Two Levels of Strategy - Business and Corporate Strategies

第七章公司层战略多元化战略 霍国庆中国科学院研究生院管理学院 leohuo@gscas.ac.cn

Two Levels of Strategy A diversified company has two levels of strategy • 1. Business-Level Strategy(Competitive Strategy) • How to create competitive advantage in each business in which the company competes • - low cost - differentiation • - focused low cost - focused differentiation • - integrated low cost/ • differentiation • 2. Corporate-Level Strategy(Company-wide Strategy) • How to create value for the corporation as a whole

Business Unit Business Unit Business Unit Business Unit Key Questions in Corporate Strategy 1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts

Business Unit Business Unit 多元化战略的类型 Low Levels of Diversification Single Business > 95% of business from a single business unit Dominant Business Between 70 and 95% of business from a single business unit

Business Unit Business Unit Business Unit 多元化战略的类型 Moderate to High Levels of Diversification Related Constrained （集中多元化） >70% of revenues from dominant business; all businesses share product, technological and distribution linkages

Business Unit Business Unit Business Unit 多元化战略的类型 Moderate to High Levels of Diversification Related Linked (Mixed) (横向多元化) > 70% of revenues from dominant business, and only limited links exist

Business Unit Business Unit Business Unit 多元化战略的类型 Very High Levels of Diversification Unrelated （非相关多元化） > 70% of revenue comes from the dominant business, and there are no common links between businesses

Both Operational and Corporate Relatedness (Rare Capability and can Create Diseconomies of Scope) High Related Constrained Diversification Vertical Integration (Market Power) Related Linked Diversification (Economies of Scope) Unrelated Diversification (Financial Economies) Low Low High 多元化战略的类型 Sharing: Operational Relatedness Between Businesses Corporate Readiness: Transferring Skills into Businesses Through Corporate Headquarters

相关多元化战略 • 相关多元化战略（Related diversification strategy）是通过创建或扩展公司的资源、能力和核心能力以增强竞争优势的一系列承诺与行动。

相关多元化战略 相关多元化战略的实现两种方式： • 形成范围经济 Economies of scope • 增强市场力量 Market power

相关多元化战略 • Economies of scope （范围经济）are cost savings that the firm creates by successfully transferring some of its capabilities and competencies that were developed in one of its businesses to another of its businesses.

相关多元化战略 范围经济一般通过两种途径来创造价值： • sharing activities • transferring core competencies

Sharing Activities: Key Characteristics • Sharing activities often lowers costs or raises differentiation • Sharing activities can lower costs if it: • achieves economies of scale • boosts efficiency of utilization • helps move more rapidly down the Learning Curve • Sharing activities can enhance potential for or reduce the cost of differentiation • Must involve activities that are crucial to competitive advantage

Sharing Activities 可以共享的活动： • 主要价值链活动 • 内部物流（可共享同一仓储系统、仓库设施等） • 生产管理（可共享组装设备、质量控制体系、维护保养体系） • 外部物流（可共享销售队伍和销售渠道等） • 售后服务（可共享售后服务队伍） • 辅助价值链活动 • 各事业部可共享采购、研发、信息等

Sharing Activities: Assumptions • Strong sense of corporate identity • Clear corporate mission that emphasizes the importance of integrating business units • Incentive system that rewards more than just business unit performance

Transferring Core Competencies: Key Characteristics • Exploits interrelationships among divisions • Start with value chain analysis • identify ability to transfer skills or expertise among similar value chains • exploit ability to transfer activities

Transferring Core Competencies: Assumptions • Transferring core competencies leads to competitive advantage only if the similarities among business units meet the following conditions: • activities involved in the businesses are similar enough that sharing expertise is meaningful • transfer of skills involves activities which are important to competitive advantage • the skills transferred represent significant sources of competitive advantage for the receiving unit

相关多元化战略 • 实现相关多元化战略的另一种途径是增强市场力量。 • Market power: when a firm is able to sell its products above the existing competitive level or reduce the costs of its primary and support activities below the competitive level, or both

相关多元化战略 • One approach to gaining market power through diversification is multipoint competition. • Multipoint competition exists when two or more diversified firms simultaneously compete in the same product areas or geographic market. • Counterattacks are not common in multipoint competition because the threat of a counterattack may prevent strategic actions from being taken, or more likely, firms may retrack their strategic actions when faced with the threat of counterattack.

