A corporate parent's actions to help strengthen the long-term competitive positions and profitability of its individual businesses can include providing managerial expertise, funding for desirable new operating improvements and capital investments, assorted kinds of administrative support from central headquarters, and other resources that may be useful (which may include acquiring similar businesses and merging their operations into an existing business). N When it can leverage existing resources and capabilities by expanding into businesses where these same resources and capabilities are key success factors and valuable competitive assets. The size of each bubble is scaled to what percentage of revenues the business generates relative to total corporate revenues. E. all of these choices are correct. 5) usually merit medium or intermediate priority in the parent's resource allocation ranking. Diversification merits strong consideration whenever a single-business company A. has integrated - Brainly.com. D. high-compensation/low-risk enterprise.
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E. which industries are most attractive from the standpoint of industry driving forces and competitive forces. Do not have attractive tax benefits after diversification. Businesses positioned in the three cells in the upper left portion of the attractiveness–strength matrix (like Business A) have both favorable industry attractiveness and competitive strength, and thus merit top priority in the corporate parent's resource allocation ranking. When a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively. Diversification merits strong consideration whenever a single-business company ltd. Such economies stem directly from strategic fit efficiencies along the value chains of related businesses.
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Also, normally, the revenue and earnings outlook for businesses in fast-growing businesses is better than for businesses in slow-growing businesses. Economies of scale are cost savings that accrue directly from a larger operation—for example, unit costs may be lower in a large plant than in a small plant, lower in a large distribution center than in a small one, and lower for large-volume purchases of components than for small-volume purchases. The most popular strategy for entering new businesses and accomplishing diversification is. Step 5: Ranking the Performance Prospects of Business Units and Assigning a Priority for Resource Allocation Once a diversified company's businesses are evaluated from the standpoints of industry attractiveness, competitive strength, strategic fit, and resource fit, the next step is to use this information to rank the performance prospects of the businesses from best to worst. A. rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement. Diversification merits strong consideration whenever a single-business company india. A. the firm is missing some essential skills or capabilities or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps. In companies pursuing a strategy of unrelated diversification, A. C. determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities, and which one has the least.
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The surplus cash flows they generate can be used to pay corporate dividends, finance acquisitions, and provide funds for investing in the company's promising cash hogs. 00 Weighted overall industry attractiveness scores 7. The main basis for competitive advantage and improved shareholder value is increased ability to achieve economies of scope. Whether and how to incorporate use of Internet technology applications in performing various internal value chain activities. D. leads to the development of a greater variety of distinctive competencies and competitive capabilities. E. none of the companies already in the industry is an attractive strategic alliance partner. Frequently, a company pursuing related diversification has one or more businesses with competitively valuable resources, expertise, and know-how in performing certain value chain activities that are well-suited to performing closely related value chain activities in a sister business (especially a newly acquired business). Diversification merits strong consideration whenever a single-business company reported. Because a diversified company is a collection of individual businesses, the strategy-making task is more complicated. Businesses are said to be related when their value chains possess competitively valuable cross-business relationships that present opportunities for the businesses to perform better under the same corporate umbrella than they could by operating as stand-alone entities. Opportunities for cross-business strategic fit exist. The costs associated with internal startup are less than the costs of buying an existing company and the company has ample time and adequate resources to launch the new internal start-up business from the ground up. The more adept corporate-level executives are at effectively building, nurturing, and deploying a rich collection of corporate parenting capabilities, the more able they are to create added value for shareholders in comparison to other enterprises pursuing unrelated diversification—diversified corporations with top-flight parenting capabilities have what is called a parenting advantage.
