Bài giảng Crafting & Executing Strategy - Chapter 8 Corporate strategy: Diversification and the Multibusiness Company

CHAPTER 8CORPORATE STRATEGY:Diversification and the Multibusiness CompanyStudent VersionMcGraw-Hill/IrwinCopyright đ2012 The McGraw-Hill Companies, Inc.Crafting a Diversified Firm’s Overall Or Corporate StrategyStep 1Picking new industries to enter and deciding on the best mode of entry.Step 2Pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.Step 3Establishing investment priorities and steering corporate resources into the most attractive business units.Step 4Initiating actions to boost the combined performanceof the cooperation’s collection of businesses.BUILDING SHAREHOLDER VALUE: THE ULTIMATE JUSTIFICATION FOR DIVERSIFYINGThe industry attractiveness testThe cost-of-entry testThe better-off testTesting Whether a Diversification Move Will Add Long-Term Value for ShareholdersBetter Performance through SynergyEvaluating the Potential for Synergy through DiversificationFirm A purchases Firm B in another industry. A and B’s profits are no greater than what each firm could have earned on its own.Firm A purchases Firm C in another industry. A and C’s profits are greater than what each firm could have earned on its own.No Synergy(1+1=2)Synergy(1+1=3)STRATEGIES FOR ENTERING NEW BUSINESSESAcquisitionInternal new venture (start-up)Joint venture Diversifying into New BusinessesWhen to Engage in Internal DevelopmentAvailability of in-house skills and resourcesAmple time to develop and launch businessCost of acquisition is higher than internal entryAdded capacity will not affect supply and demand balanceLow resistance of incumbent firms to market entryNo head-to-head competition in targeted industry Factors Favoring Internal DevelopmentWhen to Engage in a Joint VentureEvaluating the Potential for a Joint VentureIs the opportunity too complex, uneconomical, or risky for one firm to pursue alone?Does the opportunity require a broader range of competencies and know-how than the firm now possesses? Will the opportunity involve operations in a country that requires foreign firms to have a local minority or majority ownership partner?Choosing a Mode of Market EntryThe Question of Critical Resources and CapabilitiesDoes the firm have the resources and capabilities for internal development?The Question of Entry BarriersAre there entry barriers to overcome?The Question of SpeedIs speed an important factor in the firm’s chances for successful entry?The Question of Comparative CostWhich is the least costly mode of entry, given the firm’s objectives?CHOOSING THE DIVERSIFICATION PATH: RELATED VERSUS UNRELATED BUSINESSESRelated BusinessesUnrelated BusinessesBoth Related and Unrelated BusinessesWhich Diversification Path to Pursue?Identifying Cross-Business Strategic Fitalong the Value ChainR&D and Technology ActivitiesSupply Chain ActivitiesManufacturing-Related ActivitiesDistribution-Related ActivitiesCustomer Service ActivitiesSales and Marketing ActivitiesPotential Cross-Business FitsStrategic Fit, Economies of Scope,and Competitive AdvantageTransferring specialized and generalized skills and\or knowledgeCombining related value chain activities to achieve lower costsLeveraging brand names and other differentiation resourcesUsing cross-business collaboration and knowledge sharingUsing Economies of Scope to Convert Strategic Fit into Competitive AdvantageFrom Competitive Advantage to Added Profitability and Gains in Shareholder ValueBuilds more shareholder value than owning a stock portfolio Is only possible via a strategy of related diversificationYields value in the application of specialized resources and capabilitiesRequires that management take internal actions to realize themCapturing the Cross-Business Benefits of Related DiversificationDIVERSIFICATION INTO UNRELATED BUSINESSESEvaluating the acquisition of a new business or the divestiture of an existing businessCan it meet corporate targets for profitability and return on investment?Is it is in an industry with attractive profit and growth potentials?Is it is big enough to contribute significantly to the parent firm’s bottom line?Building Shareholder Value via Unrelated DiversificationAstute Corporate Parenting by ManagementCross-Business Allocation of Financial ResourcesAcquiring and Restructuring Undervalued CompaniesUsing an Unrelated Diversification Strategy to Pursue ValueThe Path to Greater Shareholder Valuethrough Unrelated DiversificationActions taken by upper management to create value and gain a parenting advantageDo a superior job of diversifying into businesses that produce good earnings and returns on investment.Do an excellent job of negotiating favorable acquisition prices.Provide managerial oversight and resource sharing, financial resource allocation and portfolio management, and restructure underperforming businesses.The Drawbacks of Unrelated DiversificationPursuing an Unrelated Diversification StrategyLimited Competitive Advantage PotentialDemanding Managerial RequirementsMonitoring and maintaining the parenting advantagePotential lack of cross-business strategic-fit benefitsInadequate Reasons for PursuingUnrelated DiversificationSeeking reduction of business investment riskPursuing rapid or continuous growth for its own sakeSeeking stabilization to avoid cyclical swings in businessesPursuing personal managerial motivesPoor Rationales for Unrelated DiversificationCOMBINATION RELATED-UNRELATEDDIVERSIFICATION STRATEGIESDominant-Business EnterprisesNarrowly Diversified FirmsBroadly Diversified FirmsMultibusiness EnterprisesRelated-Unrelated Business Portfolio Combinations EVALUATING THE STRATEGY OF A DIVERSIFIED COMPANYDiversified StrategyAttractiveness of industriesStrength of Business UnitsCross-business strategic fitFit of firm’s resourcesAllocation of resourcesNew Strategic MovesStep 1: Evaluating Industry AttractivenessDoes each industry represent a good market for the firm to be in?Which industries are most attractive, and which are least attractive?How appealing is the whole group of industries?How attractive are the industries in which the firm has business operations? Step 2: Evaluating Business-Unit Competitive StrengthRelative market shareCosts relative to competitors’ costs.Ability to match or beat rivals on key product attributes.Brand image and reputation.Other competitively valuable resources and capabilities.Strategic fit with the firm’s other businesses.Bargaining leverage with key suppliers or customers.Alliances and partnerships with suppliers and/or buyers.Profitability relative to competitorsStep 4: Checking for Resource FitFinancial Resource FitState of the internal capital marketUsing the portfolio approach:Cash hogs need cash to develop.Cash cows generate excess cash.Star businesses are self-supporting.Success sequence:Cash hog  Star  Cash cowStep 5: Ranking Business Unit Performance and Assigning Resource Allocation PrioritiesRanking Factors:Sales growthProfit growthContribution to company earningsReturn on capital invested in the businessCash flowSteer resources to business units with the brightest profit and growth prospects and solid strategic and resource fit.Step 6: Crafting New Strategic Moves to Improve Overall Corporate PerformanceStick with the Existing Business LineupBroaden the Diversification Base with New AcquisitionsDivest and Retrench to a Narrower Diversification BaseRestructure through Divestitures and AcquisitionsStrategy Options for a Firm That Is Already Diversified