Diversification strategy final
Download as PPTX, PDF10 likes7,226 views
This document discusses diversification strategies for companies. It defines related and unrelated diversification, and outlines various reasons for and approaches to diversification. Related diversification involves entering businesses with strategic value chain fits to the company's core business, while unrelated diversification has no meaningful strategic relationships. Diversification can be done through acquisition, internal startup, or joint ventures. The key motives for diversification are growth, risk spreading, and profit. Managers play a crucial role by developing mental models of how diversification creates synergies and should be managed.
Diversification strategy final
- 2. Compilation Group Namrata Tambe Shalaka Patil Harshada patil Pratik Valendra Shoaib shikh Anshu Tiwari Shoaib Sayyed
- 3. Introduction A company is diversified when it is in two or more lines of business that operate in diverse market environments Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business
- 4. When Should a Firm Diversify? Diminishing growth prospects in present business Expand technologies and products complement Leverage existing competencies and capabilities Reduce costs Powerful brand name
- 5. Why Diversify? To build shareholder value! Diversification is capable of building shareholder value if it passes three tests 1.Industry Attractiveness Test 2. Cost of Entry Test 3. Better-Off Test — the company’s different businesses should perform better together
- 6. Strategies for Entering New Businesses Acquire existing company Internal start-up Joint ventures/strategic partnerships
- 7. Acquisition of an Existing Company Most popular approach to diversification Advantages Quicker Easier entry into target market to hurdle certain entry barriers Acquiring technological know-how Establishing supplier relationships
- 8. Internal Startup More attractive when Parent firm already has most of needed resources to build a new business Internal entry has lower costs than entry via acquisition New start-up does not have to go head-to-head against powerful rivals
- 9. Joint Ventures and Strategic Partnerships Good way to diversify when Uneconomical or risky to go it alone Pooling competencies of two partners provides more competitive strength Only way to gain entry into a desirable foreign market Foreign partners are needed to Surmount tariff barriers and import quotas Offer local knowledge about Market conditions Customs and cultural factors Customer buying habits Access to distribution outlets
- 10. What Is Related Diversification? Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es) Capturing the “strategic fits” makes related diversification a 1 + 1 = 3 phenomenon
- 11. What Is Unrelated Diversification? Involves diversifying into businesses with No meaningful value chain relationships No strategic fit No unifying strategic theme Basic approach – Diversify into any industry where potential exists to realize good financial results While industry attractiveness and cost-ofentry tests are important, better-off test is secondary
- 12. Related vs. Unrelated Diversification Related Diversification Involves diversifying into businesses whose value chains possess competitively valuable ―strategic fits‖ with value chain(s) of firm’s present business(es) Unrelated Diversification Involves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firm’s present business(es)
- 13. Motives for Diversification GROWTH RISK SPREADING PROFIT
- 14. Crucial Role of Managers Managers must develop two important types of mental models • Must also have well-developed beliefs about how diversification should be managed in order to achieve synergies. The ―Learning Hypothesis‖