Chap7and8PP

Chap7and8PP - Diversification and Corporate Strategy...

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1 Diversification and Corporate Strategy Corporate Level Strategy – the strategy for a company and all of its business units as a whole Diversification – the primary approach to corporate level strategy Diversified firms vary according to Level of diversification Degree of relatedness
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2 Four Main Tasks in Crafting Corporate Strategy Pick new industries to enter and decide on means of entry Initiate actions to boost combined performance of businesses Pursue opportunities to leverage cross- business value chain relationships and strategic fits into competitive advantage Establish investment priorities, steering resources into most attractive business units
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3 Why do Firms Diversify? When they have excess resources, capabilities, and core competencies that have multiple uses Diminishing growth prospects in present industry Cost saving opportunities Capture strategic fits Capture financial economies Spread business risk Leverage brand name
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4 Building Shareholder Value Ultimate justification for diversifying A diversification move must pass three tests The industry attractiveness test The cost-of-entry test The better-off test
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5 Making the Diversification Decision Decision to Diversify Requires Two Additional Decisions: Level and Degree of Diversification Number and Relatedness Mode of Diversification Acquisition, Internal Development, Joint Venture
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6 Major Corporate Level Strategies Single Business Dominant Business Related Diversification Unrelated Diversification
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7 What is Related Diversification? Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es) Capturing the “strategic fits” makes related diversification a 1 + 1 = 3 phenomenon
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8 Examples of Related Diversification? Proctor and Gamble (distribution/marketing) Provides branded consumer goods products worldwide 3 GBUs Beauty GBU Beauty segment Grooming segment Health and Well-Being GBU Health Care segment Snacks, Coffee, and Pet Care segment Household Care GBU Fabric Care and Home Care segment Baby Care and Family Care segment
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Chap7and8PP - Diversification and Corporate Strategy...

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