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0Summary of Chapter

10. 0Managers often first consider diversification when their company is generating free cash flow, which are financial resources in excess of those necessary to maintain a competitive advantage in the companys original, or core, business. 20. 0A diversified company can create value by a! transferring competencies among existing businesses, b! leveraging competencies to create new businesses, c! sharing resources to reali"e economies of scope, d! using product bundling, e! using diversification as a means of managing rivalry in one or more industries, and f! exploiting general organi"ational competencies that enhance the performance of all business units within a diversified company. #he bureaucratic costs of diversification are a function of the number of independent business units within the company and the extent of coordination between those business units. $0. 0%iversification motivated by a desire to pool ris&s or achieve

greater growth is often associated with the dissipation of value. '0. 0#here are three vehicles that companies use to enter new business areas( internal ventures, ac)uisition, and *oint ventures. +0. 0,nternal new venturing is typically employed as an entry strategy when a company has a set of valuable competencies in its existing businesses that can be leveraged or recombined to enter the new business area. -0. 0Many internal ventures fail because of entry on too small a scale, poor commerciali"ation, and poor corporate management of the internal venture process. .uarding against failure involves a structured approach toward pro*ect selection and management, integration of /0% and mar&eting to improve commerciali"ation of a venture idea, and entry on a significant scale.

10. 0Ac)uisitions are often favored as an entry strategy when the company lac&s important competencies resources and capabilities! re)uired to compete in an area, but it can purchase an incumbent company that has those competencies and do so at a reasonable price. Ac)uisitions also tend to be favored when the barriers to entry into the target industry are high and the company is unwilling to accept the time frame, development costs, and ris&s of internal new venturing. 20. 0Many ac)uisitions fail because of poor postac)uisition integration, overestimation of the value that can be created from an ac)uisition, the high cost of ac)uisition, and poor preac)uisition screening. .uarding against ac)uisition failure re)uires structured screening, good bidding strategies, positive attempts to integrate the ac)uired company into the organi"ation of the ac)uiring one, and learning from experience. 30. 04oint ventures may be the preferred entry strategy when a! the ris&s and costs associated with setting up a new business unit are more than the company is willing to assume on its own and b! the company can increase the probability of successfully establishing a new business by teaming up with another company that has s&ills and assets complementing its own. 100. 0/estructuring is often a response to a! an inade)uate multibusiness model, b! the complexity of consolidated financial statements, c! excessive diversification due to top managers empire building, and c! innovations in the strategic management process that have reduced the advantages of vertical integration and diversification.