Chapter 6 corporate-level strategy creating value through diversification

After reading this chapter, you should have a good understanding of the following learning objectives:
The reasons for the failure of many diversification efforts.
How managers can create value through diversification initiatives.
How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power.
How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring, parenting, and portfolio analysis.
The various means of engaging in diversification—mergers and acquisitions, joint ventures/strategic alliances, and internal development.
Managerial behaviors that can erode the creation of value.

Chapter 6 Corporate - Level Strategy: Creating Value through Diversification.
ИГРАТЬ.
• Mergers and acquisitions.
• Diversification should create synergy.
Related businesses : horizontal relationships.
• Sharing tangible resources.
• Sharing intangible resources.
Unrelated businesses (hierarchical relationships)
• Value creation derives from corporate office.
• Leveraging support activities.
and Financial Synergies.
• 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.
and Revenue Enhancement.
• Cost savings from leveraging core competencies.
or sharing related activities among businesses in.
• Leverage or reuse key resources.
• Efficient purchasing operations.
• Existing manufacturing facilities.
• The glue that binds existing businesses together.
• Engine that fuels new business growth.
• Collective learning in a firm.
• How to coordinate diverse production skills.
• How to integrate multiple streams of technologies.
• How to market diverse products and services.
- Different businesses in the firm must be similar in at least one important way related to the core competence.
- Core competencies must be difficult.
for competitors to imitate or find.
Common manufacturing facilities.
Sharing activities provide two payoffs.
• Savings obtained through.
- Eliminating duplicate jobs.
- Eliminating duplicate facilities.
- Eliminating related expenses.
• Savings may be offset by.
- Greater costs of coordinating shared activities.
- Costs of compromising design or performance of a shared.
level of sales growth together than either could.
have achieved on its own.
- Combined distribution channels can escalate sales of the.
acquiring company's products.
- Enhanced effectiveness of differentiation strategies.
• Can have a negative effect on a given business's.
• Secure distribution channels.
• Protection and control over.
assets and services.
• Access to new business.
• Simplified procurement and.
with increased overhead and.
• Loss of flexibility resulting from.
inability to respond quickly to.
changes in the external.
• Problems associated with.
unbalanced' capacities or.
unfilled demand along the value.
• Additional administrative costs.
2. Are there activities in our industry value chain presently being.
outsourced or performed independently by others that are a viable.
source of future profits?
3. Is there relative stability in the demand for the organization's.
4. Is there a source of core competence in the activity that is.
considered for outsourcing or vertical integration?
• Infuse new technologies.
• Reduce unnecessary expenses.
Corporate management must.
• Have insight to detect undervalued companies or businesses with high potential for transformation.
• Have requisite skills and resources to turn the businesses around.
Restructuring can involve changes in.
the corporate office.
• Allocate resources (cash cows to stars and some question marks)
• Expertise of corporate office in locating attractive firms to acquire.
2. Creation of synergies and shareholder value by portfolio management and.
the corporate office.
• Provide financial resources to business units on favorable terms reflecting the corporation's overall ability to raise funds.
• Provide high quality review and coaching for units.
• Provide a basis for developing strategic goals and reward/evaluation systems.
• Pooling resources of other companies with a firm's own.
Strategic alliances and joint ventures.
• Cooperative relationships between two or more firms.
• Special types of alliances where firms contribute assets to.
form a new legal entity.
• Lacks requisite marketing expertise.
• Doesn't understand customer needs.
• Doesn't know how to promote the.
• Doesn't have access to proper distribution.
costs in the value chain.
Pool value-creating activities.
Economies of scale.
• Use expertise of two or more.
• Develop products technologically.
beyond the capability of the companies acting independently.
• Real options ( real assets or physical things)
• Investments can be staged.
• Strategic decision-makers have "tollgates"

Chapter 6.
ИГРАТЬ.
-How should these businesses be managed to jointly create more value than if they were freestanding units?
-Mergers and acquisitions.
Diversification should be synergistic.
-Sharing intangible resources.
-Leveraging support activities.
-How to coordinate diverse production skills.
-How to integrate multiple streams of technologies.
-How to market diverse products and services.
2. Different business in the firm must be similar in at least on important way related to the core competence.
3. Core competencies must be difficult for competitors to imitate or find substitutes for.
-Common manufacturing facilities.
2. Revenue enhancements.
-Protection of and control over valuable assets.
-Access to new business opportunities.
-Simplified procurement and administrative procedures.
-Loss of flexibility resulting from large investments.
-Problems associated with unbalanced capacities along with the value chain.
-Additional administrative costs associated with managing a more complex set of activities.
2. Are there activities in our industry value-chain presently being outsourced or performed independently by others that are a viable source of future profits?
3. Is there a high level of stability in the demand for the organization's products?
4. Do we have the necessary competencies to execute the vertical integration strategies?
5. Will the vertical integration initiative have potential negative impacts on out stakeholders?
-Suggesting strategic alternatives for each business.
-Identifying priorities for the allocation of resources across the business.
-SBU's viewed as stand-alone entities.
-Process becomes largely mechanical.
-Reliance on "strict rules" regarding resource allocation across SBU's can be detrimental.
-Pooling resources of other companies with a firm's own resource base - joint venture, strategic alliance.
-Internal development - corporate entrepreneurship.
-Can lead to consolidation within an industry and ca force other players to merge.
-Corporations can also enter new market segments by way of acquisitions.
-Can provide the opportunity for firms to attain the 3 bases of synergy.
2. Sharing activities.
3. Building market power.
-There can be many cultural issues that may doom the intended benefits from M&A endeavors.
-The takeover premium that is paid for acquisition typically is very high.
-Manager's credibility & ego can sometimes get in the way of sound business decisions.
-Join other firms to reduce manufacturing (or other) costs in the value chain (pool capital, value-creating activities, facilities)
-Develop or diffuse new technologies (use expertise of two or more companies, develop products technologically beyond the capability of the companies acting independently)
-Partners must be compatible.
-Partners must trust one another.
-Antitakeover tactics (greenmail, golden parachute, and poison pills)

Chapter 6 Test Bank - Chapter 06 Corporate-Level Strategy.
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