Book for referencesThe United States Health Care System Combini

Book for references
The United States Health Care System: Combining Business,
Health, and Delivery
Third Edition
Austin, Anne and Wetle, Victoria
2017.0 Pearson
Q.1 You Decide(Submit your strategy and recommendation
report.)Scenario Summary
You are the new Chief Executive Officer (CEO) of Middlefield
Hospital. Middlefield Hospital is a 450-bed tertiary care facility
in a major urban area in the Northeast. The hospital is an
integrated health system that provides the full array of inpatient
and outpatient services. The hospital enjoys a reputation for
quality care in the area.
As the new CEO, you have learned that the hospital's employee
turnover rate exceeds 20%, and there are over 100 nursing
vacancies. You have also learned the following facts that may
be impacting these workforce shortages.
· A new hospital has recently opened in your market area that
has produced competition for Middlefield Hospital.
· Employee morale has deteriorated over the last 12 months.
· Essex University (a local college) is considering eliminating
its nursing degree program because there is continual difficulty
in recruiting well-qualified instructors.Your Role/Assignment
The board of directors has asked that you provide a 750-word
report detailing your strategies and recommendations to
overcome the workforce shortages and to improve employee
morale. The strategies and recommendations should be as
specific as possible and include the resources needed for
implementation.
*Include a follow-up paragraph on how your recommendations
would, or would not, change if a new federal law was passed
that provided free nursing education to all students who work in

an underserved area (which you would qualify) with rationale
and justification.
Your primary text and journal and website research must be
used as a reference to support your analysis.Available
Resources
Review the points of view of the following people to obtain
further insights on this assignment.Key PlayersDr. Rusty Gates:
Internist
I have been admitting patients to Middlefield Hospital for 5
years. However, I recently moved my practice to the new
hospital across town. The new hospital has much better
facilities and the technology is state of the art. The staff appear
much more invested in the quality of patient care and my
patients seem happier.Eileen Wright: Board Member for
Middlefield Hospital
From my perspective, the employee morale at Middlefield has
declined over the last 12 months. More and more employees are
leaving Middlefield to go to the new hospital, and we have
staffing shortages in most areas. The director of nursing is a
great leader, but he is having difficulty retaining nursing staff. I
am not sure what to do, but I don't want the reputation of the
hospital to suffer.Anne Teaks: Registered Nurse for Middlefield
Hospital
I have worked for Middlefield Hospital for 22 years. This
hospital has always been committed to high quality in patient
care. These nursing shortages have occurred many times
through the years, and we will get through this one as well. I
don't like that we are short of staff on many shifts, but we all
have to pitch in and make sure our patients get the care they
need.You DecideActivity
Grading Criteria
Introduction /Background=5 points
5 pts
This criterion is linked to a Learning OutcomeUnderstanding:
Demonstrate a strong grasp of the problem at hand. Demonstrate

understanding of how the course concepts apply to the
problem.=10 points
10 pts
This criterion is linked to a Learning OutcomeAnalysis (Apply
original thought to solving the business problem. Apply
concepts from the course material correctly toward solving the
business problem)= 15 Points
15 pts
This criterion is linked to a Learning OutcomeExecution (Write
your answer clearly and succinctly using strong organization
and proper grammar. Use citations correctly)=15 points
15 pts
This criterion is linked to a Learning
OutcomeConclusion/Summary/ Recommendation=5 points
5 pts
This criterion is linked to a Learning OutcomeComments:
0 pts
Total Points: 50
Health, and Delive
ry
Third Edition
2017.0 Pearson

Q.1 You Decide
(
Submit your strategy and recommendation report.
)
Scenario Summary
You are the new Chief Executive Officer (CEO) of Middlefiel d
Hospital. Middlefield Hospital is
a 450
-
bed tertiary care facility in a major urban area in the
Northeast. The hospital is an
and outpatient services. The
hospital enjoys a reputation for quality care in the area.
turnover
rate exceeds 20%, and
there are over 100 nursing vacancies. You have also learned the
following facts that may be
impacting these workforce shortages.
·
A new hospital has recently opened in your market area that has
produced competition
for Middlefield Hosp
ital.
·
Employee morale has deteriorated over the last 12 months.

·
Essex University (a local college) is considering eliminating its
nursing degree program
because there is continual difficulty in recruiting well
-
qualified instructors.
Your Role/Assignment
Th
e board of directors has asked that you provide a 750
-
word report detailing your strategies and
recommendations to overcome the workforce shortages and to
improve employee morale. The
strategies and recommendations should be as specific as
possible and inc
lude the resources
needed for implementation.
*Include a follow
-
up paragraph on how your recommendations would, or would
not, change if a
new federal law was passed that provided free nursing education
to all students who work in an
underserved area (which
you would qualify) with rationale and justification.
used as a reference to support your
analysis.

Available Resources
further insights
on this assignment.
Health, and Delivery
Third Edition
2017.0 Pearson
Q.1 You Decide(Submit your strategy and recommendation
report.)
Scenario Summary
You are the new Chief Executive Officer (CEO) of Middlefield
Hospital. Middlefield Hospital is
a 450-bed tertiary care facility in a major urban area in the
Northeast. The hospital is an
and outpatient services. The
hospital enjoys a reputation for quality care in the area.
turnover rate exceeds 20%, and
there are over 100 nursing vacancies. You have also learned the
following facts that may be
impacting these workforce shortages.
that
has produced competition
for Middlefield Hospital.
its nursing degree program
because there is continual difficulty in recruiting well-qualified
instructors.
Your Role/Assignment

The board of directors has asked that you provide a 750-word
report detailing your strategies and
recommendations to overcome the workforce shortages and to
improve employee morale. The
strategies and recommendations should be as specific as
possible and include the resources
needed for implementation.
*Include a follow-up paragraph on how your recommendations
would, or would not, change if a
new federal law was passed that provided free nursing education
to all students who work in an
underserved area (which you would qualify) with rationale and
justification.
used as a reference to support your
analysis.
Available Resources
further insights on this assignment.
CHAPTER 7 Strategies for Competing in International Markets
LEARNING OBJECTIVES
THIS CHAPTER WILL HELP YOU UNDERSTAND:
The primary reasons companies choose to compete in
international markets
How and why differing market conditions across countries
influence a company’s strategy choices in international markets
The five major strategic options for entering foreign markets
The three main strategic approaches for competing
internationally
How companies are able to use international operations to
improve overall competitiveness
The unique characteristics of competing in developing-country

markets
© McGraw-Hill Education.
Why companies decide to enter foreign markets
To further exploit core competencies
To gain access to lower-cost inputs of production
To gain access to new customers and meet current customer
needs
To achieve lower costs through economies of scale, experience,
and increased purchasing power
To gain access to resources and capabilities located in foreign
markets
WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS
To gain access to new customers
To achieve lower costs through economies of scale, experience,
and increased purchasing power
To further exploit core competencies
To gain access to resources and capabilities located in foreign
markets
To spread business risk across a wider market base
WHY COMPETING ACROSS NATIONAL BORDERS MAKES
STRATEGY-MAKING MORE COMPLEX1.Different countries
with different home-country advantages in different
industries2.Location-based value chain advantages
for certain countries3.Differences in government policies, tax

rates, and economic conditions4.Currency exchange rate
risks5.Differences in buyer tastes and preferences for products
and services
FIGURE 7.1 The Diamond of National Advantage
The four factors that influence each other and a company's
home-country advantage are:
Demand conditions: home-market size and growth rate; buyers'
tastes
First strategy, structure, and rivalry: different styles of
management and organization; degree of local rivalry
Factor conditions: availability and relative prices of inputs (e.g.
labor, materials)
Related and supporting industries: proximity of suppliers, end
users, and complementary industries
THE DIAMOND FRAMEWORK
Answers important questions about competing on an
international basis by:
Predicting where new foreign entrants are likely to come from
and their strengths
Highlighting foreign market opportunities where rivals are
weakest
Identifying the location-based advantages of conducting certain
value chain activities of the firm in a particular country

