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G6 CS-1, Group Member, vertical integration vs. horizontal integration,…

- - - - Does the combination of businesses create value (do synergies exist)?
    - - To access the value, does the same company need to own the businesses?
      - Can we do it better with a market like arrangement?
  - - - Either scaled or redeployed across businesses in order to generate synergies
      - Only be done inside a company
  - - - Unrelated Diversification
        
        Diversification Discount
        
        The value of the diversified firm is less than the sum of its SBUs
      - Related Diversification
      - Dominant Business Firms
      - Single Business Firms
    - - Gordon Gekko
        Wall Street (1980)
        
        Cut down on overstaffing
        
        Breaking conglomerates up into their component parts.
      - General Electricity (GE)
        (Now)
        
        The 2008 financial crisis
  - - - Economies of scope
      - Two types
        
        Scale common resources
        (multiple businesses)
        
        ex: Brands/ IT system
        
        Redeploy slack resources
        
        The allocation of cash between SBUs in a conglomerate
    - - Reduce competition by entering the related business
        
        Caution this approach might
        Invade Antitrust Law
    - - More related to manager than shareholders.
  - - - Consider the relative strengths and weaknesses.
  - - - Globalization
        
        Mining--Hitachi
        
        Actual diversification can be viewed as an alternative to and be compared with other organization alternatives such as an alliance to achieve the same ends.
      - Find other industries to work with
- - - - ex. coca cola and pepsi
        
        independent bottlers
        
        business condition
        
        lower operating cost
        
        understand local market
        
        hustle more to make market better
    - - ensuring more control over the overall quality of service
        
        making a new technology
        
        making marketing investment
      - to know how companies manage their outsourced operations by recognizing the issues
  - - - ex. coca cola create sprite
  - - - google
      - amazon
        
        • Units that could easily be independent companies should be managed with some degree of autonomy.
        
        it depending on the nature of synergies they want to create through diversification.
        
        from resource scaling or sharing
        
        need more active ongoing coordination to manage the sharing of that resource
        
        from resource deployment or transferring resources
        
        allow for more autonomy of units and only financial controls being used to manage them.
    - - realize the associated synergies in diversified firms
        
        example
        
        GE (general electric company)
- - - - how?
        
        to jump into a new stage of the value chain
        
        at the same time get out of another
    - - another part of the value chain might be more profitable than the one they are in
  - - - Porter's Five Forces analysis
      - significant sustainable competitive advantage
  - - - the possibility of creating entry barriers by controlling a key resource
        
        example：University of lllinois
        
        to reduce the extent of competition in the online educational space
        
        to have better control over the prices it wants to charge on such a platform
        
        real reason: integration can help the university improve quality or cost by giving it more control over the operations of the platform.
- - - - A market situation where buyers and sellers have different information.
      - ex. The Market for Lemons
        
        In used car market, sellers know more about the value of their cars than buyers. Therefore, buyers are hesitant to pay more than the average price, regardless of the car's quality. This benefits sellers of lemon cars (bad cars) but puts sellers of good cars at a drawbacks.
    - - Someone takes on more risk because they do not have to bear the full cost of that risk.
    - - Parties avoid cooperation fearing it gives the other increased bargaining power and lowers profits despite potential efficiency gains.
  - - - ex. rent, utilities, equipment, supplies
    - - Weak Incentives
        
        An internal unit may be less laser focused on delivering the best performance as an external supplier.
      - Principle-Agent Problem
        
        It refers to conflicts of interest between a principal and agent who acts on the principal's behalf.
      - Lack of Dynamism
        
        Lack of flexibility or slow response to changing market or technological trends due to organizational complexity or bureaucracy.
- - - - ITT Breakup
        
        2.engineered parts had been the star SUB within ITT, the other two were cash cows
        
        3.the first mode they operate as the company with the internal cash transfer from cash cows to stars to fund their growth
        
        1.split into three parts water business called Xylem, defense called Exiles and remaining ITT business in Engineered parts
        
        4.the other mode, using financial markets for investing surplus cash, or raising cash as needed
        
        5.using the internal transfers of cash using the BCG matrix is less efficient instead of modern financial markets
- - - - advantages
        
        Synergies between different business units, such as cost savings or shared resources
        
        Opportunities for cross-selling and expanding customer bases
        
        Hedging against risks in any one business or industry
      - disadvantages
        
        Increased competition in new markets
        
        Limited expertise or resources in new businesses
        
        Management complexity and potential for conflicts between business units
        
        a strategic decision that requires careful consideration of a company's goals, resources, and competitive landscape.
    - - the big company
        
        disadvantages
        
        poor management
        
        overall
        
        larger companies are often inefficient and lack focus.
        
        break the value

vertical integration vs. horizontal integration