Phil Gorman, Ph.D.
STRATEGIC MANAGEMENT:
CORPORATE STRATEGY
1
Aims of a corporate strategy
 Want to create “economies of scope” (a.k.a.
“synergies”)
 This means you want to take two or more
different businesses and make them better off
together than apart
 This is the “1+1=3” concept
2
Economies of scope
 Example (very simple calculation): Two totally
separate business combine with each other
 Each business on its own had $10 million
 Each business on its own had $8 million expenses
 Thus each business had $2 million profit
3
Economies of scope
 Example (very simple calculation): Two totally
separate business combine with each other
 Each business on its own had $10 million
 Each business on its own had $8 million expenses
 Thus each business had $2 million profit
 One aim of combining the business might be
to increase revenue to $21 million while
holding expenses constant (thus increasing
profits to $5 million rather than $4 million)
4
Economies of scope
 Example (very simple calculation): Two totally
separate business combine with each other
 Each business on its own had $10 million
 Each business on its own had $8 million expenses
 Thus each business had $2 million profit
 A different aim of combining the business
might be to decrease expenses to $15 million
while holding revenue constant (thus
increasing profits to $5 million rather than $4
million)
5
Multidivsional form: generic
example
CEO
Business
unit A
Business
unit B
Business
unit C
6
Multidivsional form: generic
example
CEO
Business
unit A
Business
unit B
Business
unit c
7
Multidivisional form: a
somewhat silly example
CEO
Sneakers
Cars
Candy
8
Functional form: a more
realistic example
CEO
Jet
engines
Light
bulbs
TV
network
9
Functional form
CEO
Acctg
Mktg
R&D
10
Corporate strategy summary
 The goal is to create “economies of scope”
 When two separate business are better off together
than apart
 One classic corporate strategy choice: acquiring
another company
 Another classic corporate strategy choice:
divesting a business
 When a company has multiple lines of business,
the corporate strategy challenge (this is the hard
part) is figuring out how to get them working
together
11
Corporate strategy summary
 The goal is to create “economies of scope”
 When two separate business are better off together
than apart
 One classic corporate strategy choice: acquiring
another company
 Another classic corporate strategy choice:
divesting a business
 When a company has multiple lines of business,
the corporate strategy challenge (this is the hard
part) is figuring out how to get them working
together
12
Corporate strategy summary
 The goal is to create “economies of scope”
 When two separate business are better off together
than apart
 One classic corporate strategy choice: acquiring
another company
 Another classic corporate strategy choice:
divesting a business
 When a company has multiple lines of business,
the corporate strategy challenge (this is the hard
part) is figuring out how to get them working
together
13
Corporate strategy summary
 The goal is to create “economies of scope”
 When two separate business are better off together
than apart
 One classic corporate strategy choice: acquiring
another company
 Another classic corporate strategy choice:
divesting a business
 When a company has multiple lines of business,
the corporate strategy challenge (this is the hard
part) is figuring out how to get them working
together
14
Corporate strategy summary
 The goal is to create “economies of scope”
 When two separate business are better off together
than apart
 One classic corporate strategy choice: acquiring
another company
 Another classic corporate strategy choice:
divesting a business
 When a company has multiple lines of business,
the corporate strategy challenge (this is the hard
part) is figuring out how to get them working
together
15