1. Why do some diversification efforts pay off and others produce poor results?

Why
should companies even bother with diversification initiatives?
Some diversification efforts pay off and others produce poor results because
businesses do not have the right strategy in place. They must think carefully of what
distinct resources and capabilities they are able to move between different markets to
give them a competitive advantage. Companies should even bother with diversification
initiatives to create synergy, example, a company may acquire a similar firm which
allows it to expand its product offering and may result to increase its sales and
revenues.

2. Discuss and explain the three criteria that a core competence must meet if it is to create
value and to provide a viable basis for synergy among the businesses in a corporation.
For a core competence to create value and provide a viable basis for synergy
among the businesses in a corporation, it must meet the three criteria. It must enhance
competitive advantages by creating superior customer value. A value-chain activity has
the potential to provide a viable basis for building on a core competence. For example,
at Gillette, scientists developed a series of new razors building on an understanding of
several phenomena that underlie shaving. Also, businesses in the corporation must be
similar in at least one important way related to the core competence. Lastly, core
competencies must be difficult for competitors to imitate or find substitutes for.

3. Explain potential benefits that can be gained from vertical (or hierarchical) relationships
when corporations use unrelated diversification to increase value.
When corporations use unrelated diversification to increase value, potential
benefits that can be gained from vertical or hierarchical relationships include the
creation of synergies from the interaction of the corporate office with the individual
business units. First, it can contribute to parenting and restructuring of businesses.
Second, the corporate office can add value by viewing the entire corporation as a
portfolio of businesses and allocating resources to optimize corporate goals of
profitability, cash flow, and growth.