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Essay / Research Paper Abstract
This 8 page paper reviews the entitle essay by Michael Porter, published in 1987. The greater portion of the paper provides a synopsis of the highlights of Porter's ideas. Porter's essay focuses on corporate strategy for diversified companies and includes the three essential tests executives need to consider before deciding to acquire a company or to begin a new company. Porter explains why so many companies failed in the 1980s. The next section is this writer's analysis of the article followed by a conclusion. Bibliography lists 3 sources.
Page Count:
8 pages (~225 words per page)
File: MM12_PGprcm.rtf
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Unformatted sample text from the term paper:
reaction and analysis of the Porters thoughts, views and concepts. The purpose of the essay is to review, analyze and gain insight about corporate strategy in terms of diversification.
2. Synopsis of Article Porter begins this essay by explaining there are two levels of strategy in a diversified company - business unit, which is competitive strategy, and corporate,
which is company-wide strategy. Competitive strategy is how to best create a competitive advantage in each of the different businesses the company competes. Corporate strategy is about what businesses the
company should be in and how the corporate office should manage the different businesses. Porter charges that corporate strategy was very poor, he called it dismal (1987). Porter and his
group studied the 36-year history of 33 companies. During those years, companies entered an average of 80 new industries and 27 new fields, of which 70 percent were acquisitions, 22
percent were start-ups and 8 percent were joint ventures. Companies divested more than half their acquisitions in new industries, 60 percent of acquisitions in entirely new fields. Six of the
33 companies were being taken over at the time he wrote this essay. Porter uses the data to justify the need for new corporate strategies. There are three conditions
related to diversification that will create shareholder value: 1. The attractiveness test. Industries chosen for diversification must be structurally attractive. The structure must yield returns that exceed costs or the
company must be able to change the structure so that it gains a sustainable competitive advantage that will result in higher than average returns. 2. The cost-of-entry test. Diversification
is intended to greater profits to the company and higher value for shareholders. Therefore, if costs preclude meeting the objective, then the cost of entry is too high. For example,
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