ChapLer 1

lnLroducLlon Lo SLraLeglc
ManagemenL

SLraLeglc
llexlblllLy
SLraLeglc
llexlblllLy
SLraLeglc llexlblllLy
SLraLeglc SLraLeglc
flexlblllLy flexlblllLy
SLraLeglc SLraLeglc
reorlenLaLlon reorlenLaLlon
CapaclLy Lo CapaclLy Lo
learn learn
CrganlzaLlonal CrganlzaLlonal
slack slack

1 1 SLraLegy dlcLaLed by Lhe SLraLegy dlcLaLed by Lhe

exLernal envlronmenL of exLernal envlronmenL of
Lhe flrm (whaL Lhe flrm (whaL
opporLunlLles exlsL ln opporLunlLles exlsL ln
Lhese envlronmenLs?) Lhese envlronmenLs?)
llrm develops lnLernal llrm develops lnLernal
skllls requlred by skllls requlred by
exLernal envlronmenL exLernal envlronmenL
(whaL can Lhe flrm do (whaL can Lhe flrm do
abouL Lhe abouL Lhe
opporLunlLles?) opporLunlLles?)
General General
Environment Environment
Global Global
Technological Technological
1 LxLernal LnvlronmenLs
Industry
Environment
Competitor
Environment
I]C Mode| of AboveAverage keturns

I]C Mode| of Above I]C Mode| of Above Average keturns Average keturns
Industr|a| Crgan|zat|on
Mode|
@he LxLernal LnvlronmenL @he LxLernal LnvlronmenL
An ALLracLlve lndusLry An ALLracLlve lndusLry
SLraLegy lormulaLlon SLraLegy lormulaLlon
AsseLs and Skllls AsseLs and Skllls
SLraLegy lmplemenLaLlon SLraLegy lmplemenLaLlon
Superlor 8eLurns Superlor 8eLurns
$uperior returns: earning oI above-
average returns

1 1 SLraLegy dlcLaLed by Lhe SLraLegy dlcLaLed by Lhe

flrm's unlque resources flrm's unlque resources
and capablllLles and capablllLles
llnd an envlronmenL ln llnd an envlronmenL ln
whlch Lo explolL Lhese whlch Lo explolL Lhese
asseLs (where are Lhe asseLs (where are Lhe
besL opporLunlLles?) besL opporLunlLles?)
kesourcebased Mode| of Above Average
keturns
1 llrm's 8esources 1 llrm's 8esources

kesource kesource based Mode| of Above Average based Mode| of Above Average
keturns keturns
kesource kesource based based
Mode| Mode|
8esources 8esources
CapablllLy CapablllLy
CompeLlLlve AdvanLage CompeLlLlve AdvanLage
An ALLracLlve lndusLry An ALLracLlve lndusLry
SLraLegy lorm/lmpl SLraLegy lorm/lmpl
Superlor 8eLurns Superlor 8eLurns
$uperior returns: earning oI above $uperior returns: earning oI above- -
average returns average returns
ChapLer
SLraLeglc Leadershlp

Successful Successful
SLraLeglc AcLlons SLraLeglc AcLlons
SLraLeglc Leadershlp and Lhe
SLraLeglc ManagemenL rocess
LffecLlve SLraLeglc LffecLlve SLraLeglc
Leadershlp Leadershlp
SLraLeglc lnLenL SLraLeglc lnLenL SLraLeglc Mlsslon SLraLeglc Mlsslon
shapes Lhe formulaLlon of shapes Lhe formulaLlon of
and and
lnfluence lnfluence

