Professional Documents
Culture Documents
Ch6-1
Ch6-2
Strategy levels
Business level strategy (competitive)
Concerned with the choice a firm makes when deciding on how to compete in individual product markets
Ch6-3
What is Diversification?
A collection of businesses under one corporate umbrella
Diversification is used to expand firms' operations by adding markets, products, services, or stages of production to the existing business.
Ch6-4
Dominant business
A C
70% of revenues from dominant business, A and only limited links exist B C A
Types of Diversification
Related Diversification Involves diversifying into businesses similar to its initial business in terms of at least one function like marketing,engineering , distribution etc Unrelated Diversification
Involves diversifying into businesses with no similarity with the initial business.
Ch6-7
Ch6-8
Medical - non-prescription drugs (Tylenol, Pepcid AC); prescription drugs; surgical products; Accuvue contact lenses
Ch6-9
Ch6-11
How does Related and Unrelated Diversification enhance Competitiveness and create Value?
Related Diversification
Sharing activities Corporate relatedness Market power Vertical integration
Unrelated Diversification
Financial economies Efficiencies in internal capital market allocation Restructuring of businesses
Ch6-12
Sharing activities
Operational relatedness
Activity sharing is created by sharing either a primary activity such as inventory delivery systems or support activity such as purchasing
Activity sharing requires sharing strategic control over business units Activity sharing may create risks because business unit ties create links between outcomes
Ch6-13
Ch6-14
Ch6-15
Ch6-16
Benefits
Builds entry barriers Reduces transaction costs Better control and co-ordination of operations
Ch6-17
Ch6-18
Ch6-20
Ch6-21
Risks of Diversification
Attention may be diverted from the core business. Managing the new business may be difficult.
Ch6-22
Growth does not always lead a business to build on success. All too often it converts a highly business into alead Growth successful does not always large business. businessmediocre to build on success.
All too often it converts a highly successful business into a - Richard Branson mediocre large business.
Ch6-23