MGMT 449 - CH 8 - FINAL

it is in two or more lines of business that operate in diverse market environments

• bigger picture exercise than crafting a
• strategy for a single line-of-business

nPick new industries to enter and decide on means of entry

nInitiate actions to boost combined performance of businesses

• nPursue opportunities to leverage cross-business value chain relationships
• and strategic fits into competitive
• advantage

nEstablish investment priorities, steering resources into most attractive business units

• Less ambiguity
• Resources can be focused

• nIt is faced with diminishing growth
• prospects in present
• business

• nIt has opportunities to expand into
• industries whose technologies and
• products complement
• its present business

• nIt can leverage existing competencies
• and capabilities
• by expanding into businesses where these resource strengths are key success
• factors

• nIt can reduce costs by diversifying into closely
• related businesses

• nIt has a powerful brand name it can transfer to products of
• other businesses to increase sales and profits of these businesses

• 1.Industry Attractiveness Test — Industry presents good
• long-term profit opportunities

• 2.Cost of Entry Test —
• Cost of entering is not so high as to spoil the profit opportunities

• 3.Better-Off Test —
• A company’s different businesses should perform better together than as stand-alone enterprises, such that company A’s diversification into business B produces a 1 + 1 =  3 effect for shareholders

1) Acquire existing company

2) Internal start-up

3) Joint ventures/strategic parternship

nMost popular approach to diversification

• nAdvantages
• vQuicker entry into target market

vEasier to hurdle certain entry barriers

Most attractive when:

vParent firm already has most of needed resources to build a new business

vAmple time exists to launch a new business

• vInternal entry has lower costs
• than entry via acquisition

• vNew start-up does not have to go
• head-to-head against powerful rivals

• vAdditional capacity will not adversely impact
• supply-demand balance in industry

vIncumbents are slow in responding to new entry

nGood way to diversify when

vUneconomical or risky to go it alone

vPooling competencies of two partners provides more competitive strength

vOnly way to gain entry into a desirable foreign market

nRaises questions

• vWhich
• partner will do what

• vWho
• has effective control

nPotential conflicts

• vConflicting
• objectives

• vDisagreements
• over how to best operate the venture

• vCulture
• clashes

• Involves diversifying into
• businesses whose value chains possess competitively valuable “strategic fits”
• with value chain(s) of firm’s present business(es)

• Involves diversifying into
• businesses with no competitively valuable value chain match-ups or strategic
• fits with firm’s present business(es)

• vR&D
• and technology activities

• vSupply
• chain activities

• vManufacturing
• activities

• vDistribution
• activities

• vSales
• and marketing activities

• vManagerial
• and administrative support activities

nStem from cross-business opportunities to reduce costs

• vArise when costs can be cut
• by operating two or more businesses
• under same corporate umbrella

• vCost saving opportunities
• can stem from interrelationships anywhere
• along the value chains of different
• businesses

vAstrategy-driven approach tocreating shareholder valuen

vAfinance-driven approachtocreating shareholder value

he attractiveness test, the cost-of-entry test, and the better-off test.

evaluating whether the diversification move will produce a 1 + 1 = 3 outcome such that the company's different businesses perform better together than apart and the whole ends up being greater than the sum of the parts

Acquisition is generally the most profitable way to enter a new industry, tends to be more suitable for an unrelated diversification strategy than a related diversification strategy, and usually requires less capital than entering an industry via internal start-up.

t allows a firm to reap the competitive advantage benefits of skills transfer, lower costs (due to economies of scope), cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities.

stem from cost-saving strategic fits along the value chains of related multiple businesses.

that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company's businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities).

selecting a set of industry attractiveness measures, weighting the importance of each measure (with the sum of the weights adding to 1.0), rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to evaluate the attractiveness of all the industries, both individually and as a group.

uses quantitative measures of industry attractiveness and competitive strength to plot each business's location on the matrix—the thesis underlying the matrix is that there are good reasons to concentrate the company's resources on those businesses having relatively strong competitive positions in industries with relatively high attractiveness and to invest minimally or even divest those businesses with relatively weak competitive positions in industries with relatively low attractiveness.

Shifting from a multi-country to a global strategy.