Rangamati Science & Technology University

Topic on
Corporate-Level Strategy: Creating Value through Diversification
Course code: MGT-410
Course Name: Strategic Management
Prepared For
Dr. Shameema Ferdausy

Professor and Course Instructor

Department of Management Studies

University of Chittagong

Prepared By
NAME REG.NO ROLL NO.
Emran Ali 2014-21-0061 04
Tanusree Roy 2014-21-112 31
Arnob Tripura 2014-21-0075 46
Md. Fardus All-Amin 2014-21-0118 12
Saddam Hossain 2014-21-0064 44

Date of Submission: 07/09/2019

 Questions
Full Marks - 15
Q1. What is Corporate Level Strategy? 1

Q2. What is diversification and briefly discuss how managers can create value for their firm
through diversification efforts? 5
Q3. Discuss the ways to diversification? 6
Q4. What is Portfolio management and shortly discuss its benefits and limitations? 3

Answer to the question no: (1)

Corporate-level strategy refers to a strategy that focuses on gaining long-term revenue, profits, and
market value through managing operations in multiple businesses.
Corporate-level strategy addresses two related issues:

a. What businesses should a corporation compete in and?

b. How can these businesses be managed to jointly create more value?

Answer to the question no: (2)

Diversification is the process of firms expanding their operations by entering new businesses.

Diversification is an asset allocation plan, which properly allocates assets among different types
of investment. Investors accept a certain level of risk, but they also need to have an exit strategy,
if their investment does not generate the expected return.

Firms create value through two different diversification initiatives. These are:-

a) Related diversification: Related diversification enables a firm to benefit from horizontal

relationships across different businesses in the diversified corporation by leveraging core
competencies and sharing activities.
 b) Unrelated diversification: A firm entering a different business that has little horizontal
interaction with other businesses of a firm.

Related diversification gain competitive benefit from Economic of scope and Market power. These
are used various tools to achieve competitive advantages. These tools are given below-

Economic of Scope: Economies of scope refers to cost savings from leveraging core competencies
or sharing related activities among businesses in the corporation.

1. Leveraging Core Competencies: Core competencies a firm’s strategic resources that

reflects the collective learning in organizations - how to coordinate diverse production
skills, integrate multiple streams of technologies, and market diverse products and services.
2. Sharing Activities: Having activities of two or more businesses value chains done by one
of the businesses.

Market Power: Market power refers to firm’s abilities to profit through restricting or controlling
supply to a market or coordinating with other firms to reduce investment.

1. Pooled negotiating power: Pooled negotiating power refers to the improvement in

bargaining position relative to suppliers and customers.
2. Vertical Integration: Vertical integration occurs when a firm becomes its own supplier or
distributor.

Unrelated diversification gain competitive benefit from Parenting, Restructuring and Financial
Synergies. The strategy use various tools to achieve competitive advantages. These tools given
below-

Parenting, Restructuring and Financial Synergies:

1. Corporate restructuring and parenting: The positive contributions of the corporate
office are called the “parenting advantage.”
2. Portfolio Management: It is another means by which the corporate office can add value
to a business.

Related and unrelated diversifications are the two major types of corporate level strategy. With
related diversification the corporation strives to enter into areas in which key resources and
capabilities of the corporation can be shared or leveraged. With unrelated diversification the
primary ways to create value are corporate restructuring and parenting as well as the use of
portfolio analysis techniques.
 Answer to the question no: (3)

A firm may undertake to achieve synergies and create value for its shareholder through related and
unrelated diversification. Corporations have three primary means of diversifying their product
market.
There are three basic ways to achieve diversification:

Ways to diversification

Acquisitions and Mergers

Joint ventures and Strategic alliances

Corporate entrepreneurship or internal

development

These three basic ways are described below-

a) Acquisition and Mergers: Corporation can directly acquire a firm’s assets and competencies.
The term acquisitions and mergers are used interchangeably.
Acquisitions the incorporation of one firm into another through purchase.
Mergers the combining of two or more firms into one new legal entity.

Benefits of Mergers and Acquisitions:

 Obtain valuable resources that can help an organization expand its product offerings.
 Provide the opportunity for firms to attain three bases of synergy: leveraging core
competencies, sharing activities, and building market power.
 Lead to consolidation within an industry and force other players to merge.
 Enter new market segments.

Limitations of Mergers and Acquisitions:

 Takeover premiums paid for acquisitions are typically very high.

  Competing firms often can imitate any advantages or copy synergies that result from the
merger or acquisition.
 Manager egos sometimes get in the way of sound business decisions.
 Cultural issues may doom the intended benefits from M&A endeavors.

b) Strategies Alliances and Joint Ventures: Corporation may agree to pool the resources of other
companies with their resource base, commonly known as a joint venture or strategic alliance.
Strategic alliances a cooperative relation-ship between two or more firms.

Joint ventures new entities formed within a strategic alliance in which two or more firms, the
parents, contribute equity to form the new legal entity.

Benefits of Strategic Alliance and Joint Ventures:

 Reducing manufacturing costs in the value chain.

 Developing and diffusing new technologies.

Potential downsides or limitations of strategic alliances and joint ventures:

 Despite their promise, many alliances and joint ventures fail to meet expectations for a
variety of reasons.
 Without the proper partner, a firm should never consider undertaking an alliance, even for
the best of reasons.
 Each partner should bring the desired complementary strengths to the partnership.

c) Corporate entrepreneurship or internal development

Internal development entering a new business through investment in new facilities, often called
corporate entrepreneurship and new venture development.

 Internal development is more important in fast-paced competitive environment.

 Internal development can be very time-consuming.
 Answer to the question no: (4)

Portfolio management is a tool or method of achieving unrelated diversification. Give information

to take competitive decisions.
Portfolio Management is a method of-

 Assessing the competitive position of a portfolio of business within a corporation.

 Suggesting strategic alternatives for each business and.
 Identifying priorities for the allocation of resources across the businesses.

Benefits of portfolio management: There are many benefits see in the portfolio management-

 The corporation is in a better position to allocate resources to businesses according to

explicit criteria .The corporate office can provide guidance on what firms may be attractive
acquisitions.
 The corporate office can provide financial resources to businesses on favorable terms.
 The corporate office can provide high-quality review and evaluation/reward systems for
businesses.

Limitations of portfolio management: There are many limitations see in the portfolio
management-

 They are overly simplistic, consisting of only two dimensions.

 They view each business as separate, ignoring potential synergies across businesses.
 The process may become overly largely mechanical, minimizing the potential value of
manager’s judgments and experience.
 The reliance on strict rules for resource allocation across SBUs can be detrimental to a
firm’s long- term viability.
 The imagery while colorful, may lead to troublesome and overly simplistic prescriptions.

Portfolio management basically allocate proper financial resources, provides basic guidelines to
make policy statement, assessing firm’s performance and take effective investment decision
through various financial strategy.