SLraLeglc Leadershlp and Lhe

SLraLeglc ManagemenL rocess
SLraLeglc SLraLeglc
CompeLlLlveness CompeLlLlveness
Above Above Average 8eLurns Average 8eLurns
lormulaLlon lormulaLlon
of SLraLegles of SLraLegles
lmplemenLaLlon lmplemenLaLlon
of SLraLegles of SLraLegles
Successful Successful
SLraLeglc AcLlons SLraLeglc AcLlons
ylelds ylelds
10
Managerlal Labor MarkeLs
SLraLeglc SLraLeglc
change change
SLable SLable
sLraLegy sLraLegy
SLable sLraLegy SLable sLraLegy
wlLh lnnovaLlon wlLh lnnovaLlon
Manager|a| Labor Market Manager|a| Labor Market
CLC Success|on CLC Success|on
lnLernal CLC lnLernal CLC
successlon successlon
LxLernal CLC LxLernal CLC
successlon successlon
1op Management 1op Management
1eam Compos|t|on 1eam Compos|t|on
PeLerogeneous PeLerogeneous
Pomogeneous Pomogeneous
Amblguous Amblguous
posslble change ln posslble change ln
Lop managemenL Lop managemenL
Leam and sLraLegy Leam and sLraLegy
11
Lxerclse of LffecLlve SLraLeglc
Leadershlp
LsLabllshlng LsLabllshlng
balanced balanced
organlzaLlonal organlzaLlonal
conLrols conLrols
Lmphaslzlng Lmphaslzlng
eLhlcal eLhlcal
pracLlce pracLlce
ueveloplng ueveloplng
human human
caplLal caplLal
LxplolLlng and LxplolLlng and
malnLalnlng malnLalnlng
core core
compeLencles compeLencles
SusLalnlng SusLalnlng
an effecLlve an effecLlve
organlzaLlonal organlzaLlonal
culLure culLure
ueLermlnlng ueLermlnlng
sLraLeglc sLraLeglc
dlrecLlon dlrecLlon
LffecLlve SLraLeglc LffecLlve SLraLeglc
Leadershlp Leadershlp
ChapLer
@he LxLernal LnvlronmenL
1
enera|
Lnv|ronment
Lconom|c Lconom|c
1echno|og|ca| 1echno|og|ca|
@he LxLernal LnvlronmenL
Industry Industry
Lnv|ronment Lnv|ronment
@hreaL of new enLranLs @hreaL of new enLranLs
ower of suppllers ower of suppllers
ower of buyers ower of buyers
roducL subsLlLuLes roducL subsLlLuLes
lnLenslLy of rlvalry lnLenslLy of rlvalry
Compet|tor Compet|tor
Lnv|ronment Lnv|ronment
1
arga|n|ng ower of uyers arga|n|ng ower of uyers
llve lorces Model of CompeLlLlon
I|ve Iorces of I|ve Iorces of
Compet|t|on Compet|t|on
1
CompeLlLor Analysls
8esponse 8esponse
Response:
What wiII our competitors do in the
future?
Where do we hoId an advantage
over our competitors?
How wiII this change our
reIationship with our competitors?
CapablllLles CapablllLles
AssumpLlons AssumpLlons
CurrenL sLraLegy CurrenL sLraLegy
luLure ob[ecLlves luLure ob[ecLlves
ChapLer
lnLernal LnvlronmenL
17
LxLernal and lnLernal Analyses
enera| enera|
Lnv|ronment Lnv|ronment
SocloculLural SocloculLural
@echnologlcal @echnologlcal
Industry Industry
Lnv|ronment Lnv|ronment
Compet|tor Compet|tor
Lnv|ronment Lnv|ronment
8y sLudylng Lhe exLernal envlronmenL 8y sLudylng Lhe exLernal envlronmenL
flrms ldenLlfy whaL Lhey flrms ldenLlfy whaL Lhey mlqbt cboose mlqbt cboose
to Jo to Jo
CpporLunlLles and LhreaLs CpporLunlLles and LhreaLs
1
LxLernal and lnLernal Analyses
8y sLudylng Lhe lnLernal envlronmenL 8y sLudylng Lhe lnLernal envlronmenL
flrms ldenLlfy whaL Lhey flrms ldenLlfy whaL Lhey coo Jo coo Jo
unlque resources capablllLles unlque resources capablllLles
and core compeLencles and core compeLencles
(susLalnable compeLlLlve (susLalnable compeLlLlve
advanLage) advanLage)
1
ComponenLs of
lnLernal Analysls
ulscoverlng Core ulscoverlng Core
CompeLencles CompeLencles
8esources 8esources
- - @anglble @anglble
- - lnLanglble lnLanglble
CapablllLles CapablllLles
Core Core
CompeLencles CompeLencles
CompeLlLlve CompeLlLlve
AdvanLage AdvanLage
value CreaLlon value CreaLlon
lour CrlLerla lour CrlLerla
of SusLalnable of SusLalnable
AdvanLages AdvanLages
- - valuable valuable
- - 8are 8are
- - CosLly Lo lmlLaLe CosLly Lo lmlLaLe
- - nonsubsLlLuLable nonsubsLlLuLable
value value
Chaln Chaln
Analysls Analysls
- - CuLsource CuLsource
0
Core CompeLence as a SLraLeglc
CapablllLy
8esources 8esources
- - lnpuLs Lo a flrm's lnpuLs Lo a flrm's
producLlon process producLlon process
CapablllLy CapablllLy
- - A nonsLraLeglc A nonsLraLeglc
Leam or resource Leam or resource
Core CompeLence Core CompeLence
- - A sLraLeglc A sLraLeglc
capablllLy capablllLy
1he source of 1he source of
Does |t sat|sfy the Does |t sat|sfy the
cr|ter|a of susta|nab|e cr|ter|a of susta|nab|e
compet|t|ve compet|t|ve
advantage? advantage?
?es ?es
no no
CapablllLy CapablllLy
- - An lnLegraLlon of a An lnLegraLlon of a
Leam of resources Leam of resources
1
erformance lmpllcaLlons
CompeLlLlve CompeLlLlve
Consequences Consequences
erformance erformance
lmpllcaLlons lmpllcaLlons
No No No No No No No No
Competitive Competitive
Disadvantage Disadvantage
Below Average Below Average
Returns Returns
Yes Yes No No No No
Yes/ Yes/
No No
Competitive Competitive
Parity Parity Average Returns Average Returns
Yes Yes Yes Yes No No
Yes/ Yes/
No No
Temporary Com Temporary Com- -
petitive Advantage petitive Advantage
Above Average to Above Average to
Average Returns Average Returns
Yes Yes Yes Yes Yes Yes Yes Yes
Sustainable Com Sustainable Com- -
petitive Advantage petitive Advantage
Above Average Above Average
Returns Returns

