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Table of Contents
Corporate-Level Strategy ................................................................................................................ 2
Diversification................................................................................................................................. 2
Related diversification .................................................................................................................... 3
Transaction cost and Vertical Integration ....................................................................................... 4
Unrelated Diversification ................................................................................................................ 5
Portfolio Management .................................................................................................................... 5
Diversification and Risk Management............................................................................................ 6
Mergers and Acquisition ................................................................................................................. 6
Motives and advantages .............................................................................................................. 6
Strategic Alliances & Joint Ventures .............................................................................................. 7
Limitation .................................................................................................................................... 7
Internal Development...................................................................................................................... 7
Limitations .................................................................................................................................. 8
Manager’s Motives and Value Erosion........................................................................................... 8
Antitakeover Tactics ....................................................................................................................... 8
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Corporate-Level Strategy

By defining the corporate level strategy, we define where our business wants to go, and in

this way, we choose to grow or stable our business. There was some form of diversification such

as acquisition and merger which could be chosen based on the internal weakness, strengths and

external opportunities and threats. In this regard, there were several examples of unsuccessful

acquisition which can explain by the information I learned in the strategic management class. I

found the reason why Cisco could not be successful in its acquisition in the different business

segment. The acquired company was only responsible for one percent of Cisco revenue, and Cisco

did not have a comprehensive plan for that company, and as consequent, the company did not

provide a proper response towards changes in the environment, and it was shut down by Cisco.

So, it is interestingly to know that a vast majority of acquisitions will lead to value destruction

rather than value creation.

Diversification

There are several kinds of diversification (Figure 1) that can be done internally or

externally, which can be in related or unrelated business. in this way, it is essential to achieve

synergy which can be described as the art of working together.

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Related diversification

Related diversification will help the business to expand its business to similar business,

and in this way, we will share tangible resources such as:

 share all the skills and competencies between business units

 using the shared marketing, sales skills, and related knowledge

 transferring the knowledge, skills, and information in manufacturing

 allowing our business unit to have access to the data in research and development

activities

 having a better understanding of the economics of scale

For this purpose, we should consider that there should be a similarity between the new

business and the core competencies. These core competencies should also define in a way that is

difficult to imitate and copied. For example, by having an economic scale , we can have cost-

saving strategies. By sharing activities, we can increase our sales growth and revenue when we

combine the two companies together. Interestingly by vertical integration (Figure 2), we can be
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the supplier of our business or increase the chain toward customers who can increase our market

power and consequently we will have more negotiation power in making an agreement with other

business.

In this diversification, the benefits can be providing a source of inputs, protecting the

valuable resources, accessing new technologies, and simplifying the administration activities.

However, there were some risks such as increasing the overhead costs, decreasing the feasibility,

generating the unbalanced capability and increasing the cost of administration.

Transaction cost and Vertical Integration

Based on this concept, every transaction will have a cost. For example, for buying an

input from another company, the process of searching will have a cost, which considered as a

transaction cost. Vertical integration will be suitable when the cost of the transaction is higher

than the other cost. A good example can be the MacDonald that the cost of the transaction is

lower than the administrative cost, which leads to not being a logical investment for the

company.
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Unrelated Diversification

In this diversification, we want to penetrate to the company that is in a different business,

and this can brings new competencies and increase different products and markets. In this regard,

we should restructure the company in assets, capital, and management. For example, in asset

restructuring, we should remove the unproductive business and acquire those units that we need.

Portfolio Management

This method helps us to recognize the competitive position of the business units to

understand the best ways to priority’s identification and resources’ allocation in the portfolio. In

this way, we can use from Boston Consulting Group (figure 3), which divided the position to four

part of Star, Question Mark, Dogs, and Cash Cows. In Star, we will have high market growth, and

market shares, which can justify that business should invest heavily for its long-term plan. In

Question Mark, we have a weak market share and high growth market which can justify business

to invest in the market and product. In Cash Cows, we will dominate the market with our high

market share, but the industry’s growth is weak. However, this position can be a good source for

funding the investment in other businesses. In Dogs, it is better to shut down or sell the business

by considering the low market share and low market’s growth.

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Figure 3. Boston Consulting Group Matrix

Diversification and Risk Management

The diversification strategy can help the company to have a wide range of products in

different markets, which can help the company to reduce the risks over a long period of time. In

this way, with the help of economic cycles, the company can target different customers’ segments.

Mergers and Acquisition

In Merger, two company make an agreement to merge with each other and build a new

company with the new legal entity. In acquisition one company purchase another one, and the

acquired company become as apart of the parent company.

Motives and advantages

 It can decline the costs because of sharing activities.

 It can transfer the core competencies in these companies.

 Having a better research and development activities

 It can utilize the excessive capacity

 It can export the brand-name

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 It will increase our core competencies

 We can have a better efficient management

 We can decrease the risk through our portfolio

 Having a better resource allocation

Strategic Alliances & Joint Ventures

In a strategic alliance, we can use from an informal or formal way to build an alliance

with a strategic partner. In a joint venture, we made a new legal entity by same contributing.

Generally, we use from this strategy when it is difficult to enter a new market socially, politically

or geologically. So, this strategy can help us to:

 Decreasing the cost of manufacturing or other activities in the value chain

 Developing specific technology that needs specific technology and expertise

 Penetrating a new market with the least investment and in the shortest period.

Limitation

In recognizing the partner, we should set some criteria to increase the chance of success

of this strategy. For example, it is important to recognize a unique partnership that has

complementary skills and capabilities. Also, we can trust this partner, and we should be sure that

the synergy will be made quickly and in a reasonable amount of time.

Internal Development

In this strategy, a business will invest in new facilities to rely on their internal resources.

The benefits of this strategy can be:

 The company does not have to divide the wealth that will be made through

business with other partners.

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 The company will not spend a vast amount of time and energy to match the

cultures of different businesses.

 There will be fewer conflicts and ambiguity to link the value chains of the new

businesses.

Limitations

• This process will be a time-consuming project that needs a significant amount of

time and coordination.

• The company has to regularly work on developing its capabilities in other to be

agile in the market.

Manager’s Motives and Value Erosion

Managers play an important role in diversification; sometimes they will erode the value

of the company instead of creating the value for the stakeholders. Especially for those who are

growth seeker, they will care more about their prestige, and they want to be seen as those who

made a big move in their professional life. For example, a well-known manager will accept an

Acquisition only because of the growth in the size of the company and its operations. Another

concept here is ‘egotism,’ which is described as the tendency of managers to consider their self-

interest and consequently to shape the companies’ strategy based on their self-interest. So the

interest of the shareholders is not considered in the decision of managers.

Antitakeover Tactics

The tactics that will be used to manage those investors who want to buy the significant

share of a company (target company), and take the lead of that company. The target company by

using the concepts such as greenmail, golden parachute, and poison pills can protect the top

managers and shareholders from the potential threats of new buyers. For example, in a golden
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parachute, a contract will be signed by the new buyer to make top managers sure about their

salary package even if they lost their job at the company. In poison pills, the target company will

contain some particular and specific right for original shareholders in the contract with the

company’s buyers.