What is corporate-level strategy and why is it important?

A corporate-level strategy is the actions a firm takes to gain a competitive advantage by selecting and
managing a group of different businesses competing in different markets. Corporate-level strategy is
important to businesses because it provides an overall direction for the firm. This strategy helps
companies to select new strategic positions that are expected to increase the firm’s value. It is an
effective means to allocate a company’s resources, establish business expectations, improve a company’s
competitive position, and it can also increase shareholder value. With this, a firm can reduce the level of
risk to be face by the firm and retain the customer base if the strategy is properly put in place.

What are the different levels of diversification firms can pursue by using different corporate-level
strategies?

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There are three different levels of diversification that firms may pursue by using different corporate-level

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strategies. They are as follows:

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Low level diversification—Firms pursuing this type of diversification includes either single or dominant
level business corporate-level strategy. In single business corporate-level diversification strategy,

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company earns 95% or more of the revenue from one business. In dominant-business, corporate-level
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diversification strategy the firm generates between 70% and 95% of its total revenue from a single
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business.

Moderate to high level diversification—Moderate to high level strategy is the strategy where the
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companies use a related diversification strategy for their business. The firms which generate 30% of its
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revenue outside a dominant business and whose businesses are related to each other in some manner
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come under this strategy. When the links between diversified firm’s businesses are rather direct,
meaning they use similar sourcing, throughput and outbound processes, it is a related constrained
diversification strategy. Less than 70% of the firm’s revenue comes from the dominant business, and all
businesses share product, technological, and distribution linkages. The company with a portfolio of
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businesses that have only a few links between them is called a mixed related and unrelated firm and is
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using the related linked diversification strategy. Less than 70% of the firm’s revenue comes from the
dominant business.

Very high level diversification—Very high level diversification strategy is where firms has no relationships
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between businesses which makes them follow an unrelated diversification strategy. Less than 70% of the
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firm’s revenue comes from the dominant business.

What are three reasons firms choose to diversify their operations?

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 The three reasons why a company chooses to diversify their operation are:

To increase the firm’s value- This is one of the major reasons why a company may choose to diversify its
operations. The firms choose to diversify their operations is the increment of company's value by
improving its overall performance. Diversifying its business will lead to the company creating an edge
over the rest of its competitors which lead to sustainability of the business.

To decrease a firm’s value- The main motive behind use of this strategy is not the organizational growth,
instead increased compensation and reduced managerial risk. Decisions to expand a firm’s portfolio of
businesses to reduce managerial risk or increase top managers pay can have a negative effect on the
firm’s value.

To neutralize another firm’s strength- This strategy is very important as neutralizing competitor’s
strengths will prove to be a major achievement for the business. Value-neutral reasons for diversification
include a desire to match and thereby neutralize a competitor's market power. This will highly contribute
to the profitability and growth of the organization.

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How do firms create value when using a related diversification strategy?

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A company can create value by using what is called a related diversification strategy. This will include

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operational relatedness and corporate relatedness. Through operational relatedness, the company

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shares its activities between businesses. Through corporate relatedness, the company suggests

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opportunities for transferring its core competencies. This means that the company will extend or build
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upon its resource in a way that builds competitive advantage and that creates values for its customers.
Many organizations use both the mentioned types of related diversification strategies simultaneously to
achieve higher profitability. By doing this will be develope its economy of scope which is a way of sharing
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resources in order save costs. The strategy also helps in creating a very high level of market power for
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the organization. Such strategies if properly implemented prove to be very cost effective and vital in the
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success of an organization’s business activities.

Value is created through related or unrelated diversification when the strategy allows a company’s
business to increase revenues or reduce costs while implementing their business-level strategies.
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