MGT 300 Spring 2010 Week 10

MGT 300 Spring 2010 Week 10 - Corporate-Level...

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Corporate-Level Strategy (Dess-Lumpkin-Eisner Chapter 6) MGT 300 Week 10 March 31
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10 - 2 Making Diversification Work 1. What businesse s should a corporation compete in? 1. How should these businesses be managed to jointly create more value than if they were freestanding units?
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10 - 3 Making Diversification Work Diversification initiatives must create value for shareholders - Mergers and acquisitions ( buy ) - Strategic alliances - Joint ventures - Internal development ( make ) Diversification should create synergy Business 1 Business 2
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10 - 4 Synergy Related businesses (horizontal relationships) - Sharing tangible resources - Sharing intangible resources Unrelated businesses (hierarchical relationships) - Value creation derives from corporate office - Leveraging support activities
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10 - 5 Creating Value Related Diversification: Economies of Scope Leveraging core competencies 3M leverages it competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications Sharing activities McKesson, a large distribution company, sells many product lines, such as pharmaceuticals and liquor, through its superwarehouses Related Diversification: Market Power Pooled negotiating power The Times Mirror Company increases its power over customers by providing “one-stop shopping” for advertisers to reach customers through multiple media —television and newspapers—in several huge markets such as New York and Chicago Vertical integration Shaw industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process Exhibit 6.2 Creating Value through Related and Unrelated Diversification
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10 - 6 Creating Value Unrelated Diversification: Parenting, Restructuring, and Financial Synergies Corporate restructuring and parenting The corporate office of Cooper Industries adds value to its acquired businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations Portfolio management Novartis, formerly Ciba-Geigy, uses portfolio management to improve many key activities, including resource allocation and reward and evaluation systems Exhibit 6.2 Creating Value through Related and Unrelated Diversification
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10 - 7 Related Diversification: Economies of Scope and Revenue Enhancement Economies of scope - Cost savings from leveraging core competencies or sharing related activities among businesses in the corporation - Leverage or reuse key resources Favorable reputation Expert staff Management skills Efficient purchasing operations Existing manufacturing facilities
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10 - 8 Creating Value Economies of Scale & Scope Economies of Scale -
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