REASONS FOR LOCATING VALUE CHAIN ACTIVITIES
ADVANTAGEOUSLY
Lower wage rates
Higher worker productivity
Lower energy costs
Fewer environmental regulations
Lower tax rates
Lower inflation rates
Proximity to suppliers and technologically related industries
Proximity to customers
Lower distribution costs
Available or unique natural resources
THE IMPACT OF GOVERNMENT POLICIES AND
ECONOMIC CONDITIONS IN HOST COUNTRIES
Positives
Tax incentives
Low tax rates
Low-cost loans
Site location and development
Worker training
Negatives
Environmental regulations
Subsidies and loans to domestic competitors
Import restrictions
Tariffs and quotas
Local-content requirements
Regulatory approvals

Profit repatriation limits
Minority ownership limits
Core Concepts (1 of 6)
Political risks stem from instability or weaknesses in national
governments and hostility to foreign business.
Economic risks stem from the stability of a country’s
monetary system, economic and regulatory policies, the lack of
property rights protections.
THE RISKS OF ADVERSE EXCHANGE RATE SHIFTS
Effects of exchange rate shifts
Exporters experience a rising demand for their goods whenever
their currency grows weaker relative to the importing country’s
currency.
Exporters experience a falling demand for their goods whenever
their currency grows stronger relative to the importing
country’s currency.
STRATEGIC MANAGEMENT PRINCIPLE (1 of 6)
Fluctuating exchange rates pose significant economic risks to a
firm’s competitiveness in foreign markets.

Exporters are disadvantaged when the currency of the country
where goods are being manufactured grows stronger relative to
the currency of the importing country.
Domestic companies facing competitive pressure from lower-
cost imports benefit when …
… their government’s currency grows weaker in relation to the
currencies of the countries where the lower-cost imports are
being made.
Thinking Strategically
What effects has the adoption of the euro had on the ability of
European Union (EU) countries and firms to respond to changes
in intra-national economic conditions given that they now share
a common currency?
What should a EU firm do to respond to a adverse currency
exchange rate shift in a non-EU country?
How will exiting the EU affect the United Kingdom’s ability to
compete in world markets?
CROSS-COUNTRY DIFFERENCES IN DEMOGRAPHIC,
CULTURAL, AND MARKET CONDITIONS
Whether to pursue a strategy of offering a mostly standardized

product worldwide
Whether to customize offerings in each country market to match
the tastes and the preferences of local buyers
Key Strategic
Considerations
Two key strategic considerations
To customize offerings in each country market to match the
tastes and preferences of local buyers
To pursue a strategy of offering a mostly standardized product
worldwide
STRATEGIC OPTIONS FOR ENTERING AND COMPETING
IN INTERNATIONAL MARKETS
Maintain a home country production base and export goods to
foreign markets.
License foreign firms to produce and distribute the firm’s
products abroad.
Employ a franchising strategy in foreign markets.
Establish a subsidiary in a foreign market via acquisition or
internal development.
Rely on strategic alliances or joint ventures with foreign
companies.
EXPORT STRATEGIES
Advantages
Low capital requirements
Economies of scale in utilizing existing production capacity

No distribution risk
No direct investment risk
Disadvantages
Maintaining relative cost advantage of home-based production
Transportation and shipping costs
Exchange rates risks
Tariffs and import duties
Loss of channel control
LICENSING AND FRANCHISING STRATEGIES
Advantages
Low resource requirements
Income from royalties and franchising fees
Rapid expansion into many markets
Disadvantages
Maintaining control of proprietary know-how
Loss of operational and quality control
Adapting to local market tastes and expectations
FOREIGN SUBSIDIARY STRATEGIES
Advantages
High level of control
Quick large-scale market entry
Avoids entry barriers
Access to acquired firm’s skills
Disadvantages

Costs of acquisition
Complexity of acquisition process
Integration of the firms’ structures, cultures, operations, and
personnel
Core Concept (2 of 6)
A greenfield venture is a subsidiary business that is established
by setting up the entire operation from the ground up.
USING A GREENFIELD STATEGY FOR DEVELOPING A
FOREIGN SUBSIDIARY
A greenfield strategy is appealing when:
Creating an internal startup is cheaper than making
an acquisition
Adding new production capacity will not adversely impact the
supply-demand balance in the local market
A startup subsidiary has the ability to gain good distribution
access
A startup subsidiary will have the size, cost structure, and
resource strengths to compete head-to-head against local rivals
PURSUING A GREENFIELD STRATEGY
Advantages
High level of control over venture
“Learning by doing”
in the local market
Direct transfer of the firm’s technology, skills, business

practices, and culture
Disadvantages
Capital costs of initial development
Risks of loss due to political instability or lack of legal
protection of ownership
Slowest form of entry due to extended time required to
construct facility
BENEFITS OF ALLIANCE AND JOINT VENTURE
STRATEGIES
Gaining partner’s knowledge of local market conditions
Achieving economies of scale through joint operations
Gaining technical expertise and local market knowledge
Sharing distribution facilities and dealer networks, and mutually
strengthening each partner’s access to buyers
Directing competitive energies more toward mutual rivals and
less toward one another
Establishing working relationships with key officials in the
host-country government
Strategic Management Principle (3 of 6)
Collaborative strategies involving alliances or joint ventures
with foreign partners …
…are a popular way for companies to edge their way into the
markets of foreign countries.

Cross-border alliances enable a growth-minded firm to:
widen its geographic coverage and strengthen its
competitiveness in foreign markets;
at the same time, they offer flexibility
and allow a firm to retain some degree of autonomy and
operating control.
THE RISKS OF STRATEGIC ALLIANCES WITH FOREIGN
PARTNERS
Outdated knowledge and expertise of local partners
Cultural and language barriers
Costs of establishing the working arrangement
Conflicting objectives and strategies or deep differences of
opinion about joint control
Differences in corporate values and ethical standards
Loss of legal protection of proprietary technology or
competitive advantage
Overdependence on foreign partners for essential expertise and
competitive capabilities
INTERNATIONAL STRATEGY: THE THREE MAIN
APPROACHES
Multidomestic Strategy
Global
Strategy
Transnational

Strategy
Competing
Internationally
An international strategy is a strategy for competing in two or
more countries simultaneously.
A multidomestic strategy is one in which a firm
varies its product offering and competitive approach from
country to country in an effort to be responsive to differing
buyer preferences and market conditions.
It is a think-local, act-local type of international strategy,
facilitated by decision making decentralized to the local level.
A transnational strategy is
a think-global,
act-local approach that incorporates elements of both
multidomestic and global strategies.
A global strategy is one in which a firm employs the same basic
competitive approach in all countries where it operates,
sells much the same products everywhere,
strives to build global brands,
and coordinates its actions worldwide with strong headquarters
control. It represents a think-global, act-global approach.

FIGURE 7.2 Three Approaches for Competing
Internationally
A grid is shown. The vertical axis, Benefits from Global
Integration and Standardization, is labeled “high” at the top and
“low” at the bottom. The horizontal axis, Need for Local
Responsiveness, is labeled “low” on the left side and “high” on
the right. Three strategies are charted on the graph:
Global strategy: think global, act global. High benefits; low
need for local responsiveness.
Transnational strategy: think global – act local. Mid-high
benefits; mid-high need for local responsiveness.
Multidomestic strategy: think local – act local. Low benefits;
high need for local responsiveness.
INTERNATIONAL OPERATIONS AND THE QUEST FOR
COMPETITIVE ADVANTAGE
Use international location to lower
cost or differentiate
product
Share resources
and capabilities
Gain cross-border coordination
benefits
Build Competitive Advantage
in International Markets
Three ways to build competitive advantage in international

markets are:
Use international location to lower cost or differentiate product
Share resources and capabilities
Gain cross-border coordination benefits
TABLE 7.1 Advantages and Disadvantages of a
Multidomestic StrategyMultidomestic (think local, act
local)AdvantagesDisadvantagesCan meet the specific needs of
each market more preciselyHinders resource and capability
sharing or cross-market transfersCan respond more swiftly to
localized changes in demandHas higher production and
distribution costsCan target reactions to the moves of local
rivalsIs not conductive to a worldwide competitive
advantageCan respond more quickly to local opportunities and
threats
TABLE 7.1 Advantages and Disadvantages of a
Global StrategyGlobal (think global, act
global)AdvantagesDisadvantagesHas lower costs due to scale
and scope economiesCannot address local needs preciselyCan
lead to greater efficiencies due to the ability to transfer best
practices across marketsIs less responsive to changes in local
market conditionsIncreases innovation from knowledge sharing
and capability transferInvolves higher transportation costs and
tariffsOffers the benefit of a global brand and reputationHas
higher coordination and integration costs

TABLE 7.1 Advantages and Disadvantages of Transnational
StrategyTransnational (think global, act
local)AdvantagesDisadvantagesOffers the benefits of both local
responsiveness and global integrationIs more complex and
harder to implementEnables the transfer and sharing of
resources and capabilities across bordersEntails conflicting
goals, which may be difficult to reconcile and require trade-
offsProvides the benefits of flexible coordinationInvolves more
costly and time-consuming implementation
USING LOCATION TO BUILD COMPETITIVE ADVANTAGE
To pursue a strategy of offering
a mostly standardized product worldwide
To customize offerings in each country market to match tastes
and preferences of local buyers
Key Location
Issues
Two key location issues are:
To customize offerings in each country market to match tastes
and preferences of local buyers
To pursue a strategy of offering a mostly standardized product
worldwide
Companies that compete internationally can….
… pursue competitive advantage in world markets
by locating their value chain activities in whatever

nations prove most advantageous.
WHEN TO CONCENTRATE ACTIVITIES IN A FEW
LOCATIONS
The costs of manufacturing or other activities are significantly
lower in some geographic locations than in others.
There are significant scale economies in production or
distribution.
There are sizable learning and experience benefits associated
with performing an activity in a single location.
Certain locations have superior resources, allow better
coordination of related activities, or offer other valuabl e
advantages.
WHEN TO DISPERSE ACTIVITIES ACROSS MANY
LOCATIONS
Buyer-related activities can be conducted at a distance.
There are high transportation costs.
There are diseconomies of large size.
Trade barriers make a central location too expensive.
Dispersing activities reduces exchange rate risks.
Dispersion helps prevent supply interruptions.
Dispersion helps avoid adverse political developments.
Dispersion allows for location-based technology and production
cost competitive advantages.

SHARING AND TRANSFERRING RESOURCES AND
CAPABILITIES TO BUILD COMPETITIVE ADVANTAGE
Building a resource-based competitive advantage requires:
Using powerful brand names to extend a differentiation-based
competitive advantage beyond the home market
Coordinating activities for sharing and transferring resources
and production capabilities across different countries’ domains
to develop market dominating depth in key competencies
Profit sanctuaries are country markets that provide a firm with
substantial profits because of a strong or protected market
position.
Cross-market subsidization—supporting competitive offensives
in one market
with resources and profits diverted from operations in another
market
—can be a powerful competitive weapon.
PROFIT SANCTUARY POTENTIAL OF DOMESTIC-ONLY
AND INTERNATIONAL COMPETITORS
A domestic-only company only reaches out to the home market,
and thus only has one profit sanctuary.

An international company, on the other hand, reaches out to the
home market, as well as several other countries.
This means the company usually has a profit sanctuary in its
home market but may also have other sanctuaries in other
countries where it has a strong position and market share.
PROFIT SANCTUARY POTENTIAL OF GLOBAL
COMPETITORS
A globally competitive company generally has a profit
sanctuary in its home market
and frequently has several other profit sanctuaries in those
countries where it is a market leader and enjoys a strong
competitive position.
DUMPING AS A STRATEGY
Dumping
Selling goods in foreign markets at prices
that are either below normal home market prices or below the
full costs per unit
Dumping is NOT a fair-trade practice.
Governments can be expected to retaliate against such practices
by foreign competitors.
The World Trade Organization (WTO) actively polices dumping
to discourage such practices.

Anti-dumping
If a company exports a product at a price lower than the price it
normally charges on its own home market, it is said to be
“dumping” the product. The WTO Agreement does not regulate
the actions of companies engaged in “dumping”. Its focus is on
how governments can or cannot react to dumping — it
disciplines anti-dumping actions, and it is often called the
“Anti-dumping Agreement”.
https://www.wto.org/english/tratop_e/adp_e/adp_e.htm
Technical Information on anti-dumping
https://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm
USING PROFIT SANCTUARIES TO DEFEND AGAINST
INTERNATIONAL RIVALS
International Firm A
International Firm B
Profit Sanctuary
Firm A moves against Firm B in Country B
Firm B counters with a response in Country C
Firm A moves against Firm B in Country B, where Firm B has a
presence.
Firm B then counters by a response in Country C, where Firm A
has a presence.

When the same companies compete against one another in
multiple geographic markets …
… the threat of cross-border counterattacks may be enough to
deter aggressive competitive moves
… and encourage mutual restraint among international rivals.
STRATEGY OPTIONS FOR COMPETING IN THE MARKETS
OF DEVELOPING COUNTRIES
Prepare to compete on the basis of low price.
Prepare to modify the firm’s business model or strategy to
accommodate local circumstances.
Try to change the local market to better match the way the fi rm
does business elsewhere.
Stay away from developing markets where it is impractical or
uneconomical to modify the company’s business model to
accommodate local circumstances.
DEFENDING AGAINST GLOBAL GIANTS: STRATEGIES
FOR LOCAL COMPANIES IN DEVELOPING COUNTRIES
Develop a business model that exploits shortcomings in local
distribution networks or infrastructure.
Utilize knowledge of local customer needs and preferences to
create customized products or services.
Take advantage of aspects of the local workforce with which
large multinational firms may be unfamiliar.
Use acquisition and rapid-growth strategies to defend against
expansion-minded internationals.
Transfer company expertise to cross-border markets and initiate

actions to contend on an international level.
Profitability in developing markets rarely comes quickly or
easily—
…new entrants must adapt their business models to local
conditions and be patient in earning a profit.
LEARNING OBJECTIVES
The primary reasons companies choose to compete in
international markets
How and why differing market conditions across countries
influence a company’s strategy choices in international markets
The five major strategic options for entering foreign markets
The three main strategic approaches for competing
internationally
How companies are able to use international operations to
improve overall competitiveness
The unique characteristics of competing in developing-country
markets
CHAPTER 8 Corporate Strategy: Diversification and the
Multibusiness Company

LEARNING OBJECTIVES
When and how business diversification can enhance shareholder
value
How related diversification strategies can produce cross-
business strategic fit capable of delivering competitive
advantage
The merits and risks of unrelated diversification strategies
The analytic tools for evaluating a company’s diversification
strategy
What four main corporate strategy options a diversified
company can employ for solidifying its strategy and improving
company performance
WHAT DOES CRAFTING A DIVERSIFICATION STRATEGY
ENTAIL?Step 1Picking new industries to enter and deciding on
the means of entryStep 2Pursuing opportunities to leverage
cross-business value chain relationships and strategic fit into
competitive advantageStep 3Establishing investment priorities
and steering corporate resources into the most attractive
business units
3
STRATEGIC DIVERSIFICATION OPTIONS
Sticking closely with the existing business lineup and pursuing
opportunities presented by these businesses

Broadening the current scope of diversification by entering
additional industries
Retrenching to a narrower scope of diversification by divesting
poorly performing businesses
Broadly restructuring the entire firm by divesting some
businesses and acquiring others to put a whole new face on the
firm’s business lineup
WHEN TO CONSIDER DIVERSIFYING
A firm should consider diversifying when:
Growth opportunities are limited as its principal markets reach
their maturity and buyer demand is either stagnating or set to
decline.
Changing industry conditions—new technologies, inroads being
made by substitute products, fast-shifting buyer preferences, or
intensifying competition—are undermining the firm’s
competitive position.
HOW MUCH DIVERSIFICATION?
Deciding how wide-ranging diversification should be
Diversify into closely related businesses or into totally
unrelated businesses?
Diversify present revenue and earnings base to a small or major
extent?
Move into one or two large new businesses or a greater number
of small ones?
Acquire an existing company?
Start up a new business from scratch?
Form a joint venture with one or more companies to enter new
businesses?

OPPORTUNITY FOR DIVERSIFYING
Strategic diversification possibilities
Expand into businesses whose technologies and products
complement present business(es).
Employ current resources and capabilities as valuable
competitive assets in other businesses.
Reduce overall internal costs by cross-business sharing or
transfers of resources and capabilities.
Extend a strong brand name to the products of other acquired
businesses to help drive up sales and profits of those
businesses.
BUILDING SHAREHOLDER VALUE: THE ULTIMATE
JUSTIFICATION FOR DIVERSIFYING
The industry attractiveness
test
The
cost-of-entry
test
The
better-off
test
Testing Whether Diversification
Will Add Long-Term Value
for Shareholders

In order to determine whether diversification will add long-term
value for shareholders, the following three tests should be
performed:
The industry attractiveness test
The cost-of-entry test
The better-off test
THREE TESTS FOR BUILDING SHAREHOLDER VALUE
THROUGH DIVERSIFICATION
The attractiveness test
Are the industry’s profits and return on investment
as good or better than present business(es)?
The cost of entry test
Is the cost of overcoming entry barriers so great as to long
delay or reduce the potential for profitability?
The better-off test
How much synergy (stronger overall performance) will be
gained by diversifying into the industry?
To add shareholder value, diversification into a new business
must pass the three tests of corporate advantage
The industry attractiveness test
The cost of entry test
The better-off test
Creating added value for shareholders via diversification
requires building a multibusiness company in which the whole

is greater than the sum of its parts; such 1 + 1= 3 effects are
called synergy.
BETTER PERFORMANCE THROUGH SYNERGY
Evaluating the
Potential for Synergy through Diversification
Firm A purchases Firm B in another industry. A and B’s profits
are no greater than what each firm could have earned on its
own.
Firm A purchases Firm C in another industry. A and C’s profits
are greater than what each firm could have earned on its own.
No Synergy
(1+1=2)
Synergy
(1+1=3)
In the first example, Firm A purchases Firm B in another
industry. A and B's profits are no greater than what each firm
could have earned on its own. Thus, there is no synergy gained
from this purchase.
In the second example, Firm A purchases Firm C in another
industry. A and C's profits are greater than what each firm could
have earned on its own. Thus synergy is achieved through this
purchase.
APPROACHES TO DIVERSIFYING THE BUSINESS LINEUP
Existing business acquisition
Internal new
venture (start-up)
Joint

venture
Diversifying into
New Businesses
Existing business acquisition
Internal new venture (start-up)
Joint venture
DIVERSIFICATION BY ACQUISITION OF AN EXISTING
BUSINESS
Advantages:
Quick entry into an industry
Barriers to entry avoided
Access to complementary resources and capabilities
Disadvantages:
Cost of acquisition—whether to pay a premium for a successful
firm or seek a bargain in a struggling firm
Underestimating costs for integrating acquired firm
Overestimating the acquisition’s potential to deliver added
shareholder value
An acquisition premium, or control premium, is the amount by
which the price offered exceeds the preacquisition market value
of the target company.
ENTERING A NEW LINE OF BUSINESS THROUGH

INTERNAL DEVELOPMENT
Advantages of new venture development
Avoids pitfalls and uncertain costs of acquisition
Allows entry into a new or emerging industry where there are
no available acquisition candidates
Disadvantages of intrapreneurship
Must overcome industry entry barriers
Requires extensive investments in developing production
capacities and competitive capabilities
May fail due to internal organizational resistance to change and
innovation
Corporate venturing, or new venture development, is the process
of developing new businesses as an outgrowth of a firm’s
established business operations. It is also referred to as
corporate entrepreneurship or intrapreneurship since it requires
entrepreneurial-like qualities within a larger enterprise.
WHEN TO ENGAGE IN INTERNAL DEVELOPMENT
Availability of
in-house skills and resources
Ample time to develop and launch business
Cost of acquisition higher than internal entry
Added capacity
affects supply
and demand balance
Low resistance of incumbent firms
to market entry

Factors Favoring
Internal Development
Five factors favoring internal development are:
Low resistance of incumbent firms to market entry
Availability of in-house skills and resources
Ample time to develop and launch business
Cost of acquisition is higher than internal entry
Added capacity does affect supply and demand balance
WHEN TO ENGAGE IN A JOINT VENTURE
Evaluating
the Potential for a Joint Venture
Is the opportunity too complex, uneconomical, or risky for one
firm to pursue alone?
Does the opportunity require a broader range of competencies
and know-how than the firm now possesses?
Will the opportunity involve operations in a country that
requires foreign firms to have a local minority or majority
ownership partner?
Three questions to be asked when evaluating the potential for a
joint venture are:
Is the opportunity too complex, uneconomical, or risky for one
firm to pursue alone?
Does the opportunity require a broader range of competencies
and know-how than the firm now possesses?
Will the opportunity involve operations in a country that
requires foreign firms to have a local minority or majority
ownership partner?

USING JOINT VENTURES TO ACHIEVE DIVERSIFICATION
Joint ventures are advantageous when diversification
opportunities:
Are too large, complex, uneconomical, or risky for one firm to
pursue alone
Require a broader range of competencies and know-how than a
firm possesses or can develop quickly
Are located in a foreign country that requires local partner
participation or ownership
DIVERSIFICATION BY JOINT VENTURE
Joint ventures have the potential for developing serious
drawbacks due to:
Conflicting objectives and expectations of venture partners
Disagreements among or between venture partners over how
best to operate the venture
Cultural clashes among and between the partners
Dissolution of the venture when one of the venture partners
decides to go their own way
CHOOSING A MODE OF MARKET ENTRYThe Question of
Critical Resources and CapabilitiesDoes the firm have the
resources and capabilities for internal development?The
Question of Entry BarriersAre there entry barriers to
overcome?The Question of SpeedIs speed of the essence in the
firm’s chances for successful entry?The Question of

Comparative CostWhich is the least costly mode of entry, given
the firm’s objectives?
Core concept (4 of 15)
Transaction costs are the costs of completing a business
agreement or deal of some sort, over and above the price of the
deal. They can include the costs of searching for an attractive
target, the costs of evaluating its worth, bargaining costs, and
the costs of completing the transaction.
CHOOSING THE DIVERSIFICATION PATH: RELATED
VERSUS UNRELATED BUSINESSES
Related
Businesses
Unrelated Businesses
Both Related
and Unrelated Businesses
Which Diversification
Path to Pursue?
Related businesses possess competitively valuable cross-
business value chain and resource matchups.
Unrelated businesses have dissimilar value chains and resource
requirements, with no competitively important cross-business
relationships at the value chain level.

Strategic fit exists whenever one or more activities constituting
the value chains of different businesses are sufficiently similar
in present opportunities for cross-business sharing or
transferring of the resources and capabilities that enable these
activities.
DIVERSIFICATION INTO RELATED BUSINESSES
Strategic fit opportunities
Transferring specialized expertise, technological know -how, or
other resources and capabilities from one business’s value chain
to another’s
Sharing costs by combining related value chain activities into a
single operation
Exploiting common use of a well-known brand name
Sharing other resources (besides brands) that support
corresponding value chain activities across businesses
Engaging in cross-business collaboration and knowledge sharing
to create new competitively valuable resources and capabilities
PURSUING RELATED DIVERSIFICATION
Generalized resources and capabilities:
Can be deployed widely across a broad range of industry and
business types
Can be leveraged in both unrelated and related diversification
situations
Specialized resources and capabilities:

Have very specific applications which restrict their use to a
narrow range of industry and business types
Can typically be leveraged only in related diversification
situations
FIGURE 8.1 Related Businesses Provide
Opportunities to Benefit from Competitively Valuable Strategic
Fit
Two different businesses are shown sharing the same
representative value chain activities (supply chain activities;
technology; operations; sales and marketing; distribution;
customer service)
and support activities.
These activities share or transfer valuable specialized resources
and capabilities at one or more points along the value chains of
both businesses.
IDENTIFYING CROSS-BUSINESS STRATEGIC FITS ALONG
THE VALUE CHAIN
R&D and technology activities
Supply
chain
activities
Manufacturing-related

activities
Distribution-related
activities
Customer service
activities
Sales and marketing activities
Potential
Cross-Business Fits
Potential cross-business fits include:
supply chain activities;
manufacturing-related activities;
distribution-related activities;
customer service activities;
sales and marketing activities;
and R&D and technology activities.
STRATEGIC FIT, ECONOMIES OF SCOPE, AND
COMPETITIVE ADVANTAGE
Transferring specialized and generalized skills or knowledge
Combining related value chain activities
to achieve
lower costs
Leveraging
brand names
and other differentiation resources
Using cross-business collaboration
and knowledge sharing
Using Economies of Scope to Convert
Strategic Fit into Competitive Advantage

