C07a11.PPT

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C07a11.PPT

  1. 1. Diversification and Corporate Strategy <ul><li>A company is diversified when it is in two or more lines of business </li></ul><ul><li>Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business </li></ul><ul><ul><li>A diversified company needs a multi-industry, multi-business strategy </li></ul></ul><ul><ul><li>A strategic action plan must be developed for several different businesses competing in diverse industry environments </li></ul></ul>
  2. 2. Stages in Transitioning from a Single Business to a Diversified Company <ul><li>STAGE 1 : Small single-business serving a regional market </li></ul><ul><li>STAGE 2 : Geographic expansion </li></ul><ul><li>STAGE 3 : Vertical integration (optional) </li></ul><ul><li>STAGE 4 : Diversification --usually initiated when growth opportunities dwindle in the company’s present business </li></ul>What next?
  3. 3. Corporate Strategy Alternatives Vertical Integration Single Business Concentration Diversify into Related Businesses Diversify into Unrelated Businesses Diversify into Related & Unrelated Businesses <ul><li>Make new acquisitions </li></ul><ul><li>Divest weak units </li></ul><ul><li>Restructure portfolio </li></ul><ul><li>Retrench </li></ul><ul><li>Become a DMNC </li></ul><ul><li>Liquidate </li></ul>Post-Diversification Strategic Alternatives
  4. 4. Diversification Strategies <ul><li>Entering new industries </li></ul><ul><li>Related diversification </li></ul><ul><li>Unrelated diversification </li></ul><ul><li>Divestiture and liquidation </li></ul><ul><li>Corporate turnaround, retrenchment, and restructuring </li></ul><ul><li>Multinational diversification </li></ul>
  5. 5. Strategies for Entering New Businesses Acquire existing company Start-up new business internally Joint venture with another company
  6. 6. Types of Strategic Fit Technology Fits Distribution & Customer-Related Fits Operating Fits Managerial Fits
  7. 7. Acquisition Criteria For Unrelated Diversification Strategies <ul><li>Can business meet corporate targets for profitability and ROI? </li></ul><ul><li>Will business require substantial infusions of capital? </li></ul><ul><li>Is business in an industry with growth potential? </li></ul><ul><li>Is business big enough to contribute to the parent firm’s bottom line? </li></ul><ul><li>Is there potential for union difficulties or adverse government regulations? </li></ul><ul><li>Is industry vulnerable to recession, inflation, high interest rates, or shifts in government policy? </li></ul>
  8. 8. Appeal of Unrelated Diversification <ul><li>Business risk scattered over different industries </li></ul><ul><li>Capital resources can be directed to those industries offering best profit prospects </li></ul><ul><li>Stability of profits -- Hard times in one industry may be offset by good times in another industry </li></ul><ul><li>If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced </li></ul>

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