Please enable JavaScript.
Coggle requires JavaScript to display documents.
CS1 SMMCG9 [CS-1]LN10-Corporate Strategy - Horizontal Diversification,…
CS1 SMMC
G9
[CS-1]LN10-Corporate Strategy - Horizontal Diversification
Corporate Scope
definition of corporate strategy
configuration
pursuit of competitive advantage
coordination
what companies actually do
businesses
management
activities
key dimensions
horizontal
products or services
eg.General Electric
geographic
international strategy module
vertical
value chain or network
e.g. PepsiCo
Vertical scope
integrated across specific value stages
vertical integration
non-manufacturing businesses
outsourcing
manufacturing businesses
value chain
TCE (theory of the firm)
administrative cost
cost of transactions(related with economic exchanges)
comparative organizational analysis
compare relative advantages and disadvantages
using markets, or outsourcing
better adaptation
hierarchies, or doing things inside a firm
better coordination
costs
outsourcing
(major source of transaction cost)
moral hazard
private information
contracted for which leads to abuse
governments being willing to bail out banks
not measurable
holdup problem
one party gains an upper hand
opportunism
one of the parties has to invest in assets that are specific to the other
exposing your company's core knowledge/techonology/buyer
adverse selection
information asymmetry
e.g. might not put its best people to support a buyer's outsourcing needs.
e.g. save the latest technological improvements
hierarchical organization
(major source of administrative costs)
week incentives
principal-agent problem
performance are unobservable
lack of dynamicism
less responsiveness to market or technology trends
Horizontal Scope
e.g.School→merger v.s. stand-alone
stand-alone
clarity of focus
easy to get anyone working in the same direction
don't have to share resources with many students
merger
can connect with faculty &college across the campus
interdisplinary learning &diverse perspectives
more exposed to other field& other grounds
BCG matrix
Dog
expectation:the business would be divested to raised cash
Low market growth+Low relative market share
Star :star:
High market growth+High relative market share
the future of the company which it should be investing in
Cash Cow
yesterday Star
Low market growth+High relative market share
has a strong presence but the growing isn't quickly
Question Mark
High market growth+Low relative market share
invest&strengthen its position
investing more cash
give up& divest the business
ITT
1990
Sold off its insurance and hotel businesses
2011
ITT breakup
a water business Xylem, a defense business Exelis and the main
engineered parts of ITT
ITT stock zoomed up almost 20%
ITT using financial markets for investing surplus cash, or raising
cash as needed
The separate companies would be able to do much better by
focusing on the respective businesses
International telephone and telegraph
(Selling both telecom equipment and telecom services)
Starting in the 1950s under
CEO Harold Geneen
Took an aggressive strategy of diversification into many
unrelated businesses
Geneen's motto : All these businesses were the same
By analyzing the financials, you could manage any business
1980s
Began to sell off businesses
Geneen stepped down as CEO and chairman
Central idea
a corporation which needs to be active in different business that is at various stages of their industry life-cycle
Summary
4 Motivations
2.to make
Economic Scale
3.reducing managerial
Risk
1.increase
Market Power
4.pursue
Porfitable Opportunities
diversification
V.S.
firm performance
to creat value in sum of SBUs
business need to be
related and diversification
How to do
2.save and utilize the
unique resourse
3.
resource acquisition ability
1.
Synergy in business
Case
Uber
Uber car
Uber Eat
John Deere
Choose a prominent area and do the best
Find partner to pursue other related profitable opportunities
Hitachi
Honda
Augriculture
Yum Brand
Tacco Bell
KFC
Pizza Hut
2 Key tests
1.
Batter off test
2.
Ownership test
Governance mode
1.Which is most benefitable and suitable ?
Horizontally diversified
Units would be managed with some degree of autonomy .
independent subsidiaries
ensure that the quasi-independent unit realize the synergies with the parent company
ensure that its managers have the right incentives
Vertically integrated
How companies manage their outsourced operations?
To have production
synergies are from resource scaling or sharing
reduce transaction costs
need more active ongoing coordination
more autonomous OR more coordinated alternatives
more autonomy and adaptation
more coordination and control
merge vs. diversification
same industry
different indutry
material
production
distribution
marketing
use the
common resourse
to develope
Concentrate the
slack resourse
and
redepoly
--> forward integration
backward integration<--