相关多元化战略 • Another approach to gaining market power through diversification is vertical integration. • Vertical integration exists when a company produces its own inputs (backward integration) or owns its own source of distribution of outputs (forward integration).

相关多元化战略 • Vertical integration is commonly used in the firm’s core business to gain market power over rivals. • Market power is gained as the firm develops the ability to save on its operations, avoid market costs, improved product quality, and, possibly, protect its technology from imitation by rivals.

相关多元化战略 • Market power also is created when firms have strong ties between their assets for which no market prices exist. • Establishing a market price would result in high search and transaction costs, so firms seek to vertically integrate rather than remaining separate businesses.

相关多元化战略 There are also limits to vertical integration: • Internal transactions from vertical integration may be expensive and reduce profitability relative to competitors. • Because vertical integration can require substantial investments in specific technologies, it may reduce the firm’s flexibility, especially when technology changes quickly. • Changes in demand create capacity balance and coordination problems.

非相关多元化战略 • An unrelated Diversification Strategy can create value through two types of financial economies. • Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.

非相关多元化战略 • The first type of financial economy results from efficient internal capital market allocations. • The second type of financial economy is concerned with purchasing other corporations and restructuring their assets.

Efficient Internal Capital Market Allocation: Key Characteristics • Firms pursuing this strategy frequently diversify by acquisition: • acquire sound, attractive companies • acquired units are autonomous • acquiring corporation supplies needed capital • portfolio managers transfer resources from units that generate cash to those with high growth potential and substantial cash needs • add professional management & control to sub-units • sub-unit managers compensation based on unit results

Efficient Internal Capital Market Allocation: Assumptions • Managers have more detailed knowledge of firm relative to outside investors • Firm need not risk competitive edge by disclosing sensitive competitive information to investors • Firm can reduce risk by allocating resources among diversified businesses, although shareholders can generally diversify more economically on their own

Restructuring: Key Characteristics • Seek out undeveloped, sick or threatened organizations or industries • Parent company (acquirer) intervenes and frequently: • changes sub-unit management team • shifts strategy • infuses firm with new technology • enhances discipline by changing control systems • divests part of firm • makes additional acquisitions to achieve critical mass • Frequently sell unit after making one-time changes since parent no longer adds value to ongoing operations

Restructuring: Assumptions • Requires keen management insight in selecting firms with depressed values or unforeseen potential • Must do more than restructure companies • Need to initiate restructuring of industries to create a more attractive environment

Incentives Resources Managerial Motives 多元化战略的诱因 • Anti-trust regulation • Tax laws • Low performance • Uncertain future cash flows • Firm risk reduction • Tangible resources • financial resources • physical assets • Intangible resources • tacit knowledge • customer relations • image and reputation • Diversifying managerial employment risk • Increasing managerial compensation

多元化战略诱因 External Incentives • Relaxation of anti-trust regulation allows more related acquisitions than in the past • Before 1986, higher taxes on dividends favored spending retained earnings on acquisitions • After 1986, firms made fewer acquisitions with retained earnings, shifting to the use of debt to take advantage of tax deductible interest payments

多元化战略诱因 Internal Incentives • Poor performance may lead some firms to diversify to attempt to achieve better returns • Firms may diversify to balance uncertain future cash flows • Firms may diversify into different businesses in order to reduce risk

多元化战略诱因 • Besides strong incentives, firms are more likely to diversify if they have the resources to do so • Value creation is determined more by appropriate use of resources than incentives to diversify

多元化战略诱因 Managers have motives to diversify • diversification increases size; size is associated with executive compensation • diversification reduces employment risk • effective governance mechanisms may restrict such motives

多元化与企业绩效 Performance Dominant Business Related Constrained Unrelated Business Level of Diversification

Capital Market Intervention and the Market for Managerial Talent Incentives Managerial Motives Resources Firm Performance Diversification Strategy Strategy Implementation Internal Governance 多元化与企业绩效

Two Levels of Strategy - Business and Corporate Strategies

Two Levels of Strategy - Business and Corporate Strategies

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