Topic 6

Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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CHAPTER
4
Business-Level Strategy
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic management
knowledge needed to:
4-1 Discuss the relationships between customers and business-level
strategies in terms of who, what, and how.
4-2 Explain the purpose of forming and implementing a business-level
strategy.
4-3 Describe business models and explain their relationship with business-
level strategies.
4-4 Explain the differences among five types of business-level strategies.
4-5 Use the five forces of competition model to explain how firms can earn
above-average returns when using each business-level strategy.
4-6 Discuss the risks associated with using each of the business-level
strategies.
Chapter Introduction (slide 1 of 3)
• By selecting and implementing one or more strategies, firms seek to:
• Gain strategic competitiveness
• Earn above-average returns
• Strategies:
• Are purposeful
• Develop before firms engage rivals in marketplace competitions
• Demonstrate a shared understanding of the firm’s vision and mission
• A strategy that is consistent with the conditions and realities of a
firm’s external and internal environments marshals, integrates, and
allocates available resources, capabilities, and competencies to
align them properly with opportunities in the external environment.
• When effective, a strategy rationalizes the firm’s vision and mission
along with the actions taken to achieve them.
• A business-level strategy is an integrated and

coordinated set of commitments and actions the
firm uses to gain a competitive advantage by
exploiting core competencies in a specific
product market.
• A business-level strategy is:
• Something that every firm must develop and implement
• The core strategy—the strategy that the firm forms to
describe how it intends to compete against rivals on a day-to-
day basis in its chosen product market
• Customers are the foundation of successful

business-level strategies.
• In terms of customers, when selecting a business-
level strategy, the firm determines:
• Who will be served
• What needs those target customers have that it will satisfy
• How those will needs will be satisfied
4-1 Customers: Their Relationship
with Business-Level Strategies
• Strategic competitiveness results only when the firm
satisfies a group of customers by using its competitive
advantages as the basis for competing in individual
product markets.
• A key reason firms must satisfy customers with their business-
level strategy is that returns earned from relationships with
customers are the lifeblood of all organizations.
• The most successful companies try to find new ways to:
• Satisfy current customers
• Meet the needs of new customers
4-1a Effectively Managing
Relationships with Customers
• Firms strengthen their relationships with
customers by delivering superior value to them.
• Delivering superior value often results in increased
customer satisfaction.
• In turn, customer satisfaction has a positive relationship with
profitability because satisfied customers are more likely to be
repeat customers.
4-1b Reach, Richness,
and Affiliation
• The reach dimension of relationships with
customers revolves around the firm’s access
and connection to customers.
• Richness concerns the depth and detail of the
two-way flow of information between the firm
and customers.
• Affiliation is concerned with facilitating useful
interactions with customers.
4-1c Who: Determining the
Customers to Serve
• A firm decides who the target customer is by
dividing customers into groups based on
differences in customers’ needs.
• Market segmentation is the process of dividing
customers into groups based on their needs.
• Market segmentation is used to cluster customers with
similar needs into individual and identifiable groups.
• Firms can use almost any identifiable human or
organizational characteristic to subdivide a market into
segments that differ from one another on a given
characteristic.
Table 4.1
Basis for Customer Segmentation (slide 1 of 2)
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (cultural, regional, and national differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)
Table 4.1
Basis for Customer Segmentation (slide 2 of 2)
Industrial Markets
1. End-use segments (identified by Standard Industrial Classification [SIC]
code)
2. Product segments (based on technological differences or production
economics)
3. Geographic segments (defined by boundaries between countries or by
regional differences within them)
4. Common buying factor segments (cut across product market and geographic
segments)
5. Customer size segments
Source: Based on information in S. C. Jain, 2009, Marketing Planning and
Strategy, Mason, OH: South-Western Cengage Custom Publishing.
4-1d What: Determining Which
Customer Needs to Satisfy
• Having close interactions with current and potential
customers helps a firm identify the targeted customer
group’s current and future needs that its products can
satisfy.
• In a general sense, needs (what) are related to a product’s
benefits and features.
• Successful firms:
• Learn how to deliver to customers what they want, when they
want it
• Recognize that consumer needs change
• Firms that fail to do this may lose their customers to competitors
whose products provide more value.
4-1e How: Determining Core Competencies
Necessary to Satisfy Customer Needs
• A firm must determine how to use its core

competencies in order to implement value-
creating strategies and develop products that
can satisfy its target customers’ needs.
• Core competencies are resources and capabilities
that serve as a source of competitive advantage for
the firm over its rivals.
• Customers’ expectations can be met and exceeded across
time by only those firms with the capacity to:
• Improve consistently
• Innovate
• Upgrade their competencies
4-2 The Purpose of a
Business-Level Strategy
• The purpose of a business-level strategy is to
create differences between the firm’s position
and those of its competitors.
• To position itself differently from competitors, a firm
must decide if it intends to perform activities
differently or if it will perform different activities.
• Thus, the firm’s business-level strategy is a deliberate choice
about how it will perform the value chain’s primary and
support activities to create unique value.
4-3 Business Models and their Relationship
with Business-Level Strategies (slide 1 of 3)
• Business models are part of a comprehensive business-

level strategy.
• A business model describes what a firm does to create, deliver,
and capture value for its stakeholders.
• A business model influences the implementation of strategy,
especially in terms of the interdependent processes the firm
uses during implementation.
• Developing and integrating a business model and a business-
level strategy increases the likelihood of company success.
• In essence, a business model is a framework for how the firm will
use processes to create, deliver, and capture value, while a
business-level strategy is the path the firm will follow to gain a
competitive advantage by exploiting its core competencies in a
specific product market.
• There are many types of business models,

including:
• The franchise model
• A firm licenses its trademark and the processes it follows to
create and deliver a product to franchisees.
• Example: McDonald’s
• The freemium model
• The firm provides a basic product to customers for free and
earns revenues and profits by selling a premium version of
the service.
• Example: Dropbox
• The advertising model

