Beruflich Dokumente
Kultur Dokumente
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Crafting a Diversified Companys
Overall Corporate Strategy
1. Picking new industries to enter and deciding
on the means of entry
2. Pursuing opportunities to leverage cross-
business value chain relationships into
competitive advantage
3. Establishing investment priorities and steering
corporate resources into the most attractive
business units
4. Initiating actions to boost the combined
performance of the corporations collection
of businesses
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Strategic Options for
Diversified Corporations
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When Business Diversification
Becomes a Consideration
Diversification is called for when:
There are diminishing growth prospects in the present business
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Building Shareholder Value:
The Ultimate Justification for
Business Diversification
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Building Shareholder Value:
The Ultimate Justification for
Business Diversification
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Approaches to Diversifying
the Business Lineup
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Diversification by Acquisition
of an Existing Business
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Entering a New Line of Business
through Internal Development
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Using Joint Ventures to Achieve
Diversification
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Choosing the Diversification Path:
Related Versus Unrelated Businesses
Related Businesses
Have value chains with competitively valuable cross-
business relationships that present opportunities for
the businesses to perform better operating under the
same corporate umbrella than they could as stand-
alone entities.
Unrelated Businesses
Have value chains and resource requirements are so
dissimilar that no competitively valuable cross-
business relationships are present.
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CORE CONCEPT
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FIGURE 8.1 Strategic Themes of Multibusiness Corporation
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The Case For Related Diversification
Strategic Fit
Exists whenever one or more activities comprising the
value chains of different businesses are sufficiently
similar to present opportunities for:
Transferring competitively valuable resources, expertise,
technological know-how, or other capabilities from one
business to another.
Cost sharing between separate businesses where value
chain activities can be combined.
Brand sharing between business units that have common
customers or that draw upon common core competencies.
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CORE CONCEPT
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FIGURE 8.2 Related Diversification Is Built upon Competitively Valuable Strategic Fit
in Value Chain Activities
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Strategic Fit and Economies of Scope
Scope-related cost savings stemming from the
strategic fit of the value chains of related
businesses:
Operating businesses under same corporate umbrella.
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CORE CONCEPT
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The Ability of Related Diversification to
Deliver Competitive Advantage and
Gains in Shareholder Value
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Diversifying into Unrelated Businesses
Strategic approach:
Growth through acquisition into any industry where
potential exists enhancing shareholder value through
upward-trending corporate revenues and earnings
and/or a stock price that rises yearly.
While industry attractiveness and cost-of-entry tests
are important, better-off test is secondary.
Involves diversifying into businesses with:
No strategic fit
No meaningful value chain relationships
No unifying strategic theme
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Types of Acquisition Candidates in
Unrelated Diversification Strategies
Candidates
Undervalued firms that can be
for acquired at a bargain price
Acquisition
Struggling firms that can be turned
around with parent firms financial
resources and managerial know-how
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Building Shareholder Value Through
Unrelated Diversification
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The Pitfalls of Unrelated Diversification
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The Pitfalls of Unrelated Diversification
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Misguided Reasons for Pursuing
Unrelated Diversification
Risk
reduction
Misguided
Earnings
Growth Reasons for
stabilization
Diversifying
Managerial
motives
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Diversifying into Both Related
and Unrelated Businesses
Dominant-Business Firms
One major core business accounting for 5080% of revenues
and a collection of small related or unrelated businesses
accounts for the remainder
Narrowly-Diversified Firms
Diversification into a few (25) related or unrelated businesses
Broadly-Diversified Firms
Diversification includes a wide collection of either related or
unrelated businesses or a mixture of both
Multibusiness Enterprises
Diversification into several unrelated groups of related
businesses
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Evaluating the Strategy of
a Diversified Company
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Step 1: Evaluating Industry
Attractiveness
Industry
The intensity Seasonal and
of competition Attractiveness cyclical factors
Measures
Industry uncertainty
and business risk
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TABLE 8.1 Calculating Weighted Industry Attractiveness Scores
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Step 2: Evaluating Business-Unit
Competitive Strength
Competitive
Costs relative to Brand image
competitors costs Strength and reputation
Factors
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Step 2: Evaluating Business-Unit
Competitive Strength
Relative market share
Costs relative to competitors costs
Products or services that satisfy buyer expectations
Ability to benefit from strategic fits with sibling
businesses
Number and caliber of strategic alliances and
collaborative partnerships.
Brand image and reputation
Competitively valuable capabilities
Profitability relative to competitors
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TABLE 8.2 Calculating Weighted Competitive Strength Scores
for a Diversified Companys Business Units
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FIGURE 8.3 A Nine-Cell Industry AttractivenessCompetitive Strength Matrix
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Strategy Implications of the
Attractiveness/Strength Matrix
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Step 3: Determining the Competitive
Value of Strategic Fit in
Multibusiness Companies
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Step 4: Evaluating Resource Fit
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CORE CONCEPT
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Determining Financial Resource Fit
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CORE CONCEPT
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Assessing Cash Hogs
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Examining a Firms
Nonfinancial Resource Fits
A diversified firm must ensure that it can meet the
nonfinancial resource needs of its portfolio of
businesses:
Does the firm have or can it develop the specific resources and
capabilities needed to be successful in each of its businesses?
Are the firms resources being stretched too thinly by the
requirements of one or more of its original businesses or a
recent acquisition?
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Step 5: Ranking Business Units and
Setting a Priority for Resource Allocation
Sales growth
Profit growth
Earnings contribution
Return on investment
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FIGURE 8.4 The Chief Strategic and Financial Options for Allocating
a Diversified Companys Financial Resources
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Step 6: Crafting New Strategic Moves to
Improve Overall Corporate Performance
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Sticking Closely with
the Existing Business Lineup
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Broadening the Diversification Base
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Divesting Businesses and Retrenching
to a Narrower Diversification Base
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CORE CONCEPT
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Broadly Restructuring the Business
Lineup Through a Mix of Divestitures
and New Acquisitions
Radical surgery on the business lineup
is necessary when:
Too many businesses in slow-growth, declining, low-
margin, or otherwise unattractive industries.
Too many competitively weak businesses.
An excessive debt burden with interest costs that eat
deeply into profitability.
Ill-chosen acquisitions that havent lived up to
expectations.
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Concepts & KRAFT FOODS CORPORATE RESTRUCTURING PLAN TO
Connections 8.1 PURSUE GROWTH AND BOOST SHAREHOLDER VALUE
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