CORPORATE STRATEGY AND DIVERSIFICATION
Definition of Corporate Strategy
Business Strategy addresses the question How should a firm or business compete with sustained advantage in a given competitive environment? Corporate Strategy addresses the question What should be the appropriate scale and scope of the enterprise? Corporate Strategy therefore influences how large and how diversified a firm should be. The definition of a business determines to a large extent the Corporate strategy. A firm can be a single business firm operating in a single industry environment with a fairly apparent definition. On the other hand a large and widely diversified firm with many different businesses each operating in a different industry environment, faces the challenge of defining each of its various businesses as well as developing an overall definition. It is easier for Microsoft to define its business than it is for G.E. or the Tata group to develop an overall business definition.
Why do Firms Diversify.
1) To Grow. Growth is an implicit objective in nearly all organisations. Stock markets tend to reward growing companies. Managers find growth extremely attractive because it hold out the prospects of increased earnings for the firm leading to increased compensations for themselves. They also see the acquisition of new knowledge as instrumental in improving their self actualisation prospects.
2) Fuller utilisation of Resources and Capabilities. Firms find that they have un utilised or under utilised capacities sometimes in manufacturing some times in Alternatively a firm could find that it can perform a business activity at a lower cost and with better timeliness than if it utilised its internal capabilities. For example in Timex Watches it was decided that share dept functions could be performed at much lower cost than if they were done