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CS-1, in practice there exists a range of possibilities from full…

- - - - some late cycle
        
        industry is mature and market growng slowly
        
        industry is very young and market grow very fast
  - - - BCG matrix emphasize the redeployment of cash
    - - accounting and financial analysis
  - - - Ex. One outomobile insurace company merging with another insurance company
    - - Related business or not
    - - Unrelated business
  - - - with internal cash transfer
    - - using financial markets for investing and raising cash
    - - 1980s they began to sell off businesses
        
        1990s they sold off their insurance and hotel business
        
        2011 the company split into 3 part
        
        water business called xylem
        
        a defense business called exelis
        
        spun into separate company
        
        remaining ITT part is engineering
        
        straegic business unit within ITT
- - - - What range of products and services?
        
        example
        
        GE(General Electric)
        
        In 2001 under CEO Jack Welch
        
        GE Capital
        
        credit cards, consumer banking, trading financial assets, investing in real estate, project financing and leasing
        
        plastics and appliances business
        
        NBC subsidiary
        
        television and media business
        
        In 2019 under CEO Larry Culp
        
        power systems
        
        aviation
        
        new renewable energy
        
        healthcare business
        
        2008 financial crisis
        
        focus on a core set of businesses
        
        added through acquisitions
    - - Where in the world to compete?
    - - What stages of industry value chain or network?
        
        example
        
        Pepsi acquired most of its bottlers in 2009
        and Coca-Cola in 2010. (forward integration)
- - - - work with
        independent bottlers
        
        pros
        
        hustle more, penetrate the market better, and lower routine operating cost
        
        problem of outsourcing bottling
        
        how to ensure the quality, and investment
        
        require them to go through mandatory training programs or require investment by the bottler
      - vertically integrated bottling operation
        
        pros
        
        ensure the quality, and investment are made
        
        problem
        
        how to maintain some of the market-like features
        
        managers being responsible for profits from different region
  - - - managed with some degree of autonomy for the unit
      - specific types of coordination to ensure that the unit realizes synergies with the parent company
        
        Amazon: acquiring Whole Foods Market to develop online grocery business
        
        Integration of Amazon's IT systems with that of Whole Foods is a major priority, but A also wants to allow WF to operate quasi independently
        
        approach companies take to diversification can vary from more autonomous to more coordinated approaches, best approach depends on the nature of synergies that one is trying to create through diversification
        
        synergies are from resource scaling or sharing
        
        requires more obtrusive operational control of the units
        
        synergies are from resource deployment, transferring resources
        
        allow for more autonomy of units and only financial controls being used to manage them
        
        1 more item...
- - - - eg. Yum brand(pizza and Mexican food)
    - - no relation with the firm's other businesses
        
        spin out these new businesses
    - - Two types
        
        develop slack resources and redeploy these resources
        
        Uber can redeploy some of its cars and drivers to its food delivery business
        
        scale common resources that can be used in multiple businesses.
        
        Nike and Under Armour
      - complementarities between businesses or economies of scope from operating 1 or 2↑ businesses at the same time.
        
        eg. Yum brand(Pizza hot, KFC, Taco bell)
        
        developing restaurant sites together.
        
        lower costs by buying supplies in bulk
  - - - Does the combination of business create value /Do synergies exist
    - - the businesses need to own in the same company
      - do it better with a market like arrangement
  - - - Highly firm-specific and not available in the market.
- - - - Should the same company be integrated across specific value stages (or network)?
        
        vertical integration or vertical scope
        
        forward integration
        
        the closer you get to the customer
        
        backward integration
        
        the closer to raw materials
        
        horizontal integration
      - Which parts of the value chain or the value network a company should operate in?
        
        another may be more profitable
    - - there are all the support activities
        
        use a value network instead
      - outsourcing
        
        they don't have the quality of the needed resources or capabilities to handle an activity.
        
        the partner firm maybe better able to aggregate demand and build scale.
        
        example
        
        University of Illinois contracts with Coursera to host its online courses instead of using its own platform.
        
        pros
        
        upstream
        
        develop scale and making the needed input raw materials
        
        downstream
        
        aggregate downstream consumer demand
        
        cons
        
        Coursera is constantly able to keep learning and improving its capabilities.
        
        much more responsive to market and technology trends
    - - investments in specialized assets
      - improve quality or reduce cost
        
        planning, coordinating, or controlling operations on the online platform
      - market power
        
        the possibility of creating entry barriers by controlling a key resource
        
        reduce the extent of competition
        
        have better control over the prices on platform
  - - - lack of dynamism
      - principal-agent problem
      - weak incentive
    - - hold up problem
      - moral hazard
      - adverse selection
        
        transactions in the used car market
    - - what is the objective of integration?
        
        compare relative advantages and disadvantages
      - What market power, or efficiencies, or control, or coordination is being sought?