Corporate-Level Strategy, Essay Example

Diversification is a crucial element of a corporate level strategy. In order to gain a reputable market position and stand out in a competitive market, a firm needs to establish diversification. Low level diversification occurs when the firm generates most of its profits from one business area or it is a single business on the marketplace. Moderate or high levels of diversification occur when at least 70 percent of the revenue comes from one business area, and very high level occurs when the above figure is less than 70 percent.

The main reasons for diversification are to respond to market challenges, improve value, or overall performance. In some cases, strategic decisions for diversification are made to weaken the market position of a competitor. Many of these diversification decisions come with a managerial risk of losing company value or reputation.

The most beneficial form of diversification is the one that is related to the main profile of the company and creates extra value for customers. Transferring core competencies creates corporate relatedness, reduces the risk of reputation and value loss, while limits the amount of investment required. It can also help the company gain market power.

There is a close relationship between the firm’s performance and its level of diversification. Value creating, value neutral, value-reducing influences, internal governance, capital market intervention strategies and implementation influence the firm’s performance.

Diversification impacts the firm’s internal organization as well as its market position. It requires resources, and if related diversification is used, the costs can be reduced. Internal resources determine whether or not the process should be a part of the company’s corporate level strategy.