Service Service
Marketing & Sales Marketing & Sales
Outbound Logistics Outbound Logistics
Operations Operations
nbound Logistics nbound Logistics
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rlmary AcLlvlLles rlmary AcLlvlLles
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1he as|c 1he as|c
Va|ue Cha|n Va|ue Cha|n

Primary Activities Primary Activities

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CuLsourclng
CuLsourclng ls Lhe purchase CuLsourclng ls Lhe purchase
of some or all of a value of some or all of a value
creaLlng acLlvlLy from an creaLlng acLlvlLy from an
exLernal suppller exLernal suppller
usually Lhls ls because Lhe usually Lhls ls because Lhe
speclalLy suppller can speclalLy suppller can
provlde Lhese funcLlons provlde Lhese funcLlons
more efflclenLly more efflclenLly
Service Service
Marketing & Sales Marketing & Sales
Outbound Logistics Outbound Logistics
Operations Operations
nbound Logistics nbound Logistics F
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ChapLer
8uslnesslevel SLraLegy

Customers Customers
8asls for CusLomer SegmenLaLlon
Consumer Consumer
Markets Markets
Industr|a| Industr|a|
Markets Markets

MarkeL SegmenLaLlon Consumer MarkeLs

uemographlc facLors uemographlc facLors
Consumer Consumer
Markets Markets
Socloeconomlc facLors Socloeconomlc facLors
Ceographlc facLors Ceographlc facLors
sychologlcal facLors sychologlcal facLors
ConsumpLlon paLLerns ConsumpLlon paLLerns
ercepLual facLors ercepLual facLors
Dem
Soc
eo sy
Con
er
7
MarkeL SegmenLaLlon lndusLrlal MarkeLs
Industr|a| Industr|a|
Markets Markets
Lnd Lnd use segmenLs use segmenLs
roducL segmenLs roducL segmenLs
Ceographlc segmenLs Ceographlc segmenLs
Common buylng facLor Common buylng facLor
segmenLs segmenLs
CusLomer slze segmenLs CusLomer slze segmenLs
Lnd
ro
eo
uy
S|ze

