In which of the following cases are first-mover disadvantages not likely to arise? 5) have comparatively low industry attractiveness and minimal competitive strength, typically making them weak performers with little potential for improvement. Being able to attract bargain-hunting shoppers by selling the company's merchandise online at lower prices than in traditional retail stores. Diversification merits strong consideration whenever a single-business company ltd. Whether it will have a broad or narrow product offering. Diversification becomes a relevant strategic option in all but which one of the following situations? Broadening the Company's Business Scope Diversified companies sometimes find it desirable to build positions in new industries, whether related or unrelated. Technologies and products complement its present business.
But there are other important reasons for divesting one or more of a company's present businesses. D. businesses included in the corporate portfolio compete in fast-growing industries. The three tests for judging whether a particular diversification move can create value for shareholders are the. Choosing the Diversification Path: Related vs. Stick closely with the existing business lineup. E. "managing by the numbers"—that is, keeping a close track on the financial and operating results of each subsidiary. Marketing Distribution Customer. Because the senior executives of a large diversified corporation have among them many years of experience in a variety of business settings, they are often able to provide first-rate advice and guidance to the heads of the various business subsidiaries on how to improve competitiveness and financial performance. Lower advertising costs and lower customer service costs. 18 When several pharmaceutical companies diversified into cosmetics and perfume, they discovered their personnel had little respect for the "frivolous" nature of such products compared to the far nobler task of developing miracle drugs to cure the ill. A company's related diversification strategy derives its power in large part from the presence of competitively valuable strategic fits among its businesses and forceful company efforts to capture the benefits of these fits. Increase dividend payments to shareholders. Provide individual businesses with administrative expertise and other corporate resources that lower companywide administrative and overhead costs and enhance the operating effectiveness of individual businesses. Diversification merits strong consideration whenever a single-business company.com. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
B. the firm needs better access to economies of scope in order to be cost-competitive. Resource fit exists when (1) businesses add to a company's resource strengths, either financially or strategically, (2) a company has the resources to adequately support the resource requirements of its businesses as a group without spreading itself too thin, and (3) there are close matches between a company's resources and industry key success factors. The core concepts and analytical techniques underlying each of these steps merit further discussion. Unrelated Businesses. Management Theory Review: Corporate Diversification Strategy - Theory - Review Notes. The Two Big Drawbacks of Unrelated Diversification Unrelated diversification strategies have two important negatives: 1. Fit between a parent and its businesses is a two-edged sword: A good fit can create value; a bad one can destroy it.
In such instances, prompt and aggressive actions to transfer a portion of these competitively potent resources and capabilities from one or more of a diversified company's businesses and redeploy them to resource and/or capability-deficient businesses can significantly enhance the latter's performance of key value chain activities, boost the value it delivers to customers, and significantly improve its competitiveness and profitability. Industry B Business C in Industry C. Competitive Strength Measures. Other business units, despite adequate financial performance, may not mesh as well with the rest of the firm as was originally thought. E. added capability it provides in overcoming the barriers to entering foreign markets. It is best to be a fast follower rather than a first mover or a slow mover. B. companies are seeking multinational diversification. A. Diversification merits strong consideration whenever a single-business company nyse. vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates. Activities Assembly Distribution Customer. This can work provided the heads of the various business units are capable and favorable conditions allow a business to consistently meet its numbers. 0 increases, especially when industries with low scores account for a sizable fraction of the company's revenues.
2 Calculating Weighted Competitive Strength Scores for a Diversified Company's Business Units. 8 The parenting activities of corporate executives often include identifying, recruiting, and hiring talented managers to run individual businesses and thereby squeeze out better business performance than otherwise might have occurred. Likewise, the higher the capital and resource requirements associated with being in a particular industry, the lower the attractiveness rating. C. The target industry is growing rapidly and no good joint venture partners are available.
The more attractive an industry's prospects are for growth and good long-term profitability, the more expensive it can be to get into. C. shareholders will view the contemplated diversification move as attractive. A. market size and projected growth rate, industry profitability, and the intensity of competition. Build a portfolio of businesses in unrelated industries by acquiring companies in any industry with growth and earnings prospects that can satisfy the industry attractiveness test and by acquiring undervalued or underperforming businesses that present appealing opportunities for being overhauled in ways that will result in big gains in profitability.
B. first consider the strength of funding proposals presented by managers of each division or business unit. The Case for Diversifying into Unrelated Businesses Whereas related diversification strategies seek to build shareholder value by diversifying only into businesses with important cross-business strategic fits, the hallmark of unrelated diversification strategies is managerial willingness to enter any industry and operate any business where company executives see opportunity to realize consistently good financial results. Because a cash hog's financial resources must be provided by the corporate parent, corporate managers must decide whether it makes good financial and strategic sense to keep pouring new money into a business that is likely to need cash infusions for some years to come (until slowing growth causes its capital requirements to diminish and/or until increased profitability and bigger cash flows from operations become large enough to fund its capital requirements). One must be careful about assuming different businesses are unrelated just because their products are quite different. C. helps a company escape the rigors of competition in its present business. Last 30 days 282 views. When a corporation has a parenting advantage and when its executives are also uniquely skilled in identifying weak-performing companies where there are achievable opportunities to boost profits to appealingly high levels, then the corporation has credible prospects of pursuing an unrelated diversification strategy that can deliver 1 + 1 = 3 gains in long-term shareholder value. A. selling a business outright. Which of the following statements about corporate diversification is incorrect? C. Considering whether a company's costs to enter the target industry are low enough to preserve attractive profitability or so high that the potentials for good profitability and return on investment are eroded. Capabilities by expanding into businesses where these same resource strengths. C. stabilize earnings; that is, market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses. Diversifying into new businesses is justifiable only if it.
D. ability to serve a broader spectrum of buyer needs. But it is risky for a single-business company to continue to keep all of its eggs in one industry basket when, for whatever reasons, its long-term prospects for continued good performance start to dim. Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of. The specifics of "what to do" to wring better performance from the present business lineup have to be dictated by each business's circumstances and the preceding analysis of the corporate parent's diversification strategy. It can move into one or two large new businesses or a greater number of small ones. C. acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. The businesses in a diversified company's lineup exhibit good resource fit when. D. high-compensation/low-risk enterprise. Report this Document. B. spreads the stockholders' risks across a group of truly diverse businesses. Interpreting the Industry Attractiveness Scores Industries with a score much below 5. C. ability to capture cross-business strategic fit with which to capture added competitive advantage and few managerial demands.
A company can diversify into closely related businesses or into totally unrelated businesses. C. there is ample time to launch the new business from the ground up. B. typically are prime candidates for divesture. A business exhibits a poor financial fit if it soaks up a disproportionate share of a corporate parent's financial resources, makes subpar or inconsistent bottom-line contributions, is too small to make a material earnings contribution, or is unduly risky (so that the financial well-being of the whole company could be jeopardized in the event it falls upon hard times).
Evaluate the relative competitive strength of each of the company's business units. When the race among rivals for industry leadership is a marathon rather than a sprint, A. Having a clear fix on the main elements of a company's diversification strategy sets the stage for evaluating how good the strategy is and proposing strategic moves to boost the company's performance. The only time a business unit's competitive strength may not be undermined by having higher costs than rivals is when it has incurred the higher costs to strongly differentiate its product offering and its customers are willing to pay premium prices for the differentiating features. A manufacturer of canoes diversifying into the production of tennis rackets. N Pursuing multinational diversification and striving to globalize the operations of several of the company's business units.
D. typically have dimmer profit outlooks than those in the middle with medium resource priority. Low priority for resource allocation.
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