Four economies of scope used to convert strategic fit into
competitive advantage are:
Transferring specialized and generalized skills or knowledge
Combining related value chain activities to achieve lower costs
Leveraging brand names and other differentiation resources
Using cross-business collaboration and knowledge sharing
Economies of scope are cost reductions that flow from operating
in multiple businesses (a larger scope of operation).
Economies of scale accrue from a larger-size operation.
ECONOMIES OF SCOPE DIFFER FROM ECONOMIES OF
SCALE
Economies of scope
Are cost reductions that flow from cross-business resource
sharing in the activities of the multiple businesses of a firm
Economies of scale
Accrue when unit costs are reduced due to the increased output
of larger-size operations of a firm
FROM STRATEGIC FIT TO COMPETITIVE ADVANTAGE,
ADDED PROFITABILITY AND
GAINS IN SHAREHOLDER VALUE
Builds more shareholder value than owning a stock portfolio
Only possible
via a strategy
of related diversification

Yields value in the application
of specialized resources and capabilities
Requires that management
take internal actions to
realize them
Capturing the Cross-Business Strategic-Fit
Benefits of Related Diversification
Related diversification creates the following cross-business
strategic-fit benefits
It builds more shareholder value than owning a stock portfolio.
It is only possible via a strategy of related diversification.
It yields value in the application of specialized resources and
capabilities.
It requires that management take internal actions to realize
them.
Diversifying into related businesses where
competitively valuable strategic-fit benefits can be captured
puts a firm’s businesses in position to perform better financially
as part of the firm than they could have performed as
independent enterprises,
thus providing a clear avenue for boosting shareholder value
and satisfying the better-off test.
THE EFFECTS OF CROSS-BUSINESS FIT
Fit builds more value than owning a stock portfolio of firms in
different industries
Strategic-fit benefits are possible only via related

diversification
The stronger the fit, the greater its effect on the firm’s
competitive advantages
Fit fosters the spreading of competitively valuable resources
and capabilities specialized to certain applications and that have
value only in specific types of industries and businesses
The Kraft-Heinz Merger: Pursuing the Benefits of
Cross-Business Strategic Fit
Why did Kraft choose to seek a merger with Heinz rather than
starting its own food products subsidiary?
What are the anticipated results of the merger?
To what extent is decentralization required when seeking cross-
business strategic fit?
What should Kraft-Heinz do to ensure the continued success of
its related diversification strategy?
DIVERSIFICATION INTO UNRELATED BUSINESSES
Evaluating the acquisition of a new business or the divestiture
of an existing business
Can it meet corporate targets
for profitability and return on investment?
Is it in an industry with attractive profit and growth potentials?
Is it is big enough to contribute significantly to the parent
firm’s bottom line?
The acquisition of a new business or the divestiture of an
existing business can be evaluated by the following questions:

Can it meet corporate targets for profitability and return on
investment?
Is it in an industry with attractive profit and growth potentials?
Is it big enough to contribute significantly to the parent firm's
bottom line?
BUILDING SHAREHOLDER VALUE VIA UNRELATED
DIVERSIFICATION
Astute corporate
parenting by management
Cross-business allocation of financial
resources
Acquiring and restructuring undervalued companies
Using an Unrelated Diversification
Strategy to Pursue Value
Unrelated diversification strategy can be used to pursue value in
the following ways:
Astute corporate parenting by management
Cross-business allocation of financial resources
Acquiring and restructuring undervalued firms
BUILDING SHAREHOLDER VALUE VIA UNRELATED
DIVERSIFICATIONAstute corporate
parenting by managementProvide leadership, oversight,
expertise, and guidance
Provide generalized or parenting resources that lower operating
costs and increase SBU efficienciesCross-business allocation of
financial
resourcesServe as an internal capital market
Allocate surplus cash flows from businesses to fund the capital
requirements of other businessesAcquiring and restructuring

undervalued companiesAcquire weakly performing firms at
bargain prices
Use turnaround capabilities to restructure them to increase their
performance and profitability
Corporate parenting is the role that a diversified corporation
plays in nurturing its component businesses through the
provision of:
Top management expertise
Disciplined control
Financial resources
Other types of generalized resources and capabilities such as
long-term planning systems, business development skills,
management development processes, and incentive systems
A diversified firm has a parenting advantage when
it is more able than other firms to boost the combined
performance of its individual businesses through
high-level guidance,
general oversight,
and other corporate-level contributions.
An umbrella brand is a corporate brand name that can be
applied to a wide assortment of business types.
As such, it is a generalized resource that can be leveraged in

unrelated diversification.
Restructuring refers to overhauling and streamlining the
activities of a business:
combining plants with excess capacity,
selling off underutilized assets,
reducing unnecessary expenses,
and otherwise improving the productivity and profitability of
the firm.
THE PATH TO GREATER SHAREHOLDER VALUE
THROUGH UNRELATED DIVERSIFICATION
Diversify into businesses that can produce consistently good
earnings and returns on investment
Negotiate favorable acquisition prices
Provide managerial oversight and resource sharing, financial
resource allocation and portfolio management,
and restructure underperforming businesses
The attractiveness test
The cost-of-entry test
Actions taken by upper management to create value and gain a
parenting advantage
The better-off test
The three tests to create value and gain a parenting advantage
are:
The attractiveness test: diversify into businesses that can
produce consistently good earnings and returns on investment
The cost-of-entry test: negotiate favorable acquisition prices

The better-off test: provide managerial oversight and resource
sharing, financial resource allocation and portfolio
management, and restructure underperforming businesses
THE DRAWBACKS OF UNRELATED DIVERSIFICATION
Limited Competitive Advantage Potential
Demanding Managerial Requirements
Monitoring and maintaining
the parenting
advantage
Potential lack of
cross-business
strategic-fit
benefits
Pursuing an Unrelated Diversification Strategy
The two main drawbacks are:
Demanding managerial requirements. This leads to a greater
need for monitoring and maintaining the parenting advantage.
Limited competitive advantage potential. This leads to a
potential lack of cross-business strategic-fit benefits.
MISGUIDED REASONS FOR PURSUING UNRELATED
DIVERSIFICATION
Seeking a reduction of business investment risk
Pursuing rapid
or continuous growth for its own sake
Seeking stabilization to avoid cyclical swings in businesses
Pursuing personal managerial motives
Poor Rationales for
Unrelated Diversification

Poor rationales for unrelated diversification include:
Seeking a reduction of business investment risk
Pursuing rapid or continuous growth for its own sake
Seeking stabilization to avoid cyclical swings in businesses
Pursuing personal managerial motives
Relying solely on leveraging general resources and the expertise
of corporate executives to wisely manage a set of unrelated
businesses is a much weaker foundation for enhancing
shareholder value than is a strategy of related diversification.
Only profitable growth—the kind that comes from creating
added value for shareholders—can justify a strategy of
unrelated diversification.
COMBINATION RELATED-UNRELATED
DIVERSIFICATION STRATEGIES
Dominant-business enterprises
Narrowly diversified
firms
Broadly
diversified
firms
Multi-business enterprises
Related-Unrelated Business
Portfolio Combinations

