Corporate-Level Strategy

Corporate-Level Strategy

Corporate-Level strategies are used by firms to diversify their operations from a single business competing in a single market into several product markets and into several businesses.

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.

Corporate level strategies help companies select new strategic positions that are expected to increase the firm’s value. There are different strategic intents beside growth. Firms can pursue defensive or offensive strategies that realize growth but have different strategic intents. They can also pursue market development by moving into different geographic markets. Firms can acquire competitors or buy a supplier or customer.

Because the diversified firm operates in several different and unique product markets and likely in several businesses, it forms two types of strategies: corporate-level and business-level.

Corporate level strategy is concerned with two key issues: in what product markets and businesses the firm should compete and how corporate headquarters should manage those businesses.

On the other hand business level strategy must be selected for each of the businesses in which the firm has decided to compete.

A primary form of corporate level strategy is the product diversification that concerns the scope of the markets and industries in which the firm competes as well as how managers buy, create and sell different businesses to match skills and strengths with opportunities presented to the firm.

The successful diversification is expected to reduce variability in the firm‘s profitability as earnings are generated from different businesses. Diversified firms vary according to their level of diversification and the connections between and among their businesses.

A firm pursuing a low level of diversification uses either a single- or a dominant-business, corporate level diversification strategy. The single- and dominant-business categories denote relatively low levels of diversification; more fully diversified firms are classified into related and unrelated categories.

A firm is related through its diversification when its businesses share several links. The more links among businesses, the more “constrained” is the relatedness of diversification. The absence of direct links between businesses is called unrelatedness.

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. When the links between the diversified firm’s businesses are rather direct, a related constrained diversification strategy is being used.

The diversified company with a portfolio of businesses with only a few links between them is called a mixed related and unrelated firm and is using the related linked diversification strategy, but a highly diversified firm that has no relationships between its businesses follows an unrelated diversification strategy.

A firm uses a corporate level diversification strategy for a variety of reasons. Typically, a diversification strategy is used to increase the firm’s value by improving its overall performance.

Value is created either through related diversification or through unrelated diversification when the strategy allows a company’s businesses to increase revenues or reduce costs while implementing their business-level strategies.

With the related diversification corporate level strategy, the firm builds upon or extends its resources and capabilities to create value, by using this strategy, the company wants to develop and exploit economies of scope between businesses.

Economies of scope are cost savings that the firm creates by

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