Bài giảng Strategic Management - Chapter 6: Corporate-Level Strategy: Creating Value through Diversification

Corporate-Level Strategy: Creating Value through Diversificationchapter 6Making Diversification WorkDiversification initiatives must create value for shareholders throughMergers and acquisitionsStrategic alliancesJoint venturesInternal developmentDiversification should create synergy6-*Making Diversification WorkA firm may diversify into related businessesBenefits derive from horizontal relationshipsSharing intangible resources such as core competencies in marketingSharing tangible resources such as production facilitiesA firm may diversify into unrelated businessesBenefits derive from hierarchical relationshipsValue creation derived from the corporate officeLeveraging support activities in the value chain6-*Related DiversificationRelated diversification enables a firm to benefit from horizontal relationships across different businessesEconomies of scope allow businesses to:Leverage core competenciesShare related activitiesEnjoy greater revenuesRelated businesses gain market power by:Pooled negotiating powerVertical integration6-*Related Diversification: Leveraging Core CompetenciesCore competencies reflect the collective learning in organizations. Can lead to the creation of value and synergy ifThey create superior customer valueThe value chain elements in separate businesses require similar skillsThey are difficult for competitors to imitate or find substitutes for6-*Related Diversification: Sharing ActivitiesCorporations can also achieve synergy by sharing activities across their business units.Sharing tangible & value-creating activities can provide payoffs:Cost savings through elimination of jobs, facilities & related expenses, or economies of scaleRevenue enhancements through increased differentiation & sales growth6-*Related Diversification: Market PowerMarket power can lead to the creation of value and synergy throughPooled negotiating powerGaining greater bargaining power with suppliers & customersVertical integration - becoming its own supplier or distributor throughBackward integrationForward integration6-*Related Diversification: Vertical IntegrationThe transaction cost perspectiveEvery market transaction involves some transaction costs:Search costsNegotiating costsContract costsMonitoring costsEnforcement costsNeed for transaction specific investmentsAdministrative costs6-*Unrelated DiversificationUnrelated diversification enables a firm to benefit from vertical or hierarchical relationships between the corporate office & individual business units throughThe corporate parenting advantageProviding competent central functionsRestructuring to redistribute assetsAsset, capital, & management restructuringPortfolio managementBCG growth/share matrix6-*Unrelated Diversification: Parenting & RestructuringParenting allows the corporate office to create value through management expertise & competent central functionsIn restructuring the parent intervenes:Asset restructuring involves the sale of unproductive assetsCapital restructuring involves changing the debt–equity mix, adding debt or equityManagement restructuring involves changes in the top management team, organizational structure, & reporting relationships6-*Unrelated Diversification: Portfolio ManagementPortfolio management involves a better understanding of the competitive position of an overall portfolio or family of businesses bySuggesting strategic alternatives for each businessIdentifying priorities for the allocation of resourcesUsing Boston Consulting Group’s (BCG) growth/share matrix6-*Unrelated Diversification: Portfolio Management6-*Each circle represents one of the firm’s business units. The size of the circle represents the relative size of the business unit in terms of revenue.Exhibit 6.5 The Boston Consulting Group (BCG) Portfolio MatrixMeans of DiversificationDiversification can be accomplished viaMergers & acquisitionsAnd divestmentPooling resources of other companies with a firm’s own resource base throughStrategic alliances & joint venturesInternal Development throughCorporate entrepreneurship6-*Managerial MotivesManagerial motives: Managers may act in their own self interest – eroding rather than enhancing value creation throughGrowth for growth’s sakeTop managers gain more prestige, higher rankings, greater incomes, more job securityIt’s exciting and dramatic!Excessive egotismUse of antitakeover tactics6-*Managerial Motives: Antitakeover TacticsAntitakeover tactics include:Green mailGolden parachutesPoison pillsCan benefit multiple stakeholders – not just managementCan raise ethical considerations because the managers of the firm are not acting in the best interests of the shareholders6-*