Competitive Advantage and Corporate Strategy

In: Business and Management

Submitted By jnxumalo
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SUMMARY: FROM COMPETITIVE ADVANTAGE TO CORPORATE STRATEGY: 1. Passing the Essential Tests a) How Attractive Is the Industry? An attractive industry with a high ROI will be difficult to enter because entry barriers are high, suppliers and buyers have only modest bargaining power, substitute products or services are few, and the rivalry among competitors is stable. An unattractive industry like steel has flaws i.e. many substitute materials, powerful and price-sensitive buyers and excessive rivalry that may be state supported. b) What Is the Cost of Entry? Diversification cannot build shareholder value if the cost of entry into a new business eats up its expected returns. A company can enter new industries by acquisition or start-up. The more attractive a new industry, the more expensive it is to get into. c) Will the Business Be Better Off? A corporation must bring a competitive advantage to the new unit, or the new unit must offer potential. When the benefit to the new unit comes only once, the parent company has no reason to keep the new unit over the long term. Once the results of the one-time improvement are clear and the diversified company no longer adds value, sell the unit and free up corporate resources.

2. Four Concepts of Corporate Strategy – (a) Portfolio Management: Is based primarily on diversification through acquisition. The corporation acquires sound, attractive companies with competent managers who agree to stay on. The acquired units are autonomous, and the teams that run them are compensated according to the unit results. The corporation supplies capital and works with each to infuse it with professional management techniques. (b) Restructuring: The restructuring strategy seeks out undeveloped, sick, or threatened organizations or industries on the threshold of significant change. The parent intervenes, frequently changing the…...

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