• For a fee, a firm provides advertisers with high-quality access
to its target customers.
• Example: Google
• The subscription model
• A firm offers a product to customers on a regular basis such
as once-per-month, once-per-year, or upon demand.
• Example: Netflix
• The peer-to-peer model
• A business matches those wanting a particular service with
those providing that service.
• Example: Airbnb
4-4 Types of Business-Level
Strategies (slide 1 of 2)
• Firms choose between five business-level strategies to establish
and defend their desired strategic position against competitors:
1. Cost leadership
2. Differentiation
3. Focused cost leadership
4. Focused differentiation
5. Integrated cost leadership/differentiation
• Each business-level strategy can help the firm establish and exploit
a competitive advantage (either lowest cost or distinctiveness) as
the basis for how it will create value for customers within a particular
competitive scope (broad market or narrow market).
Figure 4.1
Five Business-Level Strategies
4-4 Types of Business-Level
Strategies (slide 2 of 2)
• None of the five business-level strategies is inherently or
universally superior to the others.
• The effectiveness of each strategy is contingent on the:
• Opportunities and threats in a firm’s external environment
• Strengths and weaknesses derived from its resource portfolio
• Thus, it is critical for the firm to select a business-level
strategy that represents an effective match between the
opportunities and threats in its external environment and
the strengths of its internal organization based on its
core competencies.
4-4a Cost Leadership Strategy
(slide 1 of 5)
• The cost leadership strategy is an integrated set of

actions taken to produce products with features that are
acceptable to customers at the lowest cost, relative to
that of competitors.
• Firms using the cost leadership strategy commonly sell
standardized goods or services, but with competitive
levels of differentiation, to the industry’s most typical
customers.
• Process innovations (newly designed production and
distribution methods and techniques that allow the firm to
operate more efficiently) are critical to a firm’s efforts to
use the cost leadership strategy successfully.
Figure 4.2
Examples of Value-Creating Activities
Associated with the Cost Leadership Strategy
(slide 2 of 5)
• Firms that effectively use the cost leadership strategy can earn above-
average returns despite the presence of strong competitive forces.
Rivalry with Existing Competitors

• Because of the cost leader’s advantageous position, rivals hesitate
to compete on the price variable.
• Factors that influence the degree of rivalry that firms encounter
when implementing the cost leadership strategy include:
• Organizational size
• Resources possessed by rivals
• A firm’s dependence on a particular market
• Location
• Prior competitive interactions between firms
• A firm’s reach, richness, and affiliation with customers
(slide 3 of 5)
Bargaining Power of Buyers (Customers)

• Although customers can force a cost leader to reduce its prices,
prices will not be reduced below the level at which the cost leader’s
next-most-efficient industry competitor can earn average returns.
• A competitor that does not earn average returns would be forced to exit
the market, leaving the cost leader with less competition and an even
stronger bargaining position.
Bargaining Power of Suppliers

• A cost leader generally operates with margins greater than the
margins earned by its competitors, thus making it possible for the
cost leader to absorb its suppliers’ price increases.
• To reduce costs, some firms may outsource an entire function to a
single or a small number of suppliers.
(slide 4 of 5)
Potential Entrants
• Over time, the efficiency of a cost leader enhances its profit margins,
which in turn creates an entry barrier to potential competitors.
• New entrants must be willing to accept less than average returns until
they gain the experience required to approach the cost leader’s
efficiency.
Product Substitutes
• When faced with product substitutes, the cost leader has more
flexibility than do its competitors.
• To retain customers, it often can reduce its product’s price.
(slide 5 of 5)
Competitive Risks of the Cost Leadership

Strategy
• Competitive risks associated with the cost
leadership strategy include:
• A loss of competitive advantage to newer
technologies
• A failure to detect changes in customers’ needs
• The ability to imitate the cost leader’s competitive
advantage through competitors’ own distinct strategic
actions
4-4b Differentiation Strategy (slide 1 of 6)
• The differentiation strategy is an integrated set of

actions taken to produce products (at an acceptable
cost) that customers perceive as being different in ways
that are important to them.
• While cost leaders serve a typical customer in an industry,
differentiators target customers for whom the firm creates
value because of the manner in which its products differ
from those produced and marketed by competitors.
• Product innovation (a new product or service
development that solves the customer’s problem and
benefits both the customer and the company) is critical
to the successful use of the differentiation strategy.
• Through the differentiation strategy, the firm produces

distinctive products for customers who value
differentiated features more than low cost.
• Because a differentiated product satisfies customers’ unique
needs, firms following the differentiation strategy are able to
charge premium prices.
• The ability to sell a product at a price that substantially exceeds the
cost of creating its differentiated features allows the firm to
outperform rivals and earn above-average returns.
• To maintain success by implementing the differentiation
strategy, the firm must:
• Consistently upgrade differentiated features that customers value
• Create new valuable features without significant cost increases
• Firms using the differentiation strategy seek to

differentiate their products from competitors’
products on as many dimensions as possible.
• The less similarity to competitors’ offerings, the more
buffered a firm is from competition with its rivals.
• Firms use the value chain to determine if they
are able to link the activities required to create
value by using the differentiation strategy.
• Companies without the skills needed to link these
activities cannot expect to use the differentiation
strategy successfully.
Figure 4.3
Examples of Value-Creating Activities
Associated with the Differentiation Strategy
• There are ways that firms using the differentiation strategy can
successfully position themselves in terms of the five forces of
competition to earn above-average returns.
Rivalry with Existing Competitors

• Customers of products differentiated in ways that are meaningful to
them tend to be loyal and less sensitive to price increases.
• The relationship between brand loyalty and price sensitivity insulates a
firm from competitive rivalry.
Bargaining Power of Buyers (Customers)

• Purchasers of differentiated products accept price increases as long
as they continue to perceive the products satisfy their distinctive
needs at an acceptable cost.
Bargaining Power of Suppliers
• Higher costs from suppliers can be:
• Absorbed by high margins earned by the firm
• Passed on to customers through price increases
Potential Entrants
• Substantial barriers to potential entrants are created by:
• Customer loyalty
• The need to overcome the uniqueness of a differentiated product
Product Substitutes
• Companies selling brand-name products to loyal customers face a
lower probability of customers switching to substitute products.
Competitive Risks of the Differentiation Strategy

• Risks associated with the differentiation strategy include:
• A customer group’s decision that a differentiated product’s
unique features are no longer worth a premium price
• The inability of a differentiated product to create the type of value
for which customers are willing to pay a premium price
• The ability of competitors to provide customers with products that
have features similar to those of the differentiated product, but at
a lower cost
• Counterfeiting
• The failure of a firm to meet customers’ expectations through its
efforts to implement the differentiation strategy
4-4c Focus Strategies (slide 1 of 3)
• The focus strategy is an integrated set of

actions taken to produce products that serve the
needs of a particular segment of customers.
• Market segments firms may choose to serve by
implementing a focus strategy include:
• A particular buyer group
• Example: Senior citizens
• A different segment of a product line
• Example: Products for professional painters
• A different geographic market
• Example: Northern or southern Italy
• A focus strategy leads to success when the firm:
• Serves a segment well whose unique needs are so specialized that
broad-based competitors choose not to serve that segment
• Creates value for a segment that exceeds the value created by industry-
wide competitors
• Firms can create value for customers in specific and unique market
segments by using the:
• Focused cost leadership strategy
• Focused differentiation strategy
• The activities required to use both of these strategies and the
manner in which both of these strategies allow a firm to deal
successfully with the five competitive forces are virtually identical to
those of the industry-wide cost leadership and differentiation
strategies.
Competitive Risks of Focus Strategies

