Normally, competitively strong businesses in attractive industries have significantly better performance prospects than competitively weak businesses in unattractive industries. B. ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects. Diversification merits strong consideration whenever a single-business company store. The cost to enter the target industry must not be so high it erodes the potential for good profitability. Four other instances that signal the for diversifying: When it can expand into industries whose. The competitive advantage potential that flows from the capture of strategic-fit benefits is what enables a company pursuing related diversification to achieve 1 + 1 = 3 financial performance and the hoped-for gains in shareholder value.
The size of each bubble is scaled to what percentage of revenues the business generates relative to total corporate revenues. Divestiture can be accomplished by. 7 billion was used to pay dividends, resulting in free cash flow of about $19. A. in R&D and technology activities only. 75 Profitability relative to competitors 0. Seasonal and cyclical factors should generally be eliminated (or perhaps assigned a low weight) except in situations where that are obviously relevant. Management Theory Review: Corporate Diversification Strategy - Theory - Review Notes. Initiating actions to boost the combined performance of the corporation's collection of businesses.
The ninecell attractiveness–strength matrix provides strong logic for fully funding the resource needs of competitively strong businesses in attractive industries, investing selectively in businesses with intermediate position on the grid, and getting rid of competitively weak businesses in unattractive industries unless they generate sizable cash flows that can be redeployed elsewhere or have important strategic value despite their competitive weakness. D. concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders. C. company begins to encounter diminishing growth prospects in its mainstay business. C. has achieved industry leadership in its main line of business. D. Identifying acquisition candidates that are financially distressed, can be acquired at a bargain price and whose operations can, in management's opinion, be turned around with the aid of the parent company's financial resources and managerial know-how. Internal start-up of a new business subsidiary can be a more attractive means of entering a desirable new business than is acquiring an existing firm already in the targeted industry when. A. their value chains possess competitively valuable cross-business fit relationships. However, some businesses in the medium-priority diagonal cells may have brighter or dimmer prospects than others. N Corporate managers definitely add shareholder value when they possess the skills and business acumen to do such a superior job of overseeing, guiding, and otherwise parenting the firm's business subsidiaries that the subsidiaries perform at a higher level than they would otherwise be able to do as a stand-alone enterprise (thus satisfying the better-off test). Diversification merits strong consideration whenever a single-business company login. B. scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into. B. its individual businesses add to a company's resource strengths and when it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin.
Conditions that may make corporate restructuring strategies appealing include. Successfully managing a set of fundamentally different businesses operating in fundamentally different industry and competitive environments is a challenging and exceptionally difficult proposition. Again, quantitative ratings of competitive strength are preferable to subjective judgments. For instance, BTR, a multibusiness company in Great Britain, discovered that the company's resources and managerial skills were well suited for parenting industrial manufacturing businesses but not for parenting its distribution businesses (National Tyre Services and Texas-based Summers Group). Avoiding the extra costs associated with operating Web site e-stores. Businesses are said to be unrelated when the activities that compose their respective value chains are so dissimilar that no competitively valuable cross-business relationships are present. D. produces large internal cash flows over and above what is needed to build and maintain the business, whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements. N A multinational diversification strategy provides opportunities for sister businesses to collaborate in developing and leveraging competitively valuable resources and capabilities. Financial Resource Fit The most important dimension of financial resource fit concerns whether a diversified company can generate the internal cash flows sufficient to fund the capital requirements of its businesses, pay dividends, meet its debt obligations, and otherwise remain financially healthy. Diversification merits strong consideration whenever a single-business company india. It can diversify its present revenue and earning base to a small extent (so that new businesses account for less than 15 percent of companywide revenues and profits) or to a major extent (so that new businesses produce 30 percent or more of revenues and profits). C. It offers significant opportunities to strongly differentiate a company's product offerings from those of rivals. D. the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, or transfer skills or technology or intellectual capital from one business to another. There is a decent chance of growing the business into a solid bottom-line contributor. Diversified multinational companies that market the products of different businesses under an umbrella brand name that is widely known and well-respected across the world gain important marketing and advertising advantages over rivals with lesser-known brands.
