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SMMCG3[CS-1]LN10-Corporate Strategy - Horizontal Diversification, Group 3,…
SMMC
G3
[CS-1]LN10-Corporate Strategy - Horizontal Diversification
Manage integrated firms
1: Delink the benefits sought through integration from the governance mode.
2: Conduct a dispassionate, comparative, organizational analysis to identify whether integration or diversification makes sense relative to market-based alternatives.
3: Recognize the issues that affect the vertical integration decision and how companies manage their outsourced operations or their vertically integrated business.
Some departments should be managed with some degree of autonomy for the unit.
5: Think of specific types of coordination that may be needed to ensure that the quasi independent unit realizes synergies with the parent company.
Autonomous approaches seek to replicate market-like incentives.
Coordinated approaches seek to reduce transaction costs through more hierarchical organization.
6: Need more active ongoing coordination to manage the sharing of resources.
Horizontal Scope defination
4.BCG matrix
corporate strategy framework
A corporation needs to be active in different businesses that are at various stage of their industry life-cycle.
Strategic Business Units
Dogs
Businesses that are neither in growing industries nor an area of strength for the company.
Stars
SBUs with fast-growing markets, and strong market share.
Cash Cows
Business in which the company has a strong presence but in markets that aren't growing as quickly
Question marks
In fast-growing markets, but where the company is yet to establish a strong presence.
The idea with the BCG matrix is to either divest business or invest in fast-growing ones in order to build strong positions in them.
1. Defination
Horizontal
merge with other company in a
same industry
(increase the size in a same bussiness)
ex: two insurance companies
Diversification
related
unrelated
2. Which business should operate in?
depends on bussiness strategy
own all bussiness
stay in current business and
integrate
companies
not own all bussiness
exit current bussiness and enter other more profitable ones.
start a new bussiness and diverse them
3. Should company intergrate?
ex: lager diversified university--
Illinois Unuversity
(let Gies Business College become its compaign)
if stand-alone
advantage
everyone could working in a same direction
disadvantage
no resources sharing
if do on their own
advantage
learn diverse pespectives from different classes and can be used in research
disadvantage
some students will get loss because of homogeneity
5.Diversification
diversification discount
the value of the combined business is lower than the sum of its parts.
caused by unrelated diversification
solve
breaking them up into component parts
dismiss staff who are not adding much value
leveraged buyouts
diversification premium
related diversification
motivation
Synergy
Complementarity between enterprises, or so-called economies of scope, refers to operating multiple enterprises at the same time
Reduce costs by buying consumables in bulk or co-developing
Expansion of common resources that can be used for multiple businesses
redeploy these resources to other businesses ex:allocation of cash
Motivation related to synergy between companies based on resources and capabilities
increase their market power by reducing competition from related products.
Violation of antitrust laws
alternative
Market type arrangements and alliances, long-term contracts, licensing
need to consider the relative pros and cons
Williamson approach of competitive organizational analysis
conclusion
two key tests
Does the combination of businesses create value?
(do synergies exist? )
diversification may be better than market alternatives
synergies arise out of resources that are highly firm-specific and not available in the market
ownership test
Introduction Corporate Scope
Corporate Strategy
The pursuit of competitive advantage through the configuration and coordination of a company's multi- business activities
Corporate Scope
Simply the overall footprint of the company
Three dimensions of Corporate Scope
Vertical Integration
Which parts of the value chain(network) should a company operate in
Should the same company be integrated across specific stages of the value chain(network)
Value chain that's oriented from the bottom to the top
Motivations for vertical Integration
Market power
Have serious flaws when applied to corporate scope decisions
Improve quality or cost
Investments in specialized assets
Horizontal Integration
Geographic Scope
Transaction Cost Economics (TCE)
Oliver Williamson
In 2009﹐won the Nobel Prize in Economics
outsourcing
adverse selection
information asymmetries
exists between firm and its supplier
George Akerlof
won the Nobel Prize in 2001
Why transactions in the used car market are problematic?
the sellers of used cars know more about the car than the buyer.
moral hazard
make market transactions costly
In the vertical integration context
downstream dealer or service provide
reduce service quality with customers
arising from governments being willing to bail out banks
take on too much risk
hold-up problem
opportunism
defines opportunism as self-interest seeking with guile
if one of the parties has to invest in assets that are specific to the other
scope of the firm
vertical integration
disadvantage
2.less responsiveness to market or technology trends
1.exhibit a lack of dynamicism
horizontal scope
summary
There is no general prescription that outsourcing, or vertical integration is always better. Rather, the important thing is to align the attributes of their transaction with the governance mode vertical integration or outsourcing that is appropriate for these attributes.
Group 3
Grace 李家齊
Ilona 李佳蓉
Evonne 廖怡瑄
Alice 余佳錚
Katharine 邵渝恬
Eunice吳旻諼
due to
asymmetric information
