Corporate Level Strategy – Summary of the lectures
Corporate growth trap: no systematic link between size and profits.
Corporate growth aims at increasing corporate profits and profitability, not just increasing sales. The
gains from corporate expansion must offset expansion and coordination costs.
Where:
- Business development
- Horizontal Expansion
- Vertical Expansion
How:
- Build
- Blend
- Buy
Why, value creation:
- Cost synergies
Lower input costs
Lower production costs
- Revenue synergies
Higher sales
Higher prices
Net performance effect of diversification:
With the number of businesses rising, the coordination costs keep rising. On the other hand, there is a
maximum of possible synergies to gain as well. This will lead to the fact that the net effect of gaining
another business will decrease, so the wins will be lower or even zero for the company to expand in
another business.
The grand CLS challenge: (9 growth strategies and 3 benefits)
Business Development Horizontal expansion Vertical expansion
Decreased Increased bargaining Increased bargaining power Access to cheaper inputs.
input cost power on input on suppliers of shared input.
suppliers.
Decreased Scale of economies. Scope economies. Technical integration-
production cost based economies.
Information-based scale
economies.
Increased Increased market power Higher prices due to: Reputational effects in
revenues on output buyers. - WTP integration & downstream areas
reputation
- Increased market
power.
Higher unit sales.
, The expansion mode to choose, depends on the situation. None is systematically better than the other.
Expansion mode needs to align with:
- Experience
- Competitive environment
- The resource gap: [resource requirements] – [resource endowment]
Low resource gap = build
Moderate resource gap = blend
High resource gap = buy
What drives learning by doing?
Corporate growth trap: no systematic link between size and profits.
Corporate growth aims at increasing corporate profits and profitability, not just increasing sales. The
gains from corporate expansion must offset expansion and coordination costs.
Where:
- Business development
- Horizontal Expansion
- Vertical Expansion
How:
- Build
- Blend
- Buy
Why, value creation:
- Cost synergies
Lower input costs
Lower production costs
- Revenue synergies
Higher sales
Higher prices
Net performance effect of diversification:
With the number of businesses rising, the coordination costs keep rising. On the other hand, there is a
maximum of possible synergies to gain as well. This will lead to the fact that the net effect of gaining
another business will decrease, so the wins will be lower or even zero for the company to expand in
another business.
The grand CLS challenge: (9 growth strategies and 3 benefits)
Business Development Horizontal expansion Vertical expansion
Decreased Increased bargaining Increased bargaining power Access to cheaper inputs.
input cost power on input on suppliers of shared input.
suppliers.
Decreased Scale of economies. Scope economies. Technical integration-
production cost based economies.
Information-based scale
economies.
Increased Increased market power Higher prices due to: Reputational effects in
revenues on output buyers. - WTP integration & downstream areas
reputation
- Increased market
power.
Higher unit sales.
, The expansion mode to choose, depends on the situation. None is systematically better than the other.
Expansion mode needs to align with:
- Experience
- Competitive environment
- The resource gap: [resource requirements] – [resource endowment]
Low resource gap = build
Moderate resource gap = blend
High resource gap = buy
What drives learning by doing?