Free cash flows from cash cow businesses and the company's profit sanctuaries also add to the pool of funds that can be usefully redeployed. E. facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification). The costs associated with internal startup are less than the costs of buying an existing company and the company has ample time and adequate resources to launch the new internal start-up business from the ground up. Representative Value Chain Activities. A. the business lineup includes a number of cash cows. B. emerging opportunities and threats, the intensity of competition, and the degree of industry uncertainty and business risk. Doing an appraisal of each business unit's strength and competitive position not only reveals its chances for success in its industry but also provides a basis for ranking the units from competitively strongest to competitively weakest and sizing up the competitive strength of all the business units as a group. 0, it is fair to conclude that its business units are all fairly strong market contenders in their respective industries. C. shareholders will view the contemplated diversification move as attractive. Financial Options for Allocating Company. How to deliver unique value to buyers. D. identifies which sister businesses have the greatest strategic fit. Unlike a related diversification strategy, there are no cross-business strategic fits to draw on for reducing costs, transferring beneficial skills and technology, leveraging use of a powerful brand name, or collaborating to build mutually beneficial competitive capabilities and thereby adding to any competitive advantage the individual businesses.
Interpreting the Competitive Strength Scores Business units with competitive strength ratings above 6. A. underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about. Sister businesses performing closely related value chain activities may seize opportunities to join forces, share knowledge and talents, and collaborate to create altogether new capabilities (such as virtually defect- free assembly methods or increased ability to speed new and improved products to market) that will be mutually beneficial in improving their competitiveness and business performance. B. diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in. The greater the cross- business economies associated with cost-saving strategic fits, the greater the potential for a related diversification strategy to yield a competitive advantage based on lower costs than rivals. 1 and the strength scores for the four business units in Table 8. Each business unit is then rated on each of the chosen strength measures, using a rating scale of 1 to 10 (where a high rating signifies competitive strength and a low rating signifies competitive weakness). For a move to diversify into a new business to have a reasonable prospect of adding shareholder value, it must be capable of passing the industry attractiveness test, the cost-of-entry test, and the better-off test. C. it is uneconomical for the firm to achieve economies of scope on its own initiative. Report this Document. A joint venture is an attractive way for a company to enter a new industry when. Share with Email, opens mail client.
This can work provided the heads of the various business units are capable and favorable conditions allow a business to consistently meet its numbers. Selling a business outright to another company is the most frequently used option for divesting a business. Evaluating the Strategy of a Diversified Company. One strategic fit-based approach to related diversification would be to. D. when businesses in once-attractive industries have badly deteriorated. E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits. The purpose of rating the competitive strength of each business is to gain a clear understanding of which businesses are strong contenders in their industries, which are weak contenders, and the underlying reasons for their strength or weakness. A company that is already diversified may choose to broaden its business base by building positions in new related or unrelated businesses because. Next, every industry is rated on each of the chosen industry attractiveness measures, using a rating scale of 1 to 10 (where a high rating signifies high attractiveness and a low rating signifies low attractiveness).
Marketing Distribution Customer. Each has its pros and cons, but acquisition is the most frequently used; internal start-up takes the longest to produce home-run results, and joint venture/strategic partnership, though used second most frequently, is the least durable. General Electric, for example, has successfully applied its GE brand to such unrelated products and businesses as light bulbs (GE Lighting), medical products and health care (GE Healthcare), jet engines (GE Aviation), electric power generation and distribution equipment (GE Power), and locomotives (GE Transportation). Wrigley's, a producer of chewing gum and candies and now a subsidiary of Mars, Inc., is said to be a consistent generator of surplus cash flows approaching 15 percent of revenues. Different businesses have different cash flow and investment characteristics. A nine-cell grid emerges from dividing the vertical axis into three regions (high, medium, and low attractiveness) and the horizontal axis into three regions (strong, average, and weak competitive strength).
There are many companies that concentrated on a single business and achieved enviable business success over many decades - good examples include McDonald's, Southwest Airlines, Domino's Pizza, Wal-Mart, FedEx, Hershey, Timex, and Ford Motor Company. Industries where competitive pressures are relatively weak are more attractive than industries where competitive pressures are strong. B. debt policy management. A. involve making radical changes in a diversified company's business lineup, divesting some businesses, and acquiring new ones so as to put a new face on the company's business lineup. D. the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. D. identify bargain-priced companies with big upside potential and then turn around their operations quickly with the aid of the parent company's financial resources and managerial know-how. C. the industry is growing slowly and adding too much capacity too soon could create oversupply conditions. C. has a clear path to global market leadership in the industries where it has related businesses. Diversify into Both Related and Unrelated Businesses.
To keep pace with rising buyer demand, rapid- growth businesses frequently need sizable annual capital investments—for new facilities and equipment, for. C. each business unit generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. One very important advantage of a product-information-only Web site strategy is. A. transferring competitively valuable resources, expertise, technological know-how, or other capabilities from one business to another. 6 billion was used to fund additions to property and equipment and $12. There are two fundamental approaches to diversifying—into related businesses and into unrelated businesses. When evaluating strategic fit benefits that related diversification can deliver, one must keep in consideration a number of factors. A. when a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment. Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as.