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B. diversify into industries that are growing rapidly. The absence of shared values and cultural compatibility between the medical research and chemical-compounding expertise of the pharmaceutical companies and the fashion/ marketing orientation of the cosmetics business was the undoing of what otherwise was diversification into businesses with technology-sharing potential, product development fit, and some overlap in distribution channels. Successful deployment of such capabilities raises the chance that building a portfolio of unrelated businesses will yield 1 + 1 = 3 results and thus pass the better-off test. C. which industries have the biggest economies of scale and which have the greatest economies of scope and the overall potential for cost reduction in the industries as a group. D. companies that are market leaders in their respective industries. A. transferring competitively valuable resources, expertise, technological know-how, or other capabilities from one business to another. E. shareholder value test, the cost-of-entry test, and the profitability test. Profitable growth opportunities are typically limited in mature industries and markets where buyer demand is flat or declining. Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when. Buy the Full Version.
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C. increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. D. paying down existing debt, increasing dividends, or repurchasing shares of the company's stock. The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether. E. the production methods that they employ both entail economies of scale. As a result, BTR decided to divest its distribution businesses and focus exclusively on diversifying around small industrial manufacturing.
It can achieve multibusiness/multi-industry status by acquiring an existing company already in a business/industry it wants to enter, forming its own new business subsidiary to enter a promising industry, and/or forming a joint venture with one or more companies to enter new businesses. C. There is a strong chance that the combined competitive advantages of the various businesses will produce a 1 + 1 = 3 performance outcome as opposed to just a 1 + 1 = 2 performance outcome. B. is less expensive than launching a new start-up operation, thus passing the cost-of-entry test. B. generates cash flows that are too small to fully fund its operations and growth, and so must receive cash infusions from outside sources to cover working capital and investment requirements. Chapter 8 • Diversification Strategies 190. new product development or technology improvements, and for additional working capital to support inventory expansion and a larger base of operations. E. Related diversification is the process of holding the stock of many businesses in a portfolio. EBay divested its PayPal business in 2015 by selling it to the public via an initial public offering of common stock that generated proceeds to eBay of $45 billion, about 30 times what it paid to acquire PayPal in 2002. The more a company's diversification strategy yields these kinds of strategic-fit benefits, the more powerful a competitor it becomes and the better its profit and growth performance is likely to be. D. ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into.
In 2012, Kraft Foods instituted a dramatic restructuring by dividing itself into two companies. N Restructuring the company's business lineup and putting a whole new face on the company's business makeup. Financial Resources. But sometimes a business selected for divestiture has ample resource strengths to compete successfully on its own. Aside from cash flow considerations, two other factors should be considered when assessing whether a diversified company's businesses exhibit good financial fit: 1. A beer brewer acquiring a maker of aluminum cans.
7, and low strength as scores below 3. The better-off test. The administrative resources and depth of expertise located at a company's corporate headquarters are often considerable, enabling it to effectively and cost-efficiently handle such administrative functions for its subsidiaries as accounting and tax reporting, financial and risk management, human resource support and services, information systems and data processing, legal services, and so on. The essential requirement for different businesses to be "related" is that. B. scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into. Activities Assembly Distribution Customer. As shown in Figure 8. Free cash flows from cash cow businesses and the company's profit sanctuaries also add to the pool of funds that can be usefully redeployed. —Michael Eisner, former CEO, Walt Disney Company. Different businesses are said to be "unrelated" when. A company's competitiveness depends in part on being able to satisfy buyer expectations with regard to features, product performance, reliability, service, and other important attributes.
E. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses. Strategic Fit and Competitive Advantage: The Keys to Added Profitability and Gains in Shareholder Value What makes related diversification an attractive strategy is the opportunity to convert cross-business strategic fits into a competitive advantage over business rivals whose operations do not offer comparable strategic fit benefits. This step draws upon the results of the preceding steps to devise actions for improving the collective performance of the company's different businesses. A. is one that is losing money and requires cash infusions from its corporate parent to continue operations. Thus, diversification always merits strong consideration at single-business companies when industry conditions take a turn for the worse and are expected to be long-lasting. Likewise, high competitive strength is defined as a score greater than 6. Report this Document. Diversification Strategy Options. When buyers are not loyal to pioneering firms in making repeat purchases.
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