Essay on Business Strategy

Submitted By Clarayh
Words: 1802
Pages: 8
Open Document
Diversification Strategy
OUTLINE
•
•
•

•
•
•

Introduction: The Basic Issues
The Trend over Time
Motives for Diversification
- Growth and risk spreading
- Diversification and Shareholder Value: Porter’s
Three Essential Tests.
Competitive Advantage from Diversification
Diversification and Performance: Empirical Evidence
Relatedness in Diversification

Objectives
• Define corporate strategy, describe some of the reasons why firms diversify, identify and describe different types of corporate diversification, and assess the advantages and disadvantages associated with each.
• Identify sources of synergy in diversified firms while also describing why synergies are so difficult to achieve.

Objectives (cont.)
• Explore the complex relationship between diversification and firm performance.
• In particular, explore the influence of managers and managerial thinking on the relationship between diversification and performance. Introduction
• Definition of Corporate Strategy
– Address the question: “What is the appropriate scale and scope of the enterprise?”
• Influences how large and how diversified firms will be.
• Successful corporate strategies are not only the product of successful definition
– Also the result of organizational capabilities or competencies that allow firms to exploit potential economies/synergies that large size or diversity can offer.

Introduction (cont.)
• Why Firms Diversify
– To grow
– To more fully utilize existing resources and capabilities. – To escape from undesirable or unattractive industry environments.
– To make use of surplus cash flows.

Introduction (cont.)
• Horizontal or related diversification
– Strategy of adding related or similar product/service lines to existing core business, either through acquisition of competitors or through internal development of new products/services.

Introduction (cont.)
• Horizontal or related diversification
– Advantages
• Opportunities to achieve economies of scale and scope. • Opportunities to expand product offerings or expand into new geographical areas.

Disadvantages of related diversification
• Complexity and difficulty of coordinating different but related businesses.

Introduction (cont.)
Conglomerate or unrelated diversification
– Firms pursue this strategy for several reasons:
• Continue to grow after a core business has matured or started to decline.
• To reduce cyclical fluctuations in sales revenues and cash flows.

– Problems with conglomerate or unrelated diversification: • Managers often lack expertise or knowledge about their firms’ businesses.

Introduction: The Basic
Issues
Diversification decisions involve two basic issues:
• Is the industry to be entered more attractive than the firm’s existing business?
• Can the firm establish a competitive advantage within the industry to be entered? (i.e. what synergies exist between the core business and the new business?)

Aim of Corporate Strategy:
Synergy
• Aim of diversification should be to create value or wealth in excess of what firms would enjoy without diversification.
• Synergy: the value of the combined firm after acquisition should be greater than the value of the two firms prior to acquisition.
– Obtained in three ways:
• Exploiting economies of scale.
– Unit costs decline with increases in production.

Aim of Corporate Strategy:
Synergy (cont.)
• Exploiting economies of scope.
– Using the same resource to do different things.

• Efficient allocation of capital.
– Many assets in acquired firms are undervalued -managers seek to exploit these opportunities and improve their operations and add value to their businesses.

Relatedness in
Diversification

•

•

Synergy in diversification derives from two main types of relatedness: Operational Relatedness-- synergies from sharing resources across businesses (common distribution facilities, brands, joint R&D)
Show More

Related Documents: Essay on Business Strategy

Business Strategy Essay

What is strategy? At the most basic definition, strategy is defined as "a plan of action designed to achieve a long term or overall aim" (Oxfor Dictionaries definitions: Strategy, 2013) . But in the context of the business environment, strategy is a very important tool used by all successful entities in almost every facet of their operation. We will look at an in depth definition of what strategy means in a business context. To understand this is to understand the business environment, and the…

Words 1922 - Pages 8

Business Strategies Essay

Business Strategies -Home Depot and Lowe's dominate the market. Volume discounts allow large companies to offer extremely competitive prices. Home Depot In the 1990’s, Home Depot followed a differentiation business model. It focused on distinguishing itself from the competitors with knowledgeable, helpful employees, brand-name products, and a unique customer experience (Brown, 2007). As the home improvement retailing industry matured and became less fragmented, Home Depot recognized the need…

