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CHAPTER 6: CORPORATE-LEVEL STRATEGY Creating Value through…
CHAPTER 6:
CORPORATE-LEVEL STRATEGY
Creating Value through Diversification
Diversification efforts
Value Creation for shareholder
Synergies (working together)
Success
Related Diversification
Economies of scope
Leverage core competencies
Sharing activities
Market power
Pool negotiating power
Vertical integration
Unrelated Diversification
Parenting
Restructuring
Portfolio management
BCG matrix: market share & growth rate
Star
Question mark
Cash cow
Dog
Fail
Failed to effectively integrate their acquisitions
Paid too high a premium for the target's stock - consequences: high borrowings, struggle to cover debt obligations, reduced credit ratings, bankruptcy in severe cases
Unable to understand how the acquired firm's assets would fit with their own lines of business
Top executives may not have acted in the best interests of shareholders - motive: enhance the executives' power and prestige rather than to improve shareholder returns
Means of diversification
Mergers & acquisition
Strategic alliances
Joint ventures
Internal development
How managerial motives can erode value creation
Growth for growth's sake
Egotism
Antitakeover tactics
Diversification: The process of firms expanding their operations by entering new businesses.