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