FIGURE 8.2 Three Strategy Options for Pursuing
Diversification
STRUCTURES OF COMBINATION RELATED-UNRELATED
DIVERSIFIED FIRMS
Dominant-business enterprises:
Have a major “core” firm that accounts for 50 to 80% of total
revenues and a collection of small related or unrelated firms
that accounts for the remainder
Narrowly diversified firms:
Are comprised of a few related or unrelated businesses
Broadly diversified firms:
Have a wide-ranging collection of related businesses, unrelated
businesses, or a mixture of both
Multibusiness enterprises:
Have a business portfolio consisting of several unrelated groups
of related businesses
EVALUATING THE STRATEGY OF A DIVERSIFIED
COMPANY
Diversified Strategy
Attractiveness

of industries
Strength of business units
Cross-business strategic fit
Fit of firm’s resources
Allocation of resources
New strategic moves
Six factors to evaluate a diversified strategy are:
Attractiveness of industry
Strength of business units
Cross-business strategic fit
Fit of firm's resources
Allocation of resources
New strategic moves
STEPS IN EVALUATING THE STRATEGY OF A
DIVERSIFIED FIRM
Assess the attractiveness of the industries the firm has
diversified into, both individually and as a group
Assess the competitive strength of the firm’s business units
within their respective industries
Evaluate the extent of cross-business strategic fit along the
value chains of the firm’s various business units

Check whether the firm’s resources fit the requirements of its
present business lineup
Rank the performance prospects of the businesses from best to
worst and determine resource allocation priorities
Craft strategic moves to improve corporate performance
STEP 1: EVALUATING INDUSTRY ATTRACTIVENESS
1. Does each industry represent a good market for the firm to
be in?
2. Which industries are most attractive, and which are least
attractive?
3. How appealing is the whole group of industries?
How attractive are
the industries in which
the firm has business operations?
The attractiveness of the industries in which a business has
operations can be evaluated by the following three questions
Does each industry represent a good market for the firm to be
in?
Which industries are most attractive, and which are least
attractive?
How appealing is the whole group of industries?
CALCULATING INDUSTRY-ATTRACTIVENESS SCORES:
KEY MEASURES
Market size and projected growth rate

The intensity of competition among market rivals
Emerging opportunities and threats
The presence of cross-industry strategic fit
Resource requirements
Social, political, regulatory, environmental factors
Industry profitability
CALCULATING INDUSTRY ATTRACTIVENESS FROM THE
MULTI-BUSINESS PERSPECTIVEThe question of cross-
industry strategic fitHow well do the industry’s value chain and
resource requirements match up with the value chain activities
of other industries in which the firm has operations?The
question of resource requirementsDo the resource requirements
for an industry match those of the parent firm or are they
otherwise within the company’s reach?
CALCULATING INDUSTRY ATTRACTIVENESS SCORES
Evaluating Industry Attractiveness
Deciding on appropriate weights for industry attractiveness
measures
Gaining sufficient knowledge of the industry to assign accurate
and objective ratings
Whether to use different weights for different business units
whenever the importance of strength measures differs
significantly from business to business

Industry attractiveness can be evaluated by the following
actions:
Deciding on appropriate weights for the industry attractiveness
measures
Gaining sufficient knowledge of the industry to assign accurate
and objective ratings
Deciding whether to use different weights for different business
units whenever the importance of strength measures differs
significantly from business to business
TABLE 8.1 Calculating Weighted Industry-Attractiveness
Scores
Remember: The more intensely competitive an industry is, the
lower the attractiveness rating for that industry!
Remember: The more intensely competitive an industry is, the
lower the attractiveness rating for that industry!
STEP 2: EVALUATING BUSINESS-UNIT COMPETITIVE
STRENGTH
Relative market share
Costs relative to competitors’ costs
Ability to match or beat rivals on key product attributes
Brand image and reputation
Other competitively valuable resources and capabilities
Benefits from strategic fit with firm’s other businesses
Bargaining leverage with key suppliers or customers
Profitability relative to competitors

Using relative market share to measure competitive strength is
analytically superior to using straight-percentage market share.
Relative market share is the ratio of a business unit’s market
share to the market share of its largest industry rival as
measured in unit volumes, not dollars.
TABLE 8.2 Calculating Weighted Competitive-Strength Scores
for a Diversified Company’s Business Units
61
FIGURE 8.3 A Nine-Cell Industry Attractiveness–
Competitive Strength Matrix
The grid is defined by low, medium, or high industry
attractiveness and the strong, average, or medium competitive
strength/market position. Three businesses are depicted on the
grid as circles, their sizes scaled to reflect the percentage of
companywide revenues generated by the business unit.
Industry A's business A, a medium-sized circle, is marked as a
star for its high industry attractiveness and strong competitive
strength/market position. Industry C's business C is marked as a
cash cow, as it has the largest presence on the grid, despite
being of medium industry attractiveness and in the average

competitive strength/market position. Industry B's business B,
the smallest-sized circle, falls lower than the other two, having
a low-medium industry attractiveness, and a weak-average
competitive strength/market position.
Also noted on the grid are three designations for resource
allocation.
High priority for resource allocation:
Strong competitive strength/market position and medium
industry attractiveness
Strong competitive strength/market position and high industry
attractiveness
Average competitive strength/market position and high industry
attractiveness
Medium priority for resource allocation:
Strong competitive strength/market position and low industry
attractiveness
Average competitive strength/market position and medium
Weak competitive strength/market position and high industry
attractiveness
Low priority for resource allocation:
Average competitive strength/market position and low industry
attractiveness
Weak competitive strength/market position and low industry
attractiveness
Weak competitive strength/market position and medium
STEP 3: DETERMINING THE COMPETITIVE VALUE OF
STRATEGIC FIT IN DIVERSIFIED COMPANIES
Assessing the degree of strategic fit across its businesses is
central to evaluating a company’s related diversification
strategy.
The real test of a diversification strategy is what degree of
competitive value can be generated from strategic fit.

The greater the value of cross-business strategic fit in
enhancing a firm’s performance in the marketplace or on the
bottom line, the more competitively powerful is its strategy of
related diversification.
FIGURE 8.4 Identifying the Competitive Advantage
Potential of Cross-Business Strategic Fit
Jump to Appendix 23 long image description
The figure shows five separate businesses (A, B, C, D, and E)
and their value chain activities (purchases from suppliers;
technology; operations; sales and marketing; distribution;
service). The figure then identifies potential cross-business
strategic fits and denotes what opportunities can result
1. Businesses A and D share the purchases from suppliers value
chain activity. Their cross-business strategic fit creates an
opportunity to combine purchasing activities and gain more
leverage with suppliers and realize supply chain economics.
2. Businesses A and E share the technology value chain activity.
This strategic fit creates an opportunity for the busi nesses to
share technology, transfer technical skills, and combine R&D.
3. Businesses A, C, D, and E all share the operations value
chain activity. Their strategic fit opens the door to collaboration
between the businesses to create new competitive capabil ities.
4. Businesses B, C, and D share three value chain activities:
sales and marketing, distribution, and service. Here, the
strategic fit of the three businesses creates the opportunity to

combine sales and marketing activities, use common
distribution channels, leverage use of a common brand name,
and/or combine after-sale service activities.
A company pursuing related diversification exhibits resource fit
when its businesses have matching specialized resource
requirements along their value chains.
A company pursuing unrelated diversification has resource fit
when the parent company has adequate corporate resources
(parenting and general resources) to support its businesses’
needs and to add value.
STEP 4: CHECKING FOR RESOURCE FIT
Financial resource fit
State of the internal capital market
Using the portfolio approach:
Cash hogs need cash to develop.
Cash cows generate excess cash.
Star businesses are self-supporting.
Success sequence:
Nonfinancial resource fit
Does the firm have (or can it develop) the specific resources
and capabilities needed to be successful in each of its
businesses?
Are the firm’s resources being stretched too thin by the resource
requirements of one or more of its businesses?