• The competitive risks of focus strategies include:
• A competitor’s ability to use its core competencies to
“out-focus” the focuser by serving an even more
narrowly defined market segment
• An industry-wide company’s decision that the market
segment served by the firm using a focus strategy is
attractive and worthy of competitive pursuit
• A reduction in differences of the needs between
customers in a narrow market segment and the
industry-wide market over time
4-4d Integrated Cost Leadership/
Differentiation Strategy (slide 1 of 6)
• The integrated cost leadership/differentiation
strategy finds a firm engaging simultaneously in primary
value chain activities and support functions to achieve a
low cost position with some product differentiation.
• When using this strategy, firms seek to produce products
at a relatively low cost that have some differentiated
features that their customers value.
• Firms that successfully use the integrated cost
leadership/differentiation strategy usually adapt quickly
to new technologies and rapid changes in their external
environments.
• Developing two sources of competitive advantage
(cost and differentiation) increases the number of
primary value chain activities and support
functions in which the firm becomes competent.
• Flexibility is required to learn how to use primary
value chain activities and support functions in ways to
produce differentiated products at relatively low costs.
• Three sources of flexibility used to implement the integrated
cost leadership/differentiation strategy successfully include:
1. Flexible manufacturing systems
2. Information networks
3. Total quality management systems
Flexible Manufacturing Systems
• A flexible manufacturing system (FMS) is a computer-controlled
process that firms use to produce a variety of products in moderate,
flexible quantities with a minimum of manual intervention.
• The goal of an FMS is to eliminate the “low cost versus product
variety” trade-off that is inherent in traditional manufacturing
technologies.
• An FMS allows a firm to:
• Change quickly and easily from making one product to making another
• Increase its effectiveness in responding to changes in its customers’
needs, while retaining low-cost advantages and consistent product quality
• Reduce the lot size needed to manufacture a product efficiently
• Have a greater capacity to serve the unique needs of a narrow
competitive scope
Information Networks
• Information networks link companies with their:
• Suppliers
• Distributors
• Customers
• Customer relationship management (CRM) is an information-
network process that firms use to manage relationships with
customers.
• When used effectively, information networks help the
firm satisfy customer expectations in terms of:
• Product quality
• Delivery speed
Total Quality Management Systems
• Total quality management (TQM) involves the implementation of
appropriate tools/techniques to provide products and services to
customers with best quality.
• Firms develop and use TQM systems to:
• Increase customer satisfaction
• Cut costs
• Reduce the amount of time required to introduce innovative products to
the marketplace
• An effective TQM system helps the firm develop the flexibility
needed to identify opportunities to simultaneously:
• Increase its product’s differentiated features
• Reduce costs
Competitive Risks of the Integrated Cost
Leadership/Differentiation Strategy
• The primary risk of this strategy is that a firm
might produce products that do not offer
sufficient value in terms of either low cost or
differentiation.
• In such cases, the company becomes “stuck in the
middle.”
• Firms stuck in the middle:
• Compete at a disadvantage
• Are unable to earn more than average returns
APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Discussion:
• What is a business-level strategy?
Discussion:
• What is the relationship between a firm’s

customers and its business-level strategy in
terms of who, what, and how? Why is this
relationship important?
Discussion:
• What is a business model and how do business

models differ from business-level strategies?
Discussion:
• What are the differences among the cost

leadership, differentiation, focused cost
leadership, focused differentiation, and
integrated cost leadership/differentiation
business-level strategies?
Discussion:
• How can firms use each of the business-level

strategies to position themselves favorably
relative to the five forces of competition?
Discussion:
• What are the specific risks associated with using

each business-level strategy?
CHAPTER
7
Merger and Acquisition Strategies
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic
management knowledge needed to:
7-1 Explain the popularity of merger and acquisition strategies in firms
competing in the global economy.
7-2 Discuss reasons why firms use an acquisition strategy to achieve
strategic competitiveness.
7-3 Describe seven problems that work against achieving success
when using an acquisition strategy.
7-4 Name and describe the attributes of effective acquisitions.
7-5 Define the restructuring strategy and distinguish among its
common forms.
7-6 Explain the short- and long-term outcomes of the different types
of restructuring strategies.
7-1 The Popularity of Merger
and Acquisition Strategies (slide 1 of 2)
• Merger and acquisition (M&A) strategies have
been popular among U.S. firms for many years.
• M&A strategies:
• Played a central role in the restructuring of U.S.
businesses during the 1980s and 1990s
• Are being used with greater frequencies in many
regions of the world today
• Are used to try to create more value for all firm
stakeholders
• Are challenging to effectively implement
7-1 The Popularity of Merger
and Acquisition Strategies (slide 2 of 2)
• Research shows that:
• Shareholders of acquired firms often earn above-average returns
from acquisitions.
• Shareholders of the acquiring firms typically earn returns that are
close to zero.
• The acquiring firm’s stock price often falls immediately after the
transaction is announced.
• Determining the worth of a target firm is difficult.
• This difficulty increases the likelihood a firm will pay a premium
to acquire a target.
• Paying a premium that exceeds the value of a target once
integrated with the acquiring firm can result in negative outcomes.
7-1a Mergers, Acquisitions, and
Takeovers: What Are the Differences?
• A merger is a strategy through which two firms agree to integrate
their operations on a relatively coequal basis.
• An acquisition is a strategy through which one firm buys a
controlling, or 100 percent, interest in another firm with the intent of
making the acquired firm a subsidiary business within its portfolio.
• After the acquisition is completed, the management of the acquired firm
reports to the management of the acquiring firm.
• A takeover is a special type of acquisition where the target firm
does not solicit the acquiring firm’s bid; thus, takeovers are
unfriendly acquisitions.
• Acquisitions are more common that mergers and takeovers.
7-2 Reasons for Acquisitions
• Firms use acquisition strategies to:

• Increase market power
• Overcome entry barriers to new markets or regions
• Avoid the costs of developing new products and
increase the speed of new market entries
• Reduce the risk of entering a new business
• Become more diversified
• Reshape their competitive scope by developing a
different portfolio of businesses
• Enhance their learning as the foundation for
developing new capabilities
7-2a Increased Market Power (slide 1 of 3)
• Market power exists when either:
• A firm is able to sell its goods or services above competitive levels.
• The costs of a firm’s primary or support activities are lower than those of
its competitors.
• Market power is usually derived from:
• The size of the firm
• The quality of the resources it uses to compete
• Its share of the market(s) in which it competes
• Most acquisitions that are designed to achieve greater market power
entail buying a competitor, a supplier, a distributor, or a business in
a highly related industry so that a core competence can be used to
gain competitive advantage in the acquiring firm’s primary market.
• To increase market power, firms use:
• Horizontal acquisitions
• Vertical acquisitions
• Related acquisitions
• These three types of acquisitions are subject to regulatory review by
the government.
Horizontal Acquisitions
• The acquisition of a company competing in the same industry as the
acquiring firm is a horizontal acquisition.
• Horizontal acquisitions:
• Increase a firm’s market power by exploiting cost-based and revenue-
based synergies
• Result in higher performance when the firms have similar characteristics
Vertical Acquisitions
• A vertical acquisition refers to a firm acquiring a supplier or
distributor of one or more of its products.
• Through a vertical acquisition, the newly formed firm controls
additional parts of the value chain, which leads to increased market
power.
Related Acquisitions
• Acquiring a firm in a highly related industry is called a related
acquisition.
• Through a related acquisition, firms seek to create value through the
synergy that can be generated by integrating resources and
capabilities.
7-2b Overcoming Entry Barriers
• Barriers to entry are factors associated with a market, or the firms
currently operating in it, that increase the expense and difficulty new
firms encounter when trying to enter a particular market.
• Examples: Economies of scale and customer loyalty
• The higher the barriers to entry, the greater the probability that a firm
will acquire an existing firm to overcome them.
• This allows the acquiring firm to gain immediate access to an attractive
market.
Cross-Border Acquisitions
• Acquisitions made between companies with headquarters in
different countries are called cross-border acquisitions.
• Cross-border acquisitions can be difficult to implement due to
various obstacles and differences in foreign cultures.
7-2c Cost of New Product Development
and Increased Speed to Market (slide 1 of 2)
• Internal product development is often perceived
as a high-risk activity.
• Many firms are not able to achieve adequate returns
compared to the amount of capital they invest to
develop and commercialize the product.
7-2c Cost of New Product Development
and Increased Speed to Market (slide 2 of 2)
• An acquisition strategy allows a firm to gain
access to new products and to current products
that are new to it.
• Compared with internal product development
processes, acquisitions provide:
• More predictable returns
• This is because the performance of the acquired firm’s products
can be assessed prior to completing the acquisition.
• Faster market entry
7-2d Lower Risk Compared to
Developing New Products
• The outcomes of an acquisition can be
estimated more easily and accurately than the
outcomes of an internal product development
process.
• As such, managers may view acquisitions as a way to
avoid risky internal ventures as well as risky research
and development (R&D) investments.
• However, managers must not allow acquisitions to become a
substitute for internal innovation.
• Being dependent on others for innovation leaves a firm
vulnerable and less capable of mastering its own destiny when
it comes to using innovation as a driver of wealth creation.
7-2e Increased Diversification
• It is relatively uncommon for a firm to develop new

products internally to diversify its product lines.
• It is difficult for companies to develop products that differ from
the current lines for markets in which they lack experience.
• Acquisition strategies can be used to support the use of
both related and unrelated diversification strategies.
• The more related the acquired firm is to the acquiring firm, the
greater is the probability that the acquisition will be successful.
• Thus, horizontal acquisitions and related acquisitions tend to
contribute more to the firm’s strategic competitiveness than do
acquisitions of companies operating in product markets that differ
from those in which the acquiring firm competes.
7-2f Reshaping the
Firm’s Competitive Scope
• To reduce the negative effect of an intense
rivalry on financial performance, firms may use
acquisitions to lessen their product and/or
market dependencies.
• Reducing a company’s dependence on specific
products or markets shapes the firm’s competitive
scope.
7-2g Learning and
Developing New Capabilities
• Firms sometimes complete acquisitions to gain
access to capabilities they lack.
• Through acquisitions, firms can:
• Broaden their knowledge base
• Reduce inertia
• Firms increase the potential of their capabilities when
they acquire diverse talent through cross-border
acquisitions.
• Firms should seek to acquire companies with different
but related and complementary capabilities as a path
to building their own knowledge base.
7-3 Problems in Achieving
Acquisition Success
• Among the problems associating with using an
acquisition strategy are:
• The difficulty of effectively integrating the firms involved
• Incorrectly evaluating the target firm’s value
• Creating debt loads that preclude adequate long-term
investments
• Overestimating the potential for synergy
• Creating a firm that is too diversified
• Creating an internal environment in which managers devote
increasing amounts of their time and energy to analyzing and
completing the acquisition
• Developing a combined firm that is too large, necessitating
extensive use of bureaucratic, rather than strategic, controls
7-3a Integration Difficulties
• The integration process:
• Is considered by some to be the strongest determinant of whether either
a merger or an acquisition is successful
• Is difficult and challenging
• Tends to generate uncertainty and often resistance because of cultural
clashes and organizational politics
• Among the challenges associated with integration processes are the
need to:
• Meld two or more unique corporate cultures
• Link different financial and information control systems
• Build effective working relationships (particularly when management
styles differ)
• Determine the leadership structure and those who will fill it for the
integrated firm
7-3b Inadequate Evaluation
of Target (slide 1 of 2)
• Due diligence is a process through which a potential
acquirer evaluates a target firm for acquisition.
• In an effective due-diligence process, hundreds of items are
examined in areas such as:
• Financing for the intended transaction
• Differences in cultures between the acquiring and target firm
• Tax consequences of the transaction
• Actions that would be necessary to successfully meld the two
workforces
• When conducting due diligence, companies almost
always work with intermediaries, such as a large
investment bank, to facilitate their due-diligence efforts.
7-3b Inadequate Evaluation
of Target (slide 2 of 2)
• Due diligence should:
• Evaluate the accuracy of the financial position of the target
• Evaluate the accounting standards used by the target
• Examine the quality of the strategic fit between the two
companies
• Examine the ability of the acquiring firm to effectively integrate
the target to realize the potential gains from the deal
• Commonly, firms are willing to pay a premium to acquire
a company they believe will increase their ability to earn
above-average returns.
• The acquiring firm should effectively examine each acquisition
target in order to determine the appropriate amount of premium
to pay.
7-3c Large or Extraordinary Debt
(slide 1 of 2)
• Firms using an acquisition strategy want to verify

