4 vertical integration diversification along the

Info icon This preview shows pages 6–8. Sign up to view the full content.

View Full Document Right Arrow Icon
4. Vertical Integration : diversification along the value chain. In deciding to do so, must consider four questions: i. Are we already getting what we need? ii. Are there areas in the value chain where we could make money by taking action? iii. Is there a stable demand for our current products? iv. Would we really use it? Would the change be fully utilized and worthwhile? May allow for more control but is risky if you’re tied into a deal and the environment begins to change (less flexible as a result of doing so). Transaction Cost Perspective: vertical integration gives rise to a new set of costs called Administrative Costs . If the Transactions Costs (costs of search, negotiation, contracting, monitoring, and enforcement) would be cheaper internally than by vertically integrating (ie the Administrative Costs), then don’t vertically integrate . Unrelated Diversification : value creation derives from the corporate office by leveraging on support activities from the value chain. Much of this deals with the managerial expertise of the firm. Corporate Restructuring & Parenting : audit manufacturing operations, improve accounting activities, centralize union negotiations Portfolio Management : improve resource allocation and reward/evaluation systems 6
Image of page 6

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Means to Achieving Diversification Acquisitions and Mergers (M&A) Pooling resources of other companies with a firm’s own resource base to enter new markets, reduce costs in the value chain, and/or develop or diffuse new technology . o Joint Ventures A contract creating a new entity in which both firms have some investment in o Strategic Alliances A contract between two firms with long-term goals Internal Development o New products, markets, and technology Lecture 7: Formal Organization: Structure and Control Systems These are things within the transformation process that managers can control. They are explicit things that can be seen on paper such as a rulebook, structure charts, etc. Structures are formalized patterns of interactions that link a firm’s people, tasks, and technologies. It provides the means of balancing two conflicting needs: specialization (doing something very well, meeting precise needs) and integration (making all groups work well together). Elements of Structure Authority o Power to hold people accountable for their actions and to make decisions concerning the use of organizational resources Hierarchy (of Authority) o An organization’s chain of command, specifying the relative authority of each manager Who reports to whom… Centralization (Flatter) v. Decentralization (Flexible) o Top managers have decision-making power in centralized organizations, while decentralized organizations put more authority at lower levels Span of Control o Number of subordinates that report directly to a manager Line Manager o Managers in the direct chain of command who have authority over people and resources and are primarily responsible for the production of goods or services They do primary function in the value chain that relate directly to output; it’s easy to see their impact on profits Staff Manager o
Image of page 7
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern