Chapter No: 06

Corporate Level Strategy

 Key Learning Outcomes
1. Understanding the corporate level strategy and its
purpose.

2. Understanding the different levels of diversification

achieved using corporate-level strategies.

3. Understanding the reasons of organization diversification.

4. Understanding the creation of value by using a

diversification strategy.

5. Understanding the benefits of diversification.

 Key Concepts
Corporate-Level Strategy

Type of strategy that identifies the portfolio of business that, in

total, comprise by the firm and the ways in which these
businesses relate to each other.

OR
A corporate-level strategy specifics actions a firm takes to gain
a competitive advantage by selecting and managing group of
different businesses competing in different product markets.

Corporate-level strategies help firms to select new strategic

positions—positions that are expected to increase the firm’s
value.
Common Types of Corporate Strategies

Corporate Strategy Possibilities

Concentration Diversification Consolidation

Vertical Geographic
integration expansion
 Key Concepts
Common Types of Corporate Level Strategy

 Concentration Corporate Strategy (Single Business).

 Diversification Corporate Strategy (Adding New Product Lines)

 Conglomerate / Unrelated Diversification Strategy (Diversifying into

products or markets not related to the firm’s current businesses).

 Vertical Integration (Producing company raw materials or selling its

products direct).

 Consolidation Strategy (Reducing the size of the company).

 Geographic Expansion (Entering into new markets).

 Levels of Diversification
1. Single Business: Low Levels of Diversification.

2. Dominant Business: Low Levels of Diversification.

3. Related Constrained: Moderate to High Levels of

Diversification.

4. Related Linked (Mixed Related and Unrelated): Moderate

to High Levels of Diversification.

5. Unrelated: Very High Level of Diversification

 Levels of Diversification
 A firm is related through its diversification when its
businesses share several links.

“For example, businesses may share

product markets (goods or services),
technologies, or distribution channels. The
more links among businesses, the more
“constrained” is the level of
diversification. “Unrelated” refers to the
absence of direct links between
businesses”.
 Low Levels of Diversification
 A firm pursuing a low level of diversification uses either a
single- or a dominant-business, corporate-level
diversification strategy.

 A single-business diversification strategy is a corporate-

level strategy wherein the firm generates 95 percent or
more of its sales revenue from its core business area.

 With the dominant-business diversification strategy, the

firm generates between 70 and 95 percent of its total
revenue within a single business area.
 Low Levels of Diversification
 Firms that focus on one or very few businesses and markets
can:

1. Earn Positive Returns.

2. Develop Capabilities Useful for these Markets.

3. Provide Superior Service to their Customers.

 Moderate & High Levels of Diversification
 A firm generating more than 30 percent of its revenue outside a
dominant business and whose businesses are related to each other
in some manner uses a related diversification corporate-level
strategy.

 Related Constrained Diversification Strategy: When the links

between the diversified firm businesses are direct, and they use
similar resources (sourcing, throughput and outbound processes).

 Related Linked Diversification Strategy: When the firm businesses

have only a few links between are considered as related linked
diversification strategist firm. These firms share less resources and
assets between their businesses.
 Very High Level of Diversification
 A highly diversified firm that has no relationships between
its businesses follows an unrelated diversification
strategy.

 Firms using highly diversified strategy are known as

conglomerates.

 Firms in this type of diversification strategy do not share

activities or transfer core competencies.
Levels and Types of Diversification
 Reasons for Diversification
 To improve organization overall performance.

 Increase revenues and reducing costs.

 Increasing organization value.

 Neutralize competitors power.

 Reducing risk.
 Value Creation Through Diversification
 Operational relatedness and corporate relatedness are two
ways diversification strategies can create value.

1. Operational Relatedness: Sharing Activities

2. Corporate Relatedness: Sharing Core-competencies.

Value Creation Through Diversification
 Value Creation Through Diversification
 Operational relatedness and corporate relatedness are two
ways diversification strategies can create value.

 Operational Relatedness: Sharing Activities.

Sharing activities sometimes is risky, like if demand for one
business product is reduced it may bot generate sufficient
revenues to cover the fixed costs required to operate the
shared facilities.

• Corporate Relatedness: Sharing Core-competencies

(Resources, Capabilities, Managerial and Technological
Knowledge, Experience and Expertise).
 Value Creation Through Diversification
 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.

 Multipoint Competition: Exists when two or more

diversified firms simultaneously compete in the same
product areas or geographical markets.
 Unrelated Diversification
Firms use unrelated diversification for two purposes:

1. Efficient Capital Market Allocation

2. Restructuring of Assets

Benefits of Diversification

 Tax Savings (External Environment)

 Reduction of Risk, Saving of Uncertain Cash Flows and Low Firm

Performance, and Pursuit of Synergy. (Internal Environment)