Strategic management: Corporate strategy

1. Phil Gorman, Ph.D. Strategic management: Corporate strategy

2. 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

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

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 • 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)

5. 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)

6. Multidivsional form: generic example

7. Multidivsional form: generic example

8. Multidivisional form: a somewhat silly example

9. Functional form: a more realistic example

10. Functional form

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. 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