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SMGT T8 (Ch8): Corporate strategy: diversification and the multi-business…
SMGT T8 (Ch8): Corporate strategy: diversification and the multi-business company
Why diversify?
Saturated market (216)
Spreading risk
Build shareholder value (217)
Three test of corporate advantage (217):
Industry attractiveness test:
The new industry must be attractive – it must have better returns than the current industry.
Cost of entry test
: The cost of entry into the new industry must not outweigh the expected returns.
Better-off test
: The synergy effects of the one corporation operating in both the old and new industries must be apparent, that is, 1+1 must not just equal 2, 1+1 should equal 3 or more.
Diversification strategies (218)
Acquisition of existing businesses
Internal development – starting-up a new business from scratch
Forming joint ventures or partnerships.
Related v unrelated
Unrelated diversification (228)
Helps mitigate industry related risk
Takes certain top-level expertise to manage
Both combined (234)
Related diversification (221)
Cons
Risk exposure
Pros
Familiar external environment
Appropriate expertise
Synergies in:
Distribution channels/methods
Technologies
Supply chain
Related by?
Key value chain activities
Specialised resources and capabilities that enable these activities
See Fig 8.1 (224)
NOT necessarily by obvious but superficial relatedness
Evaluating the portfolio (235)
Nine-cell: Industry-Attractiveness/Competitive-Strength matrix (241)
Six steps of evaluation of corporate strategy
Evaluate the attractiveness of each industry - Table 8.1 (236)
Evaluate each SBU’s competitive strengths - Table 8.2 (237)
Identify the competitive value of cross-business strategic fits (242)
Check for resource fit (243)
Rank the business units for resource allocation priority (246)
Craft new strategic moves (247)