Types of Diversification
Related Diversification
(V) Sources of Value Creation - Economies of scope - Economies of scale - Financial Economies (C) Sources of Costs - Coordination costs - Influence Costs
unrelated diversification
(V) Sources of Value Creation - Financial Economies (C) Sources of Costs - Influence Costs
Verticle Integration
(V) Sources of Value Creation - securing critical supplies and distribution channels - lowering costs - improving quality - facilitating investments in specialized assets (C) Sources of Costs - Increasing Costs - Reducing quality - reducing flexibility - Increasing potential for legal reprecussions
Product Diversification, Geographic Diversification, Product-market diversification
Diversification Strategies 1. 2. 3.
Product-market diversification
Diversification Strategy Active in a range of both products and countries
Geographic Diversification
Diversification Strategy Active in several different countries
Product Diversification
Diversification Strategy Active in several different product "categories"
unrelated diversification, diversification discount
Firms that pursue _______ are often unable to create additional value and experience a ________ in the stock market
related diversification, diversification premium
Firms that pursue ________ are more likely to improve their performance and this creates a ___________.
low performance
High/Low levels of diversification associated with ____
Financial Economies
In addition to these criteria Firms may enhance their performance when following a diversification strategy by benefiting from: ????? - Restructuring - Using Internal Capital
Reduce Costs and Increase Value
In order for diversification to enhance firm performance it must do at least one of the following: Reduce Costs and Increase Value
Exploit Economies of Scope
In order for diversification to enhance firm performance it must do at least one of the following: increases value
Provide Economies of Scale
In order for diversification to enhance firm performance it must do at least one of the following: reduces costs
Reduce Costs and Increase Value, Exploit Economies of Scope, Provide Economies of Scale
In order for diversification to enhance firm performance it must do at least one of the following: 1 2 3
Degrees of Diversification
Range of products and services a firm should offer example PepsiCo also owns Lay's & Quaker Oats, but sold off KFC
Restructuring
The process of reorganizing and divesting business units
Dominant-Business
Type of Corporate Diversification: 70% > x > 95% of its revenues from a single business, but also pursues at least one other business activity example: Harley Davidson
Related Diversification Strategy
Type of Corporate Diversification: > 70% of its revenues from a single business activity, but obtains revenues from other businesses linked to the primary business activity
Single Business Firm
Type of Corporate Diversification: > 95% of its revenues from 1 business example: Google from online research
Unrelated Diversification
Type of Corporate Diversification: >70% of its revenues come from a single business, and there a few linkages among its businesses. Examples: Tata, GE, LG
Related-constrained
Type of Corporate Diversification: Leverage current competencies Example: ExxonMobil move into natural gases
Related-linked
Type of Corporate Diversification: Share only limited links to current businesses Example: Amazon move into cloud computing, Kindle tablets, & video streaming
Single Business Firm Dominant-Business Related Diversification Strategy Unrelated Diversification
Types of Corporate Diversification 1. 2. 3. 4.
Medium levels
_______ of diversification are associated with high performance
