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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.

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) ‡ Strategic Relatedness-- synergies at the corporate level deriving from the ability to apply common management capabilities to different businesses. Problem of operational relatedness:- the benefits in terms of economies of scope may be dwarfed by the administrative costs involved in their exploitation.

Strategies of related diversification
‡ TIMING Offensive:-leveraging existing Strength:- pre-empting rival Defensive:-escaping weak core

‡ INDUSTRY
± What are the key sources of competition? ± How vulnerable is intended positiong strategy to these competitive forces?

‡ SYNERGIES
± Common resources ± Sharing activities

Common traps and Flawed reasons for expansion
‡ TIMING
± Defensive expansion :-To escape problem in core business ± External pressure:-Capital market ± Internal Slack:-Flush with cash

‡ INDUSTRY
± Interpret threats as opportunities. ± Ignore impact of company ± Forces on target position ± Identify similarities with existing business not different.

‡ SYNERGIES
± Overestimate or misidentify key resources ± Ignore commonalities in activities ± Rely on WTP enhancement(Subjective , nonquantified)