Core CompeLencles and SLraLegy

The resources and capabilities that have been
determined to be a source of competitive advantage for a
firm over its rivals
An integrated and coordinated set of actions taken to
exploit core competencies and gain a competitive
advantage
An integrated and coordinated set of actions taken to
exploit core competencies and gain a competitive
advantage
Actions taken to provide value to customers and gain a
competitive advantage by exploiting core competencies in
specific, individual product markets
8uslness 8uslness level level
sLraLegy sLraLegy
SLraLegy SLraLegy
Core Core
compeLencles compeLencles

llve Cenerlc SLraLegles

ompetitive Advantage ompetitive Advantage

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ost ost Uniqueness Uniqueness
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CosL Leadershlp CosL Leadershlp ulfferenLlaLlon ulfferenLlaLlon
locused CosL locused CosL
Leadershlp Leadershlp
locused locused
ulfferenLlaLlon ulfferenLlaLlon
lnLegraLed CosL lnLegraLed CosL
Leadershlp/ Leadershlp/
ulfferenLlaLlon ulfferenLlaLlon
0
Pow Lo CbLaln a CosL AdvanLage
Cost Dr|vers Cost Dr|vers Va|ue Cha|n Va|ue Cha|n
ueLermlne and conLrol ueLermlne and conLrol
8econflgure lf needed 8econflgure lf needed
- AlLer producLlon process - AlLer producLlon process
- Change ln auLomaLlon - Change ln auLomaLlon
- new dlsLrlbuLlon channel - new dlsLrlbuLlon channel
- ulrecL sales ln place of
lndlrecL sales
- ulrecL sales ln place of
lndlrecL sales
- new adverLlslng medla - new adverLlslng medla
- new raw maLerlal - new raw maLerlal
- 8ackward lnLegraLlon - 8ackward lnLegraLlon
- lorward lnLegraLlon - lorward lnLegraLlon
- Change locaLlon
relaLlve Lo suppllers or
buyers
- Change locaLlon
relaLlve Lo suppllers or
buyers
1
SLrucLure for CosL Leadershlp
SLraLegy
Cfflce of Lhe resldenL Cfflce of Lhe resldenL
CenLrallzed SLaff CenLrallzed SLaff
MarkeLlng MarkeLlng ersonnel ersonnel
Lnglneerlng Lnglneerlng CperaLlons CperaLlons AccounLlng AccounLlng
- -CperaLlons ls maln funcLlon CperaLlons ls maln funcLlon
- -rocess englneerlng ls rocess englneerlng ls
emphaslzed over 8u emphaslzed over 8u
- -Large cenLrallzed sLaff Large cenLrallzed sLaff
- -lormallzed procedures lormallzed procedures
- -SLrucLure ls mechanlcal [ob SLrucLure ls mechanlcal [ob
roles hlghly sLrucLured roles hlghly sLrucLured

Pow Lo CbLaln a ulfferenLlaLlon

AdvanLage
Cost Dr|vers Cost Dr|vers Va|ue Cha|n Va|ue Cha|n
ConLrol lf needed ConLrol lf needed
8econflgure Lo maxlmlze 8econflgure Lo maxlmlze
cusLomer percepLlons of cusLomer percepLlons of
unlqueness unlqueness
cusLomer percepLlons of cusLomer percepLlons of
unlqueness unlqueness cusLomer relucLance Lo swlLch Lo non cusLomer relucLance Lo swlLch Lo non unlque unlque
producL producL
cusLomer relucLance Lo swlLch Lo non cusLomer relucLance Lo swlLch Lo non unlque unlque
producL producL
- - 8alse performance of producL or servlce 8alse performance of producL or servlce
- - Lower buyers' cosLs Lower buyers' cosLs
- - CreaLe susLalnablllLy Lhrough CreaLe susLalnablllLy Lhrough

