Interrelationship among

Business Units

Presented by:
Ajay Saroj 945
Ashita Vora 955
 Types of interrelationships
Tangible interrelationships:
Arise from opportunities to share activities in the value
chain among related business

Intangible interrelationships :
Transference of generic skills or know how

Competitor interrelationships:
Stems from the existence of rivals that actually or
potentially compete with a firm in more than one industry
 Sharing and cost
Potential to reduce cost if the cost of value
activity is driven by economies of scale and the
pattern of capacity utilization

Not exactly equivalent to increasing market share

in one business unit, however because a shared
activity often involves greater complexity than an
equivalent scale activity serving one business unit
 Sharing Differentiation

Enhance differentiation by increasing the

uniqueness of an activity or
 lower the cost of differentiation

Sharing product development among

business units can reduce the cost of rapid
model changes if product development is
subject to economies of scale.
 Cost of sharing
Cost of coordination

Involves cost in terms of time, personnel, and

money cost

Cost of compromise
Sharing an activity requires that an activity be
performed in a consistent way that may not be
optimal for either of the business units involved
Contd…
Cost of inflexibility takes two forms

1. Potential difficulty in responding to competitive

moves

2. Exit barriers
Sustainability of competitive advantage
Two basic options in matching the competitive
advantage

1. Duplicating the interrelationship or

2. Offsetting it through other means such as

gaining share in the affected business unit or
exploiting a different interrelationship.
Tangible Interrelationships
Market interrelationship.

Production interrelationship.

Procurement interrelationship.

Technology interrelationship.

Infrastructure interrelationship.
Market Interrelationship
It involve the sharing of primary value activities involved in
reaching and interacting with the buyer from outbound logistics
to service.

Common buyer ,common channels or both lead to richer

opportunites for sharing.
eg:-Oil companies

Shared marketing can yield less of cost advantage when products

are substitutes.

When business unit sell complementary products,the advantage

of sharing if often more.
Source of Possible forms Potential competitive Most likely source of
Interrelationship of sharing advantages. competitive cost.

Common buyer Shared brand Lower advertising cost. Product images are
name inconsistent or
conflucting.

Common Channel Cross selling of Lower cost of selling. Buyer are reluctant to
product. purchase too much frrom
one firm.
Common Shared sales Lower selling cost or Different buyer
geographic market force sales force infrastructure purchasing behavior.
cost.
Production Interrelationship

It involves sharing of upstream activities such as

inbound logistics,component fabrication,testing and
indirect functions such as maintainance,infrastructure.

All these forms of sharing require that activities be

located together.
Source of Possible sharing Potential Most likely
interrelationship competitive sources of
advantage compromise cost.

Common location of Shared inbound Lower freight and Input sources are
raw material logistics material handling located in different
cost location
Identical or similar Shared Lower testing cost Testing procedure
testing/quality testing/quality and quality
control procedure control facilities. standard differ.
 Procurement Interrelationship
•It involve shared procurement of common
purchased input.
Source of Possible sharing Potential Most likely
interrelationship competitive sources of
advantage compromise cost.

Common Joint procurement lower cost of input Input needs are

purchased input different in terms
of quality or
specifications,
leading to higher
cost than necessary
in business units
requiring less
quality.
Technological Interrelationship

It involve sharing of technology development activities

throughout the value chain.

It is distinguished from production interrelationship

because their impact is on cost or uniqueness of
technology development.

eg:-LCD and citiscan use same technology compared to

Plasma.
Source of Possible sharing Potential Most likely sources
interrelationship competitive of compromise
advantage cost.

Common product Joint technology Lower product or Technologies are the

technology development design cost same,but the
tradeoffs in applying
the technology are
different among
business units.
Infrastructure Interrelationship
It involve firm infrastructure,including activities such
as financing,accounting and human resource
management.
Source of
interrelationship Possible sharing

Common firm Shared raising of

infrastructure capital
needs

Common Capital Shared cash

utilization.
Shared hiring and
hiring.
Intangible Interrelationship
It leads to competitive advantage through the transfer
of skills among separate value chains.

It is important for competitive advantage when the

transference of skills allows the receiving unit to
lower costs or enhance differentiation.

eg:-Philip Morris transferred generic know-how in the

marketing of consumer packaged goods from its
cigarette businnes to Miller Beer
Competitors interrelationship
It is present when a firm actually or potentially
competes with diversified rivals in more than one
business unit.

The competitive position of a multipoint competior

is often more a function of its overall position in a
group related industries.
Thank You