that their purchases do not create a debt load
that overpowers their ability to remain solvent
and vibrant as a competitor.
• Large or extraordinary debt can result from:
• Bidding wars
• Paying a large premium
• Executives sometimes pay a large premium because they
are influenced by:
• Hubris
• Escalation of commitment to complete a particular transaction
• Self-interest
7-3c Large or Extraordinary Debt
(slide 2 of 2)
• Junk bonds supported firms’ earlier efforts to take on

large amounts of debt when completing acquisitions.
• Junk bonds are a financing option through which risky
acquisitions are financed with money (debt) that provides a large
potential return to lenders (bondholders).
• Junk bonds:
• Are used less frequently today
• Are commonly called high-yield bonds
• Are unsecured obligations that are not tied to specific assets for
collateral
• Contain high and volatile interest rates
• Potentially expose companies to greater financial risk
7-3d Inability to Achieve Synergy
(slide 1 of 2)
• Synergy exists when the value created by units working together

exceeds the value that those units could create working
independently.
• That is, synergy exists when assets are worth more when used in
conjunction with each other than when they are used separately.
• For shareholders, synergy generates gains in their wealth that they
could not duplicate or exceed through their own portfolio
diversification decisions.
• Synergy is created by:
• The efficiencies derived from economies of scale
• The efficiencies derived from economies of scope
• Sharing resources (e.g., human capital and knowledge) across the
businesses in the newly created firm’s portfolio
7-3d Inability to Achieve Synergy
(slide 2 of 2)
• A firm develops a competitive advantage through an

acquisition when a transaction generates private synergy.
• Private synergy is created when combining and integrating the
acquiring and acquired firms’ assets yield capabilities and core
competencies that could not be developed by combining and
integrating either firms’ assets with another company.
• Private synergy is:
• Possible when firms’ assets are complementary in unique ways
• Difficult to create
• Difficult for competitors to understand and imitate
• Affected by direct transaction costs (e.g., legal fees, charges by
investment banks to conduct due diligence) and indirect transaction
costs (e.g., the time spent evaluating targets and negotiating the
acquisition)
7-3e Too Much Diversification
• Because of the need to process additional amounts of

information, related diversified firms become
overdiversified with a smaller number of business units
than do firms using an unrelated diversification strategy.
• Overdiversification can negatively affect a firm’s overall
performance.
• The scope created by additional amounts of diversification often
causes managers to rely on financial, rather than strategic,
controls to evaluate business units’ performance.
• Using financial controls causes managers to focus on generating
short-term profits at the expense of long-term investments.
• Costs associated with acquisitions may result in fewer
allocations to activities that are linked to internal innovation.
7-3f Managers Overly
Focused on Acquisitions
• A considerable amount of managerial time and energy is
required for acquisition strategies to be used successfully.
• Activities with which managers become involved include:
• Searching for viable acquisition candidates
• Completing effective due-diligence processes
• Preparing for negotiations
• Managing the integration process after completing the acquisition
• Participating in and overseeing these activities can divert
managerial attention from other matters that are necessary for
long-term competitive success.
• Finding the appropriate degree of involvement with the
firm’s acquisition strategy is a challenging, yet important,
task for managers.
7-3g Too Large
• The larger firm size generated by acquisitions can:

• Increase the complexity of the managerial challenge
• Create diseconomies of scope
• That is, the costs of managing the more complex organization
outweigh the economic benefits.
• These complexities generated by the larger size often
lead managers to implement more bureaucratic controls
to manage the combined firm’s operations.
• Bureaucratic controls are formalized supervisory and behavioral
rules and policies designed to ensure consistency of decisions
and actions across a firm’s units.
• Bureaucratic controls often result in rigid and standardized
managerial behavior, which may produce less innovation over time.
Figure 7.1
Reasons for Acquisitions and Problems in Achieving Success
7-4 Effective Acquisitions (slide 1 of 2)
• Effective acquisitions have the following characteristics:
• The acquiring and target firms have complementary resources that are
the foundation for developing new capabilities.
• The acquisition is friendly, thereby facilitating integration of the firm’s
resources.
• The target firm is selected and purchased on the basis of completing a
thorough due-diligence process.
• The acquiring and target firms have considerable slack in the form of
cash or debt capacity.
• The newly formed firm maintains a low or moderate level of debt by
selling off portions of the acquired firm or some of the acquired firm’s
poorly performing units.
• The acquiring and acquired firms have experience in terms of adapting
to change.
• R&D and innovation are emphasized in the new firm.
7-4 Effective Acquisitions (slide 2 of 2)
• Research evidence suggests that the probability

of being able to create value through
acquisitions increases when the nature of the
acquisition and the processes used to complete
it are consistent with the “attributes of successful
acquisitions” (shown on the following two slides).
Table 7.1
Attributes of Successful Acquisitions (slide 1 of 2)
Attributes Results
1. Acquired firm has assets or 1. High probability of synergy and
resources that are complementary competitive advantage by
to the acquiring firm’s core business maintaining strengths
2. Faster and more effective 2. Acquisition is friendly
integration and possibly lower
premiums
3. Acquiring firm conducts effective 3. Firms with strongest
due diligence to select target firms complementarities are acquired and
and evaluate the target firm’s health overpayment is avoided
(financial, cultural, and human
resources)
Table 7.1
Attributes of Successful Acquisitions (slide 2 of 2)
Attributes Results
4. Financing (debt or equity) is easier 4. Acquiring firm has financial slack
and less costly to obtain (cash or a favorable debt position)
5. Merged firm maintains low to 5. Lower financing cost, lower risk
moderate debt position (e.g., of bankruptcy), and avoidance
of trade-offs that are associated
with high debt
6. Acquiring firm maintains long-term 6. Acquiring firm has a sustained and
competitive advantage in markets consistent emphasis on R&D and
innovation
7. Acquiring firm manages change 7. Faster and more effective
well and is flexible and adaptable integration facilitates achievement
of synergy
7-5 Restructuring
• Restructuring is a strategy through which a firm changes its set of
businesses or its financial structure.
• Commonly, firms focus on fewer products and markets following
restructuring.
• Restructuring strategies are:
• Generally used to deal with acquisitions that are not reaching
expectations
• Sometimes used because of changes detected in the external
environment by the firm
• Firms use three types of restructuring strategies:
1. Downsizing
2. Downscoping
3. Leveraged buyouts
7-5a Downsizing
• Downsizing is a reduction in the number of a firm’s

