When a firm operates in multiple industries or markets simultaneously.
Corporate diversification strategy
When a firm operates in multiple industries simultaneously.
Product diversification strategy
When a firm operates in multiple geographic markets simultaneously.
Geographic market diversification strategy
When a firm implements both types of diversification simultaneously.
Product-market diversification strategy
When all or most of a firm's business activities fall within a single industy and geographic market.
Limited corporate diversification
Firms with greater than 95% of their total sales in a single-product market.
Firms with between 70 and 95% of their total sales in a single-product market.
When less than 70% of a firm's revenue comes from a single-product market and these multiple lines of business are linked.
Related corporate diversification
When all of the businesses in which a firm operates share a significant number of inputs, production technologies, distribution channels, similar customers, etc.
WHen the different businesses a single firm pursues are linked only on a couple of dimensions, or f different sets of businesses are linked along very different dimensions.
When less than 70% of a firm's revenues are generated in a single-product market, and when a firm's businesses share few, if any, common attributes.
Unrelated corporate diversification strategy
When the value of the products or services a firm sells increases as a function of the number of businesses in which that firm operates.
Economies of scope
Type of economies of scope - Shared activities; Core competencies
Operational economies of scope
Type of economies of scope - Internal capital allocation; Risk reduction; Tax advantages
Financial economies of scope
Type of economies of scope - Multipoint competition; Exploiting market power
Anticompetitive economies of scope
Type of economies of scope - Maximizing management compensation
Employee and stakeholder incentives for diversification
Complex sets fo resources and capabilities that link different businesses in a diversifiied firm through managerial and technical know-how, experience, and wisdom.
Diversified firms that are exploiting core competencies as an economy of scope but are not doing so with any shared activities.
Seemingly unrelated diversified firms
A form of tacit collusion whereby firms tacitly agree to not compete in one industry in order to avoid competition in a second industry.
When firms cooperate to reduce rivalry below the level expected under perfect competition.
The most common organizational structure for implementing a corporate diversification strategy.
3 critical management control processes for firms implementing diversification strategies:
1. Evaluating the performance divisions
2. Allocating capital across divisions
3. Transferring intermediate products between divisions
Monitor decision making in a firm to ensure that it is consistent with the interests of outside equity holders.
Board of directors
Monitor decision making to ensure that it is consistent with the interests of major institutional equity investors.
Formulate corporate strategies consistent with equity holders' interests and assure strategy implementation.
Provides information to the senior executive about internal and external environments for strategy formulation and implementation.
Formulate divisional strategies consistent with corporate strategies and assure strategy implementation.
Divisional general managers
Support the operations of multiple divisions.
Shared activity managers
Whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services.
Cooperating firms agree to work together to develop, manufacture, or sell products or services, but do not take equity positions in each other or form an independent organizational unit to manager their cooperative efforts.
Cooperating firms supplement contracts with equity holdings in alliance partners.
Cooperating firms create a legally independent firm in which they invest and from which they share any profits that are created.
When firms directly communicate with each other to coordinate their levels of production, prices, etc. Illegal in most countries.
Potential partners misrepresent the value of the skills and abilities they bring to the alliance.
Partners provide to the alliance skills and abilities of lower quality than they promised.
Partners exploit the transaction-specific investments made by others in the alliance.