CperaLlons CperaLlons
Puman Puman
8esources 8esources
SLrucLure for ulfferenLlaLlon SLraLegy
resldenL and resldenL and
LlmlLed SLaff LlmlLed SLaff
MarkeLlng MarkeLlng
new roducL new roducL
8u 8u
- -MarkeLlng ls Lhe maln funcLlon for Lracklng new producL ldeas MarkeLlng ls Lhe maln funcLlon for Lracklng new producL ldeas
- -new producL 8u ls emphaslzed new producL 8u ls emphaslzed
- -MosL funcLlons are decenLrallzed MosL funcLlons are decenLrallzed
- -lormallzaLlon ls llmlLed Lo fosLer change and promoLe new ldeas lormallzaLlon ls llmlLed Lo fosLer change and promoLe new ldeas
- -Cverall sLrucLure ls organlc [ob roles are less sLrucLured Cverall sLrucLure ls organlc [ob roles are less sLrucLured
8u 8u
llnance llnance MarkeLlng MarkeLlng
ChapLer
CorporaLe level SLraLegy

Levels and @ypes of ulverslflcaLlon

Low Leve|s of D|vers|f|cat|on Low Leve|s of D|vers|f|cat|on
S|ng|e us|ness S|ng|e us|ness
of buslness from a slngle buslness unlL of buslness from a slngle buslness unlL
Dom|nant us|ness Dom|nant us|ness
8eLween 70 and of buslness from a slngle 8eLween 70 and of buslness from a slngle
buslness unlL buslness unlL

ke|ated Constra|ned ke|ated Constra|ned

70 of revenues from domlnanL buslness all 70 of revenues from domlnanL buslness all
buslnesses share producL Lechnologlcal and buslnesses share producL Lechnologlcal and
dlsLrlbuLlon llnkages dlsLrlbuLlon llnkages
Levels and @ypes of ulverslflcaLlon
Moderate to n|gh Leve|s of D|vers|f|cat|on Moderate to n|gh Leve|s of D|vers|f|cat|on
7
ke|ated L|nked (M|xed) ke|ated L|nked (M|xed)
70 of revenues from domlnanL buslness 70 of revenues from domlnanL buslness
and only llmlLed llnks exlsL and only llmlLed llnks exlsL
Levels and @ypes of ulverslflcaLlon
Moderate to n|gh Leve|s of D|vers|f|cat|on Moderate to n|gh Leve|s of D|vers|f|cat|on

Levels and @ypes of ulverslflcaLlon

Dnre|ated Dnre|ated
70 of revenue comes from Lhe domlnanL 70 of revenue comes from Lhe domlnanL
buslness and Lhere are no common llnks buslness and Lhere are no common llnks
beLween buslnesses beLween buslnesses
Very n|gh Leve|s of D|vers|f|cat|on Very n|gh Leve|s of D|vers|f|cat|on