A strong internal capital market allows a diversified firm to add
value by shifting capital from business units generating free
cash flow to those needing additional capital to expand and
realize their growth potential.
A portfolio approach to ensuring financial fit among a firm’s
businesses is based on the fact that different businesses have
different cash flow and investment characteristics.
A cash cow business generates cash flows over and
above its internal requirements, thus providing a corporate
parent with funds for investing in cash hog businesses,
financing new acquisitions, or paying dividends.
A cash hog business generates cash flows that are too
small to fully fund its operations and growth and requires cash
infusions to provide additional working capital and finance new
capital investment.
STEP 5: RANKING BUSINESS UNITS AND ASSIGNING A
PRIORITY FOR RESOURCE ALLOCATION

Ranking factors
Sales growth
Profit growth
Contribution to company earnings
Return on capital invested in the business
Cash flow
Steer resources to business units with the brightest profit and
growth prospects
and solid strategic and resource fit
The Chief Strategic and Financial Options for Allocating a
Diversified Company’s Financial Resources
Strategic options
Invest in ways to strengthen or grow existing business
Make acquisitions to establish positions in new industries or to
complement existing businesses
Fund long-range R&D ventures aimed at opening market
opportunities in new or existing businesses
Financial options
Pay off existing long-term or short-term debt
Increase dividend payments to shareholders
Repurchase shares of the company’s common stock

Build cash reserves; invest in short-term securities
STEP 6: CRAFTING NEW STRATEGIC MOVES TO
IMPROVE OVERALL CORPORATE PERFORMANCE
Stick with
the existing business
lineup
Broaden the diversification base with new acquisitions
Divest and retrench to
a narrower diversification base
Restructure through divestitures
and
acquisitions
Strategy Options for a Firm
That Is Already Diversified
A Firm’s Strategic Alternatives After It Diversifies
Undiversified firm
Maintain existing business lineup
Makes sense when the current business lineup offers attractive
growth opportunities and can generate added economic value for
shareholders
Broaden diversification base
Acquire more businesses and build positions in new related or
unrelated industries
Add businesses that will complement and strengthen the market
position and competitive capabilities of businesses in industries
where the firm already has a stake

Diversified firm
Narrow diversification base
Get out of businesses that are competitively weak or in
unattractive industries, or lack adequate strategic and resource
fit
Focus resources on businesses in a few select industry arenas
Restructure the firm’s business lineup through a mix of
divestitures and new acquisitions
Use debt capacity and cash from divesting businesses that are in
unattractive industries, or that lack strategic or resource fit and
are noncore businesses to make acquisitions in more promising
industries
BROADENING A DIVERSIFIED FIRM’S BUSINESS BASE
Factors motivating the addition of businesses
The transfer of resources and capabilities to related or
complementary businesses
Rapidly changing technology, legislation, or new product
innovations in core businesses
Shoring up the market position and competitive capabilities of

the firm’s present businesses
Extension of the scope of the firm’s operations into additional
country markets
DIVESTING BUSINESSES AND RETRENCHING TO A
NARROWER DIVERSIFICATION BASE
Factors motivating business divestitures
Long-term performance can be improved by concentrating on
stronger positions in fewer core businesses and industries.
Business is in a once-attractive industry where market
conditions have badly deteriorated
Business has either failed to perform as expected or is lacking
in cultural, strategic, or resource fit.
Business has become more valuable if sold to another firm or as
an independent spin-off firm.

A spinoff is an independent company created when a
corporate parent divests a business either
by selling shares to the public via an initial public offering or
by distributing shares in the new company to shareholders of
the corporate parent.
Diversified companies need to
divest low-performing businesses or
businesses that do not fit
in order to concentrate on expanding existing businesses and
entering new ones where opportunities are more promising.
RESTRUCTURING A DIVERSIFIED COMPANY’S BUSINESS
LINEUP
Factors leading to corporate restructuring
A serious mismatch between the firm’s resources and
capabilities and the type of diversification that it has pursued

Too many businesses in slow-growth, declining, low-margin, or
otherwise unattractive industries
Too many competitively weak businesses
Ongoing declines in the market shares of major business units
that are falling prey to more market-savvy competitors
An excessive debt burden with interest costs that eat deeply into
profitability
Ill-chosen acquisitions that haven’t lived up to expectations
Companywide restructuring (corporate restructuring) involves
making major changes in a diversified company
by divesting some businesses or acquiring others,
so as to put a whole new face on the company’s business lineup.
Diversified firms should divest
low-performing businesses
or businesses that do not fit
in order to concentrate on expanding existing businesses and
entering new ones where opportunities are more promising.

LEARNING OBJECTIVES
When and how business diversification can enhance shareholder
value
How related diversification strategies can produce cross-
business strategic fit capable of delivering competitive
advantage
The merits and risks of unrelated diversification strategies
The analytic tools for evaluating a company’s diversification
strategy
What four main corporate strategy options a diversified
company can employ for solidifying its strategy and improving
company performance
Requirement
The topic is McDonald's
Ch 7 and Ch 8 Company’s Environment and Resources
· Read Chapters 7 Evaluating a Company’s Environment & Ch
8 Evaluating a company’s resources, capabilities, and
competitiveness
·Use 2 L.O.s from Ch 7 and 2 L.Os from Ch 8 to analyze the
company’s management (each L.O. should have 3 examples at
100 words per example).
Ch7 & Ch8 requirements and examples are attached

Rating sheet
Thompson et al. Crafting & Executing Strategy
Chapter Rating Form
Content and Organization of the Presentation.
Organization of material (10 points)
1. Cover Page with Date, your name, and Topic
2. Introduce the topic with 1 paragraph
3. Body
a. Answer should include a minimum of 3 answers in addressing
the question
b. clearly states which principles apply to your company
(includes spelling, grammar, and full sentences)
4. Select 2 Learning Objectives (L.O.) for a Chapter
a. How are the L.O.’s relevant to your final paper
b. Minimum 100 words each L.O.
Chapter NAME
L.O. 1
L.O. 2
example [email protected] 100 words
example 1 @ 100 words
Example 2 @ 100 words
Chapter NAME
L.O. 1
L.O. 2

5. Conclusion … 3 key concepts you talked above
6. Works cited
7. Spell check, grammar check, etc.
TOTAL POINTS ____________________
Example

Media Research Paper
CH. 5 Five Generic Competitive Strategies
CH. 6 Strengthening a Company’s Competitive Position
JOSH
Professor JOSE
MGMT 4505
3/8/21
The Chapter 5 ‘The five Generic Competitive Strategies’
teaches about five generic competitive strategies and in which
kind of environment these strategies work better. Also it lay
stresses on how low cost plays a vital role in achieving
competitive advantage. Competitive advantage is achieved by
product differentiation from rivalries. Product differentiation
enhances chances of profitability increasing unit sales. Hence
an organization has successful competitive strategies if there is
no duplication and close substitute of the product.
CH. 5 Five Generic Competitive Strategies
LO.1 What distinguishes each of time generic strategies and
why some of these strategies work better in certain kind of
competitive condition in comparison with others.
Strategies are long term objectives of an organization and how
do you plan to achieve those goals in longer run. A firm
competitive strategy aims at ensuring a highlighted position in
market with an objective of satisfying customers, decrease the
possibility of underlying threats and attain competitive
advantage over others.

The five generic competitive strategies such as lowering overall
overheads in comparison to competitors total cost.
· Broad differentiation: Offering a unique product from rivals
which increases customer’s demands.
· Focused low cost: Focusing on lowering cost to grab
consumers who don’t have much affordability.
· Focuses differentiation: Aiming to focus on a buyer section
that has limited income with compromising on customer
satisfaction with regards to needs and taste.
· Best cost provider: Product with high attributes is offered at
low price.
Example # 1 McDonald’s
McDonald’s is one the biggest food chains in the world aiming
at achievement of competitive advantage among rivals in the
market. McDonald's comes with different competitive strategies
that focus on growth and maintaining a better position in the
market place. McDonald's primary focus in ‘Cost leadership’
that means they aim towards minimizing cost for the products
offered to the public. They continuously strive for product
differentiation by offering unique product e.g. McCafe.
McDonald’s has expanded its branches all over the world as
their prices are low but quality is high that is why they are able
to grab markets easily. Through these competitive strategies
organizations like McDonald’s can be able to penetrate market
and develop a massive range of buyers by increasing sales and
decrease cost per output.
Example # 2 Starbucks
Starbucks is an American Multinational organization that has
large number of chain of coffeehouse all over the world. It
produces variety of products in addition to the primary product
such as Smoothies, Sandwiches, Snakes, baked products etc.
Starbucks has expanded its business by following generic
strategy mainly highlighting on product differentiation.
Starbucks has set a coffee house, distinct from its rivals.
Starbucks is able to attain competitive advantage by providing
unique product and services with no duplication. It is able to

