least
one important way related to the core competence

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

The core competence must be difficult for competitors to imitate or
find substitutes for
Sharing Activities
oFirms can also achieve synergy by sharing activities across their business
units
oSharing activities can potentially provide two primary payoffs: cost
savings and revenue enhancements
oDeriving Cost Savings through Sharing Activities
Most common type and easiest to estimate
Cost savings = “hard synergies”
The level of certainty of their achievement is quite high
Cost savings are generally highest when one company acquires
another from the same industry in the same country
oEnhancing Revenue and Differentiation through Sharing Activities
Often, two businesses may achieve a higher level of sales growth
together than either one could on its own
Firms can enhance the effectiveness of their differentiation
strategies by means of sharing activities among business units
E.g. shared order processing system
May have negative effect on differentiation
E.g. lower perceptions of quality if merge with wrong
company
Market Power
oWorking together with similar businesses or affiliation to a strong parent
can strengthen on organizations bargaining position in relation to
suppliers and customers
oConsolidating an industry can increase a firms market power
Trend in multimedia industry – goal to control and leverage as
many news and entertainment channels as possible
oA firms potential for pooled negotiating power vis-à-vis its customers and
suppliers can be very enticing
oManagers have limits on their ability to use market power for
diversification because government relations can sometimes restrict the
ability of a business to gain very large shares of a particular market
Vertical Integration
oRepresents an expansion or extension of the firm by integrating
preceding’s or successive productive processes
Firm incorporates more processes toward the original source of
raw materials (backward integration) or toward the ultimate
consumer (forward integration)
oBenefits
A secure source of raw materials or distribution channels that
cannot be “held hostage” to external markets where costs can
fluctuate over time
You're Reading a Preview

Unlock to view full version

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Protection and control over assets and services required to produce
and deliver valuable products and services
Access to new business opportunities and new forms of
technologies
Improved coordination of activities across the value chain
oRisks
The costs associated with increased overhead and capital
expenditures
Loss of flexibility resulting from the inability to respond quickly to
changes in the external environment
Problems associated with unbalanced capacities or unfilled
demand along the value chain
Additional administration costs associated with managing a more
complex set of activities
oFour questions to be considered:
Is the value provided by present suppliers and distributors
satisfactory?
E.g. Nike outsourcing already good
Are there activities in the industry value chain presently being
outsourced or performed independently by others that are a viable
source of future profits?
Could be missing out on potential profits
Is there relative stability in the demand for the organizations
products?
High sales volatility would be bad for vertical integration
Is there a source of core competence in the activity that is
considered for outsourcing or vertical integration?
oAnalyzing Vertical Integration: The Transaction Cost Perspective
Transaction cost perspective: every market transaction involves
some transaction costs
First, a decision to purchase an input from outside sources
leads to search costs
Second, costs associated with negotiating
Third, a contract need to be written, spelling out future
possible contingencies
Fourth, parties in a contract have to monitor each other
Finally, if party doesnt comply with contract, enforcement
costs
Transaction specific investments:
E.g. need an input specifically designed
Supplier may be unwilling because:
oInvestment may take many years to recover, no
guarantee that company will continue to buy
You're Reading a Preview

Unlock to view full version