valuecreaLlng SLraLegles of ulverslflcaLlon

CperaLlonal and CorporaLe 8eadlness
8elaLed ConsLralned 8elaLed ConsLralned
ulverslflcaLlon ulverslflcaLlon
verLlcal lnLegraLlon verLlcal lnLegraLlon
(MarkeL ower) (MarkeL ower)
unrelaLed unrelaLed
ulverslflcaLlon ulverslflcaLlon
(llnanclal Lconomles) (llnanclal Lconomles)
8oLh CperaLlonal and 8oLh CperaLlonal and
CorporaLe 8elaLedness CorporaLe 8elaLedness
(8are CapablllLy (8are CapablllLy
and can CreaLe and can CreaLe
ulseconomles of ulseconomles of
Scope) Scope)
8elaLed Llnked 8elaLed Llnked
ulverslflcaLlon ulverslflcaLlon
(Lconomles of (Lconomles of
Scope) Scope)
Corporate kead|ness 1ransferr|ng Sk|||s |nto us|nesses 1hrough Corporate kead|ness 1ransferr|ng Sk|||s |nto us|nesses 1hrough
Corporate neadquarters Corporate neadquarters
Low Low n|gh n|gh
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n|gh n|gh
0
SLraLegy and SLrucLure CrowLh
aLLern
Slmple Slmple
SLrucLure SLrucLure
luncLlonal luncLlonal
SLrucLure SLrucLure
MulLldlvlslonal MulLldlvlslonal
SLrucLure SLrucLure
Sales CrowLh Sales CrowLh
CoordlnaLlon and CoordlnaLlon and
ConLrol roblems ConLrol roblems
Sales CrowLh Sales CrowLh
CoordlnaLlon and CoordlnaLlon and
ConLrol roblems ConLrol roblems
LfflclenL lmplemenLaLlon of LfflclenL lmplemenLaLlon of
formulaLed sLraLegy formulaLed sLraLegy
LfflclenL LfflclenL
lmplemenLaLlon of lmplemenLaLlon of
formulaLed sLraLegy formulaLed sLraLegy
MulLldlvlslonal SLrucLure MulLldlvlslonal SLrucLure
1
@hree varlaLlons of Lhe
MulLldlvlslonal SLrucLure
MulLldlvlslonal MulLldlvlslonal
SLrucLure SLrucLure
(M (M form) form)
SLraLeglc 8uslness SLraLeglc 8uslness unlL unlL
(S8u) lorm (S8u) lorm
CooperaLlve CooperaLlve
lorm lorm
CompeLlLlve CompeLlLlve
lorm lorm

CooperaLlve lorm of MulLldlvlslonal

SLrucLure
8elaLed 8elaLed ConsLralned SLraLegy ConsLralned SLraLegy
CovernmenL CovernmenL
Affalrs Affalrs
Legal Legal
Affalrs Affalrs
CorporaLe CorporaLe
8u Lab 8u Lab
SLraLeglc SLraLeglc
lannlng lannlng
CorporaLe CorporaLe
Puman Puman
8esources 8esources
CorporaLe CorporaLe
MarkeLlng MarkeLlng
CorporaLe CorporaLe
llnance llnance
roducL roducL
ulvlslon ulvlslon
roducL roducL
ulvlslon ulvlslon
roducL roducL
ulvlslon ulvlslon
roducL roducL
ulvlslon ulvlslon
roducL roducL
ulvlslon ulvlslon
resldenL resldenL
Headquarters Office Headquarters Office

S8u lorm of MulLldlvlslonal SLrucLure

8elaLed 8elaLed Llnked Llnked SLraLegy SLraLegy
resldenL resldenL
CorporaLe CorporaLe
8u Lab 8u Lab
SLraLeglc SLraLeglc
lannlng lannlng
CorporaLe CorporaLe
P8M P8M
CorporaLe CorporaLe
MarkeLlng MarkeLlng
CorporaLe CorporaLe
llnance llnance
Headquarters Office Headquarters Office
ulvlslon ulvlslon
ulvlslon ulvlslon ulvlslon ulvlslon
S8u S8u S8u S8u S8u S8u
ulvlslon ulvlslon
ulvlslon ulvlslon ulvlslon ulvlslon
ulvlslon ulvlslon
ulvlslon ulvlslon ulvlslon ulvlslon

CompeLlLlve lorm of MulLldlvlslonal

SLrucLure
unrelaLed ulverslflcaLlon SLraLegy unrelaLed ulverslflcaLlon SLraLegy
resldenL resldenL
Legal Legal
Affalrs Affalrs
llnance llnance AudlLlng AudlLlng
Headquarters Office Headquarters Office
ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon ulvlslon

CharacLerlsLlcs of varlous SLrucLural

lorms
StructuraI StructuraI
haracteristics haracteristics
ooperative M ooperative M- -
Form Form
SBU SBU
M M- -Form Form
ompetitive M ompetitive M- -
Form Form
Degree of Degree of
entraIization entraIization
Centralized at Centralized at
Corporate Office Corporate Office
Partially Partially
Centralized Centralized
in SBUs in SBUs
Decentralized Decentralized
to Divisions to Divisions
Use of Use of
Integrating Integrating
Mechanisms Mechanisms
Extensive Extensive Moderate Moderate Nonexistent Nonexistent
Type of Type of
Strategy Strategy
Related Related- -
Constrained Constrained
Related Related- -
Linked Linked
Unrelated Unrelated
Diversification Diversification

