Competitive Dynamics
Strategy Notes
Domain of corporate strategy
 Deciding which industries to enter and exit
 Defining a strategic business unit
 Establish business unit investment priorities
 Effecting resources and management transfers
 Structuring the corporation
Motivations for diversification
1. Growth
 Better external opportunities
 Acquire new capabilities
 Response to intensifying competition
 Avoid decline and takeover
 Benefits to managers and employees
 Managerial capitalism
2. Market power
 Gains in pricing authority
 Increases in bargaining power
 Forbearance – keep competitors at bay
3. Market entry
 Overcoming barriers to entry
 Avoiding internal development costs
 Increasing speed to market
 Reduce opportunity cost – imitating others
4. Risk spreading
 Reduce variability in performance
 Shareholder benefit
© 2014 Page West
Types of diversification
Rationale supporting diversification
 Related – depends on synergies between value chains
o Market fit
o Operational fit
o Management fit
 Unrelated – depends on financial market imperfections
Acquisition performance depends on
 Selecting attractive industries
 Strategic rationale
 Due diligence
 Capturing estimated synergies
 Acquisition premiums



Loss of focus of acquiring company
Accelerating growth of acquired
company
Post-acquisition integration efforts
Portfolio management
 GE Business Development Matrix
 BCG Growth Share Matrix
 Restructuring – downscoping to achieve more strategic focus
 Divestiture
o Spin off business into independent company
o Sell business