employees and, sometimes, in the number of its
operating units.
• Downsizing is a legitimate strategy to adjust firm size
and is not necessarily a sign of organizational decline.
• Downsizing is an intentional managerial strategy that is used for
the purpose of improving firm performance.
• With downsizing, firms make intentional decisions about resources
to retain and resources to eliminate.
• Organizational decline is an unintentional outcome of what
turned out to be a firm’s ineffective competitive actions.
• With organizational decline, firms lose access to an array of resources,
many of which are critical to current and future performance.
7-5b Downscoping
• Downscoping refers to divestiture, spin-off, or

some other means of eliminating businesses
that are unrelated to a firm’s core businesses.
• Downscoping:
• Has a more positive effect on firm performance than
does downsizing
• Causes firms to refocus on their core business
• Is often used with downsizing simultaneously
• Is used more frequently in U.S. firms than in European
companies
7-5c Leveraged Buyouts (slide 1 of 2)
• A leveraged buyout (LBO) is a restructuring strategy

whereby a party (typically a private equity firm) buys all
of a firm’s assets in order to take the firm private.
• Traditionally, LBOs were used as a restructuring
strategy:
• To correct for managerial mistakes
• Because the firm’s managers were making decisions that
primarily served their own interests rather than those of
shareholders
• However, some firms complete LBOs to build firm
resources and expand their operations rather than
simply to restructure a distressed firm’s assets.
7-5c Leveraged Buyouts (slide 2 of 2)
• Significant amounts of debt are commonly incurred to

finance a buyout.
• To support debt payments and to downscope the firm to focus on
its core businesses, a number of assets may be quickly sold.
• Often, the intent of a buyout is to improve efficiency and
performance to the point where the firm can be sold successfully
within five to eight years.
• There are three types of LBOs:
1. Management buyouts (MBOs)
2. Employee buyouts (EBOs)
3. Whole-firm buyouts
• Because they provide clear managerial incentives,
MBOs have been the most successful of the three.
Figure 7.2
Restructuring and Outcomes
APPENDIX
Discussion:
• Why are merger and acquisition strategies

popular in many firms competing in the global
economy?
Discussion:
• What reasons account for firms’ decisions to use

acquisition strategies as a means to achieving
strategic competitiveness?
Discussion:
• What are the seven primary problems that affect

a firm’s efforts to successfully use an acquisition
strategy?
Discussion:
• What are the attributes associated with a

successful acquisition strategy?
Discussion:
• What is the restructuring strategy, and what are

its common forms?
Discussion:
• What are the short- and long-term outcomes

associated with the different restructuring
strategies?
CHAPTER
6
Corporate-Level Strategy
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic management
knowledge needed to:
6-1 Define corporate-level strategy and discuss its purpose.
6-2 Describe different levels of diversification achieved using different
corporate-level strategies.
6-3 Explain three primary reasons firms diversify.
6-4 Describe how firms can create value by using a related diversification
strategy.
6-5 Explain the two ways value can be created with an unrelated
diversification strategy.
6-6 Discuss the incentives and resources that encourage diversification.
6-7 Describe motives that can encourage managers to over diversify a firm.
• A corporate-level strategy specifies actions a firm

takes to gain a competitive advantage by selecting and
managing a group of different businesses competing in
different product markets.
• A corporate-level strategy:
• Is used as a means to grow revenues and profits
• Focuses on diversification
• Is expected to help the firm earn above-average returns by
creating value
• Is concerned with two key issues:
1. In what product markets and businesses the firm should compete
2. How corporate headquarters should manage those businesses
• Product diversification concerns:

• The scope of the markets and industries in which the firm
competes
• How managers buy, create, and sell different businesses to
match skills and strengths with opportunities presented to the
firm
• Diversification:
• Is successful when it reduces variability in the firm’s profitability
as earnings are generated from different businesses
• Provides firms with the flexibility to shift their investments to
markets where the greatest returns are possible rather than
being dependent on only one or a few markets
6-1 Levels of Diversification
• Diversified firms vary according to their level of

diversification and the connections between and
among their businesses.
• There are five categories of businesses
according to increasing levels of diversification:
1. Single business
2. Dominant business
3. Related constrained
4. Related linked
5. Unrelated
Figure 6.1
Levels and Types of Diversification
6-1a Low Levels of Diversification
• There are two types of strategies a firm with a

low level of diversification can use:
1. Single-business diversification strategy
• The firm generates 95 percent or more of its sales revenue
from its core business area.
2. Dominant-business diversification strategy
• The firm generates between 70 and 95 percent of its total
revenue within a single business area.
6-1b Moderate and High
Levels of Diversification (slide 1 of 2)
• A firm uses a related diversification strategy when:
• It generates more than 30 percent of its revenue outside a
dominant business.
• Its businesses are related to each other in some manner.
• There are two types of related diversification strategies:
1. Related constrained diversification strategy
• The links between the diversified firm’s businesses use similar
sourcing, throughput, and outbound processes.
• A related constrained firm shares resources and activities across its
businesses.
2. Related linked diversification strategy
• The firm’s portfolio of businesses have only a few links between them.
• A related linked firm concentrates on transferring knowledge and
core competencies between its businesses.
6-1b Moderate and High
Levels of Diversification (slide 2 of 2)
• A highly diversified firm that has no relationships
between its businesses follows an unrelated
diversification strategy.
• Commonly, firms using this strategy are called
conglomerates.
• Unrelated firms make no effort to share activities or
transfer core competencies between or among their
businesses.
6-2 Reasons for Diversification
• A corporate-level diversification strategy can be

used to:
• Increase a firm’s value by improving its overall
performance
• Value is created when the strategy allows a company’s
businesses to increase revenues or reduce costs while
implementing their business-level strategies.
• Have neutral effects
• Reduce a firm’s value
Table 6.1
Reasons for Diversification (slide 1 of 2)
Value-Creating Diversification
• Economies of scope (related diversification)
• Sharing activities
• Transferring core competencies
• Market power (related diversification)
• Blocking competitors through multipoint competition
• Vertical integration
• Financial economies (unrelated diversification)
• Efficient internal capital allocation
• Business restructuring
Table 6.1
Reasons for Diversification (slide 2 of 2)
Value-Neutral Diversification
• Antitrust regulation
• Tax laws
• Low performance
• Uncertain future cash flows
• Risk reduction for firm
• Tangible resources
• Intangible resources
Value-Reducing Diversification
• Diversifying managerial employment risk
• Increasing managerial compensation
6-3 Value-Creating Diversification: Related
Constrained and Related Linked Diversification
• The company using the related diversification strategy

