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G3_[CS-1] Corporate Scope, G3 Group members - Coggle Diagram
G3_[CS-1] Corporate Scope
managing integrated firms
separate the benefits sought from governance modes
identify whether integration or diversification is relative to market-based alternatives
manage related units
Google : Waymo
Amazon : Whole Foods Market
develop an online grocery business
the approach companies take to diversification
autonomous
replicate market-like incentives
coordinate
reduce transaction costs through more hierarchical organization
nature of synergies
resources scaling (sharing)
any changes will need to be coordinated with all the other units to ensure interests are not undermined
requires more obtrusive operational control of the units
resource deployment (transferring)
allow more autonomy of units and financial controls of units
generated by resource transfers, which don't require active real-time management
pay attention to the resources and treat them as a corporate pool
corporate scope
vertical
vertical integration
horizontal
diversification
look at plausible market to integration and compare the advantages and disadvantages
integration as an alternative to "market forms"
Vertical Scope
1) transaction cost economic (TCE)
can be applied to vertical integration and
horizontal scope
Depend on the exact way in which outsourcing or vertical integration is done,
there may be some overlaps in these costs
.
Oliver Williamson
deals with both the cost of transactions or economic exchanges
transaction cost
source of costs
Adverse selection
Moral hazard
hold up problem
associate with
economic change, negotiating, monitoring, enforcing contracts
administrative costs
associate with
hierarchy, bureaucracy, weak incentive, sclerotic
source of costs
weak incentive
Principal-agent problem
lack of dynamism
2) two questions that are commingled when people think about vertical integration
what's the objective
the way to achieve objective
vertical integration(Making it)
compare these relative advantages and disadvantages,
and decide which is better for firm
the market (Buying it)
what organization form best achieve the objective
the overall takeaway
align the attributes of the
transaction
vertical scope
vertical scope
vertical integration
company will change its value chain/ module by more profitable field
judge by
five force analysis
value chain
support activities
primary activities
Horizontal Scope
question
which business a company should operate in
it is possible to exit current business and entermore profit one,or start new buiness
should the same company be integrate across a set of business
example of diversificaton
multi-specialty university
advantage
there is a sufficient population to communicate with people from different backgrounds and different cultures
teachers can conduct academic discussions with teachers in other fields to improve their teaching and research
students can take courses not taught by their department
students who want to have two majors can also have enough opportunities
downside
it is easy to get everyone working in the same direction,but it is a challenge that faculty engage in activities which they don't familiar with
students may feel they are not as special as other people
student my get lost in the large pool
resources will be dispersed and cannot be concentrated in a single college
definition
horizontal mergers
merging companies in the same industry
horizontal scope
firm's business across a set of different business,that is the firm's diversification
BCG matrix
be active in different businesses
Dog
Business that are neither in growing industries, nor an area of
strength for the company.
divested to raise cash
Cash cow
yesterday's stores, businesses,but in markets that aren't growing as quickly
less need to invest
Star
has fast growing markets and strong market share
beinvesting in
Question mark
in fast growing markets
divest
invest in fast growing ones
Example:ITT corperation
professional management
manage different business by analyzing the financials,.
not effective in creating value from unrelated businesses.
Breakup
Two different modes
one company
internal transfers of
cash
less efficient
separate companies
focusing on the respective
businesses
efficient
stock market reaction
zoomed up
Split
sell off businesses
run out of cash
spun out into separate
companies
resources and relatedness
relatedness in diversification implies relatedness
in the underlying firm-specific resources
two key tests
ownership test
better-off test
comparative organizational analysis
the relative advantages and disadvantages
of organizing within a firm
any alternative diversification such as an alliance
diversification versus organizing through the market
Motivation of diversification
pursue profitable opportunities
driven by empire building
the result of managerial hubris or even misaligned incentives
reduce managers risks rather than those of shareholders
synergies
two types
develop slack resources and redeploy these resources
scale common resources
complementarities between businesses
market power
by reducing competition from related products
to resource and capability-based synergies between businesses
Conglomerates
EX: GE CEO, Jack Welch
how it can create a diversification premium
to ensure that GE had a lot of good star and cash cow businesses for the future
All businesses were required to become number one or number two in their industry or they would be divested
Private equity firms use a version of this approach even today
leveraged buyouts
financed with a lot of debt at very high interest rates which was added to the company's balance sheet
diversification discount
the value of the diversified firm is less than the sum of its SBU's, the sum of its separate businesses
introduction
the footprint of company
applying 3 dimensions vision to overlook
vertical
value chain
bottlers of Pepsi in 2009
geographic
regional,national,global market
horizontal
products,service
GE changed and expended its range of products and service
G3 Group members
國企三 翁暐婷 Kristin
國企三 吳翊瑄 Amanda
國企三 蔣明慈 Esther
國企三 張瑋庭 Wei Ting
國企三 李家慧 Stephanie
國企三 吳承樺 Eric