CharacLerlsLlcs of varlous SLrucLural

lorms
DivisionaI DivisionaI
Incentive Incentive
ompensation ompensation
Linked to Linked to
Corporate Corporate
Performance Performance
Linked to Linked to
Corporate Corporate
SBU & Division SBU & Division
Performance Performance
Linked to Linked to
Divisional Divisional
Performance Performance
DivisionaI DivisionaI
Performance Performance
AppraisaI AppraisaI
Subjective Subjective
Strategic Strategic
Criteria Criteria
Strategic & Strategic &
Financial Financial
Criteria Criteria
Objective Objective
Financial Financial
Criteria Criteria
StructuraI StructuraI
haracteristics haracteristics
ooperative M ooperative M- -
Form Form
SBU SBU
M M- -Form Form
ompetitive M ompetitive M- -
Form Form
7
lncenLlves wlLh neuLral LffecLs lncenLlves wlLh neuLral LffecLs
on SLraLeglc CompeLlLlveness on SLraLeglc CompeLlLlveness
- AnLlLrusL regulaLlon
- @ax laws
- Low performance
- uncerLaln fuLure cash flows
- llrm rlsk reducLlon
lncenLlves lncenLlves
8esources 8esources
Managerlal Managerlal
MoLlves MoLlves
8easons for ulverslflcaLlon

Managerlal MoLlves (value Managerlal MoLlves (value

8educLlon) 8educLlon)
- ulverslfylng managerlal employmenL rlsk
- lncreaslng managerlal compensaLlon
lncenLlves lncenLlves
8esources 8esources
Managerlal Managerlal
MoLlves MoLlves
8easons for ulverslflcaLlon

8elaLlonshlp 8eLween ulverslflcaLlon

and erformance

e
r
f
o
r
m
a
n
c
e

e
r
f
o
r
m
a
n
c
e
Leve| of D|vers|f|cat|on Leve| of D|vers|f|cat|on
Dom|nant
us|ness
Dnre|ated
us|ness
ke|ated
Constra|ned
8elaLlonshlp 8eLween llrm
erformance and ulverslflcaLlon
ncentives ncentives
Managerial Managerial
Motives Motives
Resources Resources
Diversification Diversification
Strategy Strategy
Firm Firm
Performance Performance
nternal nternal
Governance Governance
Strategy Strategy
mplementation mplementation
Capital Market Capital Market
ntervention and the ntervention and the
Market for Market for
Managerial Talent Managerial Talent
ChapLer 11
CorporaLe Covernance

- - 8lsk bearlng speclallsL (prlnclpal) pays 8lsk bearlng speclallsL (prlnclpal) pays
compensaLlon Lo compensaLlon Lo
- - A managerlal declslon A managerlal declslon maklng speclallsL maklng speclallsL
(agenL) (agenL)
Agency 8elaLlonshlp Cwners and
Managers
An Agency An Agency
8elaLlonshlp 8elaLlonshlp
Managers Managers
(AgenLs) (AgenLs)
Shareholders Shareholders
(rlnclpals) (rlnclpals)
- - ueclslon makers ueclslon makers
- - llrm owners llrm owners

Manager and Shareholder 8lsk and

ulverslflcaLlon
k
|
s
k
k
|
s
k
D|vers|f|cat|on D|vers|f|cat|on
uomlnanL uomlnanL
8uslness 8uslness
unrelaLed unrelaLed
8uslnesses 8uslnesses
8elaLed 8elaLed
ConsLralned ConsLralned
8elaLed 8elaLed
Llnked Llnked
Managerlal Managerlal
(employmenL) rlsk (employmenL) rlsk
proflle proflle

Shareholder Shareholder
(buslness) rlsk (buslness) rlsk
proflle proflle
SS
AA
M M