Professional Documents
Culture Documents
Business Diversification
Vertical Integration Geographic/global Expansion
Diversification 2
Moderate to High Levels of Diversification Related-Diversified - 70% or more from businesses that are related.
Businesses must share product, technological or distribution linkages. Businesses may be related-linked or related constrained
Bus. A
Bus. B
Bus. C
Bus. D
Core Competence
Bus. C Bus. D
Diversification 5
Market Power Economies of Scope Economies of Internalizing Transactions Internal Market System Information Advantages
Diversification 6
cost advantages from reaching minimum efficient scale in administrative and control activities by centralizing similar activities at the corporate HQ, and by operating an internal capital market
* Administration, e.g. centralized strategic planning, centralized legal functions, etc. * Control, e.g. centralized accounting and financial functions * Financing, e.g. centralized internal capital allocation function
Diversification 8
* About capabilities and characteristics of employees * Established firms are the most successful in commercial development of new businesses * Agency problems need to create disciplines of the capital market within the diversified corporation
Diversification 9
Diversification 10
Diversification 11
Sharing Activities
Sharing Activities
Key Characteristics
Sharing Activities often lowers costs or raises differentiation
Example: Using a common physical distribution system and sales force such as Procter & Gambles disposable diaper and paper towel divisions
* * *
High
Strategy:
Low
Strategy:
High
Low
Diversification 13