Corporate Strategy

Question 1

Difference between Business and Corporate Strategy:

Answer 1

Business Strategy concerns the question of how to compete in a single product market.

As firms grow, they are frequently expanding their business activities through seeking new markets both by offering new products and services and by competing in different geographies.

Managers must then formulate a corporate strategy

Question 2

What Is Corporate Strategy?

Answer 2

“Where to compete”

Corporate strategy comprises the decisions that senior management makes and the goal-directed actions it takes to gain a sustainable competitive advantage in several industries and markets simultaneously.

Determines the boundaries of the firm along three dimensions:

• Vertical integration (along the industry value chain),
• Diversification (of products and services),
• Geographic scope (regional, national, or global markets).

It’s the overall plan for a diversified company

Question 3

The three tests for successful diversification:

Answer 3

1. The attractiveness test. The industries chosen for diversification must be structurally attractive or capable of being made attractive.
2. The cost-of-entry test. The cost of entry must not capitalize all the future profits.
3. The better-off test. Either the new unit must gain competitive advantage from its link with the corporation or vice versa

=> Passing these tests is so difficult that most diversification fails: they fail to add value

Question 4

Concepts of Corporate Strategy:

Answer 4

Question 5

Choosing a corporate strategy by:

Answer 5

1. Identifying the interrelationships among already existing business units.
2. Selecting the core businesses that will be the foundation of the corporate strategy.
3. Creating horizontal organizational mechanisms to facilitate interrelationships among the core businesses and lay the groundwork for future related diversification.
4. Pursuing diversification opportunities that allow shared activities.
5. Pursuing diversification through the transfer of skills if opportunities for sharing activities are limited or exhausted.
6. Pursuing a strategy of restructuring if this fits the skills of management or no good opportunities exist for forging corporate interrelationships.
7. Paying dividends so that the shareholders can be the portfolio managers

Question 6

Corporate strategy Wrap Up:

Answer 6

• Corporate strategy addresses “where to compete.”
• Business strategy addresses “how to compete.”
• Corporate strategy concerns the boundaries of the firm along three dimensions: (1) industry value chain, (2) products and services, and (3) geography
• To gain and sustain competitive advantage, any corporate strategy must support and strengthen a firm’s strategic position, regardless of whether it is a differentiation, cost-leadership, or blue ocean strategy (dual strategy)