REVIEW CORPORATE STRATEGY FINAL Corporate advantage is the way a company creates value through the configuration of its

ts multibusiness activities. 3 premises of corporate level strategy: 1) Competition occurs at the business unit level. 2) Corporate level strategy inevitably adds costs. 3) Shareholders can readily diversify themselves. 3 fundamental dimensions of strategy are creating value(why), handling imitation(how), & shaping a perimeter of the organization(what). The uniqueness of a strategy resides in value creation. Achieving and sustaining competitive advantage depends on the ability to be unique. defining the perimeter relates to make-or-buy decisions and therefore to choosing ones partners, customers & competitors. To pass the Better-Off test, an expansion in horizontal scope must enable the business units to create and capture more value together than they could as separate while with Better-Alternative test, business units may choose to remain independently owned & pursue partnership or strategic alliances. The market based model of strategy characteristics are external industry structure, barriers to entry, bargaining power, value capturing, monopoly rents, imperfect output markets, adapting to & shaping the industry environs. Resource based models 4 requirements to identify firms core competencies are valuable, rare, inimitable, & non-substitutable. 4 theoretical conditions which underlie sustainable competitive advantage: Heterogenity-the resource and capabilities underlying production are heterogeneous across firms which creates ricardian (superior) rents or monopoly (unique) rents. Ex Post Limits to Competition- requires that the condition of heterogeneity be preserved which could lead to prevention of rents from being competed away through imitation and substitution. Imperfect mobilityresources are perfectly immobile if they cannot be traded or other resources maybe described as imperfectly mobile when they are somewhat specialized to firm-specific needs which ensures that valuable factors remain within the firm and that rents are shared. Ex Ante Limits Before a firm establishes a superior position, there must be limited competition for that position which keeps acquisition costs from offsetting the rents. 4 trajectories of industry evolution are radical change, creative change, intermediating change & progressive change. 2 threats that impact the trajectory are the industrys core activities and the industrys core assets. The management of the 3 elements in the triangle of corporate level strategy: When a companys resources are critical to the success of its business, the result is competitive advantage. When the organization is configured to

leverage those resources into the business, synergy can be captured and coordination is achieved. Fit between a companys measurement and reward systems and its businesses produces strategic control. The Resource Continuum: A corporations location on the resource continuum constrains the set of businesses it should compete in and limits its choices about the design of the organization. the corporation can earn profits by defining the relatedness according to resources that contribute to competitive advantage in each business. The risk of holdup arises in transactions in the presence of specialized assets(e.g human capital), opportunistic re-negotiation, quality uncertainty and limits on monitoring. vertical integration is a governance mechanism that overcomes the risk of holdup to facilitate investment in specialized assets. Benefits of Vertical Integrations are market power(creating entry barriers, downstream price maintenance, upstream cost control) and superior efficiency(protecting product quality, improved coordination, scheduling & communication & promoting network externalities). Risks are cost disadvantages of internal supply purchasing, technological change after sunk cost investment, demand uncertainty exacerbates earnings volatility and bureaucratic /administrative cost & agency problems. The contemporary motives for vertical integration are: value migration, differentiation focus, integrated solutions and emerging industries. The following factors make forward integration appealing: Traditional VI motives are outdated. Higher need to build long-term customer relationships. Companys tacit and contextual learning cannot be contracted and valuable learning benefits can only be realized fully by firms that own the customer interface. 2 value creating conditions for related diversification strategy: Sharing resources and activities to achieve simultaneous economies of scope; greater operational capacity and larger markets can help a company attain low cost position & Strong corporate identity, corporate mission and incentive systems are required. Transferring core competencies lowers the cost of value creation activities in the diversified businesses and creates opportunities for differentiation and premium pricing value creation activities & Significant similarities among business units are required. 2 value creating conditions for unrelated diversification strategy: Superior internal governance(BCG matrix) has efficient internal capital market allocation, places business units in self-contained divisions and manages them in a decentralized manner : managers should have more detailed info of firms relative to outside investors because shareholders can generally diversify more economically on their own. Acquisition and restructuring seeks out undeveloped, sick or threatened organizations or industries, replaces nonperforming to

management team esp. when agency problems exist and disposes of unproductive or redundant assets; requires keen management insight in selecting firms with depressed values or unforeseen potential. Diversification can dissipate value of the firm by attempting to achieve greater growth OR pool risks. . The following factors increase costs of diversification: number of businesses, coordination among businesses, and limits of diversification.