penetrate more market share by uniqueness of the product
offered. The competitive like McDonald’s have used the
strategy of low cost while Starbucks have used the strategy of
warmth and ambience.
Example # 3 Al-Tahur limited company
Al-Tahur is a company dealing in the production and processing
of fresh milk and other dairy products. It works under the brand
name ‘Perma’. Prema main tagline is providing 100% fresh
pasteurized cow milk that grabs attention of large number of
buyers who believe in quality and zero hormones and
preservatives in milk. Prema is a growing company that has
increased its sales up to 70% and attained market share by
providing quality products without any preservative at low
prices without compromising on quality. They have
differentiated these product form rest of rivals by ensuring
100% organic cow milk without any additions. They believe on
serving from right from the farms to the glass of milk. Thus
Prema is a growing market that is providing its consumers wi th
high quality in low price. In addition to milk, it also offers
smoothies, yogurts and chocolate milk.
LO.2 The attributes of best cost provider strategy a hybrid of
low cost provider and differentiation strategies.
Best cost hybrid approach is a merger of providing best quality,
features and services with aim of charging low prices in
comparison to rivals. Thus this approach believes in increasing
efficiency of products by lower down their prices. The
consumer’s needs are satisfied and at the same time low cost is
achieved by buyers.
Example #1 McDonald’s
McDonald’s the largest chain of fast food restaurants which has
expanded its operations all over the world has followed the best
cost provider strategy. McDonald’s charges low cost for the
product offered to their customers in comparison with its rivals
like Arby’s that charges almost double prices than McDonald’s.
Thus McDonald’s increases their profitability by expansion of

their business worldwide through reducing prices and
differentiating their product quality from rivals. They provide
best quality product in lower prices than their competitors.
Example #2 Starbucks
A giant house of coffee shop and snaked called Starbucks has
outsourced its call center operation to provide 100% customer
satisfaction. It has outsourced its operation in order to ensure
flexibility and obtaining constant feedback from customers. As
customer loyalty is its once of the prime objective Starbucks
has spent huge investment on outsourcing its operation. They
have added value to the products by constantly aware of their
shortcomings mainly through customer’s feedback and tackling
their queries. Thus outsourcing has bought huge profitability
and customer satisfaction as addressing customer’s needs day
and night has improved efficiency and enhanced customer
loyalty.
Example #3 Unilever
Unilever is a multinational organization that produces wide
ranges of food products, energy drinks, baby food, ice-cream
etc. The organization is based on London. Unilever has
outsourced its HR services to gain value addition. In order to
focus more on providing good quality services it outsourced its
human resource department. Through outsourcing its HR
services to a company called ‘Accenture” it will be able to
provide efficiency and increased quality in its HR services. HR
services mainly includes department of recruitment,
administration, management services and payroll services.
Accenture made sure the provision of these services through a
network that operate globally and comprises of various centers
across the world.
CH. 6 Strengthening a Company’s Competitive Position
The Chapter number 6 ‘strengthen a competitive position:
Strategic moves, timings and scope of operations focus on how
to improve market position by applying defensive or offensi ve
techniques. The role of mergers and acquisition aids to expand

scope of a firm. Outsourcing is subletting task to vendors
outside the firm. It is the most advantageous when it is done by
outsides on low price in comparison to what is done internally
by organization’s employees. Whereas strategic management
principle deals with obtaining competitive advantage on others
by focusing on primary value chain activities.
L0. 1 The Conditions that favor outsourcing certain value chain
activities to outside.
Outsourcing is an arrangement where a company decides to
sublet its work to other person or organization where it can
achieve low cost benefits, a lot of innovation and efficiency in
work outsourced.
Example #1 McDonald’s
The largest food chain working globally named as ‘McDonald’s’
has outsourced its food chain completely. Almost 70% of the
branches of McDonald’s are franchised. This multinational
organization has outsourced its franchise to remove unnecessary
workload on the managers. The food chain is outsourced so that
it can be handled through outsiders with utmost efficiency and
care. It ensure value addition by outsourcing by introducing
innovative idea like ‘Drive thru’, primary shifting focus on high
interest area tasks. This value addition thus give greater change
of promoting growth, offering flexibility to staff and increasing
profitability.
Example # 2 Nestle
Nestle is a multinational company that is Switzerland bases. In
the term of revenue, it is said to be the largest food company in
the world. I offer a variety of food products like milk, coffee,
baby food, Sterilized water, ice-cream, yogurt and what not.
Nestle choose great quality of raw materials for the
manufacturing of products it offers in the market. They have to
achieve low cost strategic technique by managing inventories
and research and development. One of the biggest rival of
Nestle is Hershey’s. Nestle is able to achieve competitive
advantage over Hershey’s by lowering its cost. It is able to
penetrate more share of market. They differentiate in products

against their rivals by selling more products in powdered form
that can be easily stored.
Example #3 Amazon
Amazon is a multinational organization that is America Based,
Its main focus is digitalization of services and e-commerce.
Amazon is said to world largest organization that operate
online. It best cost strategy is offering low price service and
product without compromising in quality as it has an advantage
of low overhead costs, it is able to achieve competitive
advantage by selling low prices products to consumers. It
provide broad differentiation by using innovative use of
technology and human resources that are skilled. IT has an
honor to serve large number of customers online and virtually.
LO.2 Whether and when to pursue offensive or defensive
strategies involves to improves a firm’s market position.
Offensive strategy focus on pursuing changes within an
organization actively. Thus larger amount of research and
development in needed to make this strategy successful. White
defensive strategy that focuses on retaining customers by using
techniques like enhancing the quality or product or services
provided, increasing market and advertisement.
Example #1 McDonald’s and Burger King
McDonald’s the world largest chain of fast-food operating
worldwide. As a biggest fast food chain on offensive strategy
McDonald’s and Burger King are the biggest rivals to each
other. Burger king offensive techniques and pursed changes in
its product line by copying McDonald's. Burger King did the
greatest hit to McDonald’s by making its advertising and
marketing more active and thus it was able to grab more
consumers. This strategy helped Burger King in increasing its
Sales and profitability.
Example #2 Starbucks
Starbucks one of the larger coffee house has made uses of
defensive strategy by working on its internal operation. It has
improved its internal operation by increasing its efficiency. It

has improved that quality of supply chain and has reduced the
operations of some of its stores to majority focus on
improvement of supply chain. Another defensive technique
Starbucks used is cutting down its prices in comparison to rivals
in the market.
Example #3 Amazon
Amazon an online organization that globally offers its product
and services by acting as a virtual assistance. Amazon played an
offensive strategy by cutting keywords of competitor’s hand.
Thus opportunity helps to grab competitors Customers when
they search for the competitors.
The ultimately goal when targeting keywords of rival is to
increase your sales. So this increase the chance of driving sales
without even advertising. An example is Ridge Wallet and
Amazon. Thus Amazon had targeted the keywords of Ridge
wallet and Amazon products are shown up when searching for
rival.
Conclusion
Thus an organization outsource its tasks if its benefits exceeds
its cost and aids in value addition in the products. Moreover in
order to be successful and remain alive in the market an
organization male use of offensive and defensive techniques to
grad customers from the competitors and enhance its
profitability.
Work Cited
GREGORY, L. (2017, February 5). McDonald’s Generic
Strategy & Intensive Growth Strategies - Panmore Institute.
Panmore Institute. http://panmore.com/mcdonalds-generic-
strategy-intensive-growth-strategies
Levy, J. (n.d.). Starbucks Plans to Beat the Competition with
Product Pricing Strategy. Business 2 Community.
https://www.business2community.com/strategy/starbucks-plans-
to-beat-the-competition-with-product-pricing-strategy-0503952
Matyszczyk, C. (2019, April 1). Burger King Just Launched a
Shocking Offensive Against McDonald’s. Here’s the Huge

Catch. Inc.com. https://www.inc.com/chris-matyszczyk/burger-
king-just-launched-a-shocking-offensive-against-mcdonalds-
heres-huge-catch.html
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