Corporate Strategy Diversification - Prof. Dr. Bernd Venohr

Remarks-Premises of Corporate Strategy
� Direct competition occurs at the business unit level
- Corporations don’t compete; only their business units do
- Value created at the business unit level, only added at the corporate level
- Successful corporate strategy must grow out of and reinforce business strategy
� Corporate Strategy inevitably adds costs and constraints to business units
- Corporate overhead
- Costs of coordination and monitoring: communication between headquarter and
business units
� Shareholders can easily diversify themselves
- Shareholders can diversify their own portfolios of stocks, and they can often do it
more cheaply with less risk than corporations
- Shareholders can buy shares at market prices and avoid paying large acquisition
premiums
Source: Porter, From competitive advantage to corporate strategy
© 2006 Dr. Bernd Venohr
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