MGMT 449 - CH 8 - FINAL

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  1. A company is diversified when
    it is in two or more lines of business that operate in diverse market environments
  2. Strategy-making in a diversified
    company is a
    • bigger picture exercise than crafting a
    • strategy for a single line-of-business
  3. Four  Main  Tasks  in Crafting  Corporate  Strategy
    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
  4. Competitive  Strengths  of a Single-Business  Strategy
    • Less ambiguity
    • Resources can be focused
  5. When  Should  a Firm  Diversify?
    • 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
  6. **Diversification is capable of building
    shareholder value if it passes three tests
    • 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
  7. Strategies  for  Entering New  Businesses
    1) Acquire existing company

    2) Internal start-up

    3) Joint ventures/strategic parternship
  8. Acquisition  of  an Existing  Company
    nMost popular approach to diversification

    • nAdvantages
    • vQuicker entry into target market

    vEasier to hurdle certain entry barriers
  9. Internal Startup
    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
  10. Joint  Ventures  and Strategic  Partnerships
    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
  11. Drawbacks  of  Joint Ventures
    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
  12. Related Diversification
    • Involves diversifying into
    • businesses whose value chains possess competitively valuable “strategic fits”
    • with value chain(s) of firm’s present business(es)
  13. Unrelated Diversification
    • Involves diversifying into
    • businesses with no competitively valuable value chain match-ups or strategic
    • fits with firm’s present business(es)
  14. Types  of  Strategic  Fits
    • vR&D
    • and technology activities

    • vSupply
    • chain activities

    • vManufacturing
    • activities

    • vDistribution
    • activities

    • vSales
    • and marketing activities

    • vManagerial
    • and administrative support activities
  15. Core  Concept:  Economies  of  Scope
    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
  16. nRelated Diversification
    vAstrategy-driven approach tocreating shareholder valuen
  17. Unrelated Diversification
    vAfinance-driven approachtocreating shareholder value
  18. To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests:
    he attractiveness test, the cost-of-entry test, and the better-off test.
  19. he better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves
    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
  20. Which of the following is not accurate as concerns entering a new business via acquisition, internal start-up, or a joint venture
    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.
  21. he strategic appeal of related diversification is that
    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.
  22. Economies of scope
    stem from cost-saving strategic fits along the value chains of related multiple businesses.
  23. The defining characteristic of unrelated diversification (as opposed to related diversification) is
    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).
  24. Calculating quantitative attractiveness ratings for the industries a company has diversified into involves
    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.
  25. he 9-cell industry attractiveness-competitive strength matri
    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.
  26. Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include all but which one of the following?
    Shifting from a multi-country to a global strategy.
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MGMT 449 - CH 8 - FINAL
2015-05-05 16:45:24

MGMT 449 - CH 8 - FINAL
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