Chapter 8 Buis Strat

Economies of scope

stem from cost-saving strategic fits along the value chains of related multiple businesses.

The defining characteristic of unrelated diversification (as opposed to related diversification) is

that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company's businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities).

To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests:

the attractiveness test, the cost-of-entry test, and the better-off test.

A company becomes a prime candidate for diversifying under the following circumstances

A.) When it spots opportunities for expanding into industries whose technologies and products complement its present business. B) When it has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such business. C) When diversifying into additional businesses opens new avenues for reducing costs via cross-business sharing or transfer of competitively valuable resources and capabilities. D) When can leverage its collection of resources and capabilities by expanding into businesses where these resources and capabilities are valuable assets. E) All of these.

Which of the following is not accurate as concerns entering a new business via acquisition, internal start-up, or a joint venture?

Acquisition is generally the most profitable way to enter a new industry, tends to be more suitable for an unrelated diversification strategy than a related diversification strategy, and usually requires less capital than entering an industry via internal start-up.

Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include all but which one of the following?

Shifting from a multi-country to a global strategy.

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

evaluating whether the diversification move will produce a 1 + 1 = 3 outcome such that the company's different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.

The strategic appeal of related diversification is that

it allows a firm to reap the competitive advantage benefits of skills transfer, lower costs (due to economies of scope), cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities.

Calculating quantitative attractiveness ratings for the industries a company has diversified into involves

selecting a set of industry attractiveness measures, weighting the importance of each measure (with the sum of the weights adding to 1.0), rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to evaluate the attractiveness of all the industries, both individually and as a group.

The 9-cell industry attractiveness-competitive strength matrix

uses quantitative measures of industry attractiveness and competitive strength to plot each business's location on the matrix—the thesis underlying the matrix is that there are good reasons to concentrate the company's resources on those businesses having relatively strong competitive positions in industries with relatively high attractiveness and to invest minimally or even divest those businesses with relatively weak competitive positions in industries with relatively low attractiveness.