Words 520 - Pages 3

Questions On Business Strategy

Systems Strategy Triangle a. Relates the business strategy with the IS strategy and the organizational strategy b. Purposely design the organization and there IS strategies to complement their business strategy c. Business, IS, and organizational strategies must be adjusted constantly d. Alignment – the situation in which a company’s current and emerging business strategy is enabled, supported, and unconstrained by technology i. Higher states are synchronization and convergence 3. Strategy – coordinated…

Words 416 - Pages 2

BUSINESS STRATEGY Essay

BUSINESS STRATEGY Apple Case Study MQP-Business[Group 1] Chinedu Madubuike (Murphy) Siyan Zhu (Laceiz) Yucheng Li (Levy) Hongrui Xu( Carey) CONTENT LO1. 4 INTRODUCTION 4 HISTORY 4 MISSION AND VISION 5 DEFINITION OF STRATEGY AND STRATEGY PLANNING CONCEPTS 6 APPLE CURRENT STRATEGY 7 LONG/ MEDIUM TERMS GOALS 8 PRODUCT LIFE CYCLEProduct Life Cycle 9 LO2. 10 PESTEL ANALYSIS 10 SWOT ANALYSIS 17 ANSOFF MATRIX ANALYSIS 21 ANAYLIZING APPLE INC WITH PORTER'S FIVE FORCE 24 BOSTON MATRIX 33 LO3…

Words 9480 - Pages 38

Business Strategy Essay

BUS6A2 - BUSINESS STRATEGY Fall Term Academic Year 2012/2013 Module Outline Booklet Module Leader: Mikko I Arevuo BA in International Business European Business School London Faculty of Business and Management, Regent’s College, London Module Code: Bus6A2 Module Name: Business Strategy – Managing and Thinking Strategically in a Rapidly Changing International Environment Academic Level: 3 Credit Value: 20 RC/10 ECTS Status: Core Formal student hours: Contact: 48 hours Self-directed…

Words 4425 - Pages 18

Business Strategy Of Apple

........................................................................................ 5 2. Apple Inc. .......................................................................................................................... 6 3. Generic Business Strategy ................................................................................................ 6 4. Organisational Culture ...................................................................................................... 9 5. Formal Organisational…

Words 5282 - Pages 22

Business Strategy For Facebook

Running Head: FACEBOOK Business strategy for Facebook Table of Contents Executive Summary 3 Introduction 5 External analysis (Industry analysis) and internal analysis 5 Strengths of company 5 Weaknesses of Company 6 Opportunities of company 7 Threats of Company 7 Problem Statement 8 Criteria for evaluating Strategic alternatives 9 Three strategic alternatives and evaluation 10 Expand the global user community 10 Build engaging mobile practices. 11 Advance ad products…

Words 2480 - Pages 10

Essay business strategy

Task 1.a Business organisations often try to acquire their customer’s interest and activity from their competitors. To compete with others they have to find out which financial commitment needed to make, which services or products needed to pursuit, which HRM implication needed, which organizational structure need to be adopted in terms of their internal strengths and weakness. This analysis is known as business strategy. According to Johnson et al (2004) business strategy is the path and opportunity…

Words 8971 - Pages 36

Business Strategy Essay

Frank’s Enterprises for Express Foods, Inc. Small Business Management – BU-3000 Marie Kight March 3, 2013 Executive Summary Frank’s Enterprises for Express Foods, Inc. is a small food service company that was open in 1997 in California. Frank’s specialized in fast food for company owned portable carts in high density urban office locations. The board of director approved for them to borrow $1 million dollars from three different banks in order to improve and expand their marketing…

Words 1903 - Pages 8

Business Strategy Essay

HND in Business and Finance Unit Name: Business Strategy – 7 Assessors: Egya Gyamfi Student: Sulaiman Adebakin Introduction In this part of the assignment I will be defining and explaining mission, vision, objective, goals & core competencies, I will also be distinguishing the difference between each point and the role they play in the operation of a business, I will be reviewing the issues involved in strategic planning and explain the different planning techniques. 1…

Words 6024 - Pages 25