Diversification Strategy.ppt

Diversification Strategy 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.