wants to develop and exploit economies of scope
between its businesses.
• Economies of scope are cost savings a firm creates by
successfully sharing resources and capabilities or transferring
one or more corporate-level core competencies that were
developed in one of its businesses to another of its businesses.
• Firms seek to create value from economies of scope through two
basic kinds of operational economies:
1. Sharing activities (operational relatedness)
2. Transferring corporate-level core competencies (corporate
relatedness)
Figure 6.2
Value-Creating Diversification Strategies:
Operational and Corporate Relatedness
6-3a Operational Relatedness:
Sharing Activities
• Firms can create operational relatedness by sharing
either:
• A primary activity
• Example: Inventory delivery systems
• A support activity
• Example: Purchasing practices
• Sharing activities is usually associated with the related
constrained diversification corporate-level strategy.
• Activity sharing:
• Is costly to implement and coordinate
• May create unequal benefits for the divisions involved
• Can lead to fewer managerial risk-taking behaviors
6-3b Corporate Relatedness:
Transferring of Core Competencies
• Corporate-level core competencies are complex sets of resources
and capabilities that link different businesses, primarily through
managerial and technological knowledge, experience, and
expertise.
• Firms using the related linked diversification strategy can create
value by transferring core competencies in at least two ways:
1. Because the expense of developing a core competence has already
been incurred in one of the firm’s businesses, transferring it to a second
business eliminates the need for that business to allocate resources to
develop it.
2. Because intangible resources are difficult for competitors to understand
and imitate, the unit receiving a transferred corporate-level competence
often gains an immediate competitive advantage over its rivals.
6-3c Market Power (slide 1 of 3)
• Market power may be gained by firms

successfully using a related constrained or
related linked strategy.
• Market power exists when a firm is able to sell its
products above the existing competitive level or to
reduce the costs of its primary and support activities
below the competitive level, or both.
• Firms can foster market power through

multipoint competition and vertical integration.
• Multipoint competition exists when two or more
diversified firms simultaneously compete in the same
product areas or geographical markets.
• Vertical integration exists when a company
produces its own inputs (backward integration) or
owns its own source of output distribution (forward
integration).
• Vertical integration allows a firm to gain market power by developing
the ability to:
• Save on its operations
• Avoid sourcing and market costs
• Improve product quality
• Possibly protect its technology from imitation by rivals
• Potentially exploit underlying capabilities in the marketplace
• Vertical integration has limitations.
• Internal transactions may be expensive and reduce profitability.
• Bureaucratic costs may be present.
• Substantial investments in specific technologies are required, reducing
a firm’s flexibility.
• Changes in demand create capacity balance and coordination
problems.
6-3d Simultaneous Operational
Relatedness and Corporate Relatedness
• The ability to simultaneously create economies
of scale by sharing activities (operational
relatedness) and transferring core competencies
(corporate relatedness):
• Is difficult for competitors to understand and imitate
• Is very expensive to undertake
• If the cost of realizing both types of relatedness is not offset
by the benefits created, the result is diseconomies.
• Often results in discounted assets by investors
• It can be difficult for investors to identify the value that is
created by the firm that shares both activities and core
competencies.
6-4 Unrelated Diversification (slide 1 of 2)
• Firms do not seek operational relatedness or

corporate relatedness when using the unrelated
diversification corporate-level strategy.
• Financial economies are cost savings realized
through improved allocations of financial
resources based on investments inside or
outside the firm.
• An unrelated diversification strategy can create value
through two types of financial economies:
1. Efficient internal capital market allocation
2. Asset restructuring
6-4 Unrelated Diversification (slide 2 of 2)
• Firms in emerging economies often use an

unrelated diversification strategy.
• A drawback for firms using the unrelated
diversification strategy in a developed economy
is that competitors can imitate financial
economies more easily than they can replicate
the value gained from the economies of scope
developed through operational relatedness and
corporate relatedness.
6-4a Efficient Internal
Capital Market Allocation (slide 1 of 2)
• In a market economy, capital markets are
believed to efficiently allocate capital.
• Efficiency results as investors take equity positions
with high expected future cash-flow values.
• Capital is allocated through debt as shareholders and
debt holders try to improve the value of their
investments by taking stakes in businesses with high
growth and profitability prospects.
6-4a Efficient Internal
Capital Market Allocation (slide 2 of 2)
• In large diversified firms, the corporate
headquarters office distributes capital to its
businesses to create value for the overall
corporation.
• Those in a firm’s corporate headquarters generally
have access to detailed and accurate information
regarding the performance of the company’s portfolio
of businesses; thus, they have the best information to
make capital distribution decisions.
• Because it has less accurate information, the external capital
market may fail to allocate resources adequately to high-
potential investments.
6-4b Restructuring of Assets
• Financial economies can be created when firms learn

how to create value by:
1. Buying assets at a low cost
2. Restructuring the assets
3. Selling the assets at a price that exceeds their cost in the
external market
• Buying, restructuring, and then selling service-based
assets for a profit in the external market is difficult.
• This is because technology firms and service-based companies
have relatively few tangible assets that can be restructured to
create value and sell profitably.
6-5 Value-Neutral Diversification:
Incentives and Resources
• Diversification is sometimes pursued for value-
neutral reasons.
• Different incentives to diversify sometimes exist.
• The quality of the firm’s resources may permit only
diversification that is value neutral rather than value
creating.
6-5a Incentives to Diversify (slide 1 of 5)
• Incentives to diversify come from both the

external environment and a firm’s internal
environment.
• External incentives include:
• Antitrust regulations
• Tax laws
• Internal incentives include:
• Low performance
• Uncertain future cash flows
• The pursuit of synergy
• Reduction of risk for the firm
Antitrust Regulation and Tax Laws
• In the 1960s and 1970s:
• Antitrust laws prohibiting mergers that created increased market power
(via either vertical or horizontal integration) were stringently enforced.
• Most mergers were “conglomerate” in character.
• In the 1980s and early 1990s:
• Merger constraints were relaxed.
• More and larger horizontal mergers (acquisitions of target firms in the
same line of business) occurred.
• In the early 2000s:
• Antitrust concerns emerged again.
• Mergers received more scrutiny.
• In the 1960s and 1970s, dividends were taxed more heavily than
were capital gains.
• As a result, shareholders preferred that firms use free cash flows (liquid
financial assets for which investments in current businesses are no
longer economically viable) to buy and build companies in high-
performance industries.
• The 1986 Tax Reform Act created an incentive for shareholders to
retain funds for purposes of diversification by:
• Reducing the individual ordinary income tax rate from 50 to 28 percent
• Changing the capital gains tax to treat capital gains as ordinary income
• At one time, acquisitions were an attractive means for securing tax
benefits, but the Financial Accounting Standards Board (FASB)
reduced some of the incentives to make acquisitions by eliminating:
• The “pooling of interests” method to account for an acquired firm’s assets
• The write-off for research and development in process
Low Performance
• Research shows that:
• Low returns are related to greater levels of diversification.
• An overall curvilinear relationship may exist between diversification and
performance.
Uncertain Future Cash Flows

• Diversification may be an important defensive strategy:
• As a firm’s product line matures or is threatened
• During a financial downturn
• For family firms competing in mature or maturing industries
• Diversifying into other product markets or into other businesses can
reduce the uncertainty about a firm’s future cash flows.
Figure 6.3
The Curvilinear Relationship between Diversification and Performance
Synergy and Firm Risk Reduction
• Synergy exists when the value created by business units working
together exceeds the value that those same units create working
independently.
• Synergy produces joint interdependence among businesses that
constrains the firm’s flexibility to respond, which may lead the firm to:
• Become risk averse and uninterested in pursuing new product lines that
have potential but are not proven
• Constrain its level of activity sharing
• Either decision may lead to further diversification.
• Operating in environments that are more certain will likely lead to
related diversification into industries that lack potential.
• Constraining the level of activity sharing may produce additional, but
unrelated, diversification, where the firm lacks expertise.
6-5b Resources and Diversification
• A firm must have the types and levels of resources and capabilities
needed to successfully use a corporate-level diversification strategy.
• A firm’s ability to create value through diversification is influenced by
the degree to which resources are:
• Valuable
• Rare
• Difficult to imitate
• Nonsubstitutable
• Both tangible and intangible resources facilitate diversification.
• However, intangible resources are more flexible in facilitating
diversification.
6-6 Value-Reducing Diversification:
Managerial Motives to Diversify (slide 1 of 2)
• Managerial motives to diversify beyond value-
creating and value-neutral levels include:
• The desire for increased compensation
• Reduced managerial risk
• Research evidence shows that diversification
and firm size are highly correlated.
• As firm size increases, so does:
• Executive compensation
• Social status
6-6 Value-Reducing Diversification:
Managerial Motives to Diversify (slide 2 of 2)
• Managerial motives to diversify can lead to
overdiversification and a subsequent reduction in a firm’s
ability to create value.
• Managerial tendencies to over diversify may be held in
check by:
• Governance mechanisms (board of directors)
• Monitoring by owners
• Executive compensation practices
• The market for corporate control
• Evidence suggests, however, that many top-level
executives seek to be good stewards of the firm’s assets
and avoid diversifying the firm in ways that destroy value.
Summary (slide 1 of 2)
• The level of diversification with the greatest potential

positive effect on performance is based partly on the
effects of the interaction of resources, managerial
motives, and incentives on the adoption of particular
diversification strategies.
• The greater the incentives and the more flexible the resources,
the higher the level of expected diversification.
• Financial resources (the most flexible) should have a stronger
relationship to the extent of diversification than either tangible
resources or intangible resources (the most inflexible).
Summary (slide 2 of 2)
• Firms can improve their strategic

competitiveness when they pursue a level of
diversification that is appropriate for:
• Their resources (especially financial resources) and
core competencies
• The opportunities and threats in their country’s
institutional and competitive environments
Figure 6.4
Summary Model of the Relationship
between Diversification and Firm Performance
APPENDIX
Discussion:
• What is corporate-level strategy and why is it

important?
Discussion:
• What are the different levels of diversification

firms can pursue by using different corporate-
level strategies?
Discussion:
• What are three reasons firms choose to diversify

their operations?
Discussion:
• How do firms create value when using a related

diversification strategy?
Discussion:
• What are the two ways to obtain financial

economies when using an unrelated
diversification strategy?
Discussion:
• What incentives and resources encourage

diversification?
Discussion:
• What motives might encourage managers to

over diversify their firm?

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Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.

• A business-level strategy is an integrated and

• Customers are the foundation of successful

• A firm must determine how to use its core

• Business models are part of a comprehensive business-

• There are many types of business models,

• The advertising model

• The cost leadership strategy is an integrated set of

Rivalry with Existing Competitors

Bargaining Power of Buyers (Customers)

Bargaining Power of Suppliers

Competitive Risks of the Cost Leadership

• The differentiation strategy is an integrated set of

• Through the differentiation strategy, the firm produces

• Firms using the differentiation strategy seek to

Rivalry with Existing Competitors

Bargaining Power of Buyers (Customers)

Competitive Risks of the Differentiation Strategy

• The focus strategy is an integrated set of

Competitive Risks of Focus Strategies

• What is a business-level strategy?

• What is the relationship between a firm’s

• What is a business model and how do business

• What are the differences among the cost

• How can firms use each of the business-level

• What are the specific risks associated with using

• Firms use acquisition strategies to:

• It is relatively uncommon for a firm to develop new

• Firms using an acquisition strategy want to verify

• Junk bonds supported firms’ earlier efforts to take on

• Synergy exists when the value created by units working together

• A firm develops a competitive advantage through an

• Because of the need to process additional amounts of

• The larger firm size generated by acquisitions can:

• Research evidence suggests that the probability

• Downsizing is a reduction in the number of a firm’s

• Downscoping refers to divestiture, spin-off, or

• A leveraged buyout (LBO) is a restructuring strategy

• Significant amounts of debt are commonly incurred to

• Why are merger and acquisition strategies

• What reasons account for firms’ decisions to use

• What are the seven primary problems that affect

• What are the attributes associated with a

• What is the restructuring strategy, and what are

• What are the short- and long-term outcomes

• A corporate-level strategy specifies actions a firm

• Product diversification concerns:

• Diversified firms vary according to their level of

• There are two types of strategies a firm with a

• A corporate-level diversification strategy can be

• The company using the related diversification strategy

• Market power may be gained by firms

• Firms can foster market power through

• Firms do not seek operational relatedness or

• Firms in emerging economies often use an

• Financial economies can be created when firms learn

• Incentives to diversify come from both the

Uncertain Future Cash Flows

• The level of diversification with the greatest potential

• Firms can improve their strategic

• What is corporate-level strategy and why is it

• What are the different levels of diversification

• What are three reasons firms choose to diversify