Diversification Strategy Introduction: Key Issues

Diversification Strategy ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],OUTLINE

RATE OF PROFIT > COST OF CAPITAL INDUSTRY ATTRACTIVENESS COMPETITIVE ADVANTAGE The Basic Issues in Diversification Decisions Superior profit derives from two sources: ,[object Object],[object Object],[object Object]

Diversifi cation among the US Fortune 500 , 1949-74 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1949 1954 1959 1964 1969 1974 70.2 63.5 53.7 53.9 39.9 37.0 29.8 36.5 46.3 46.1 60.1 63.0

Diversifi cation among Large UK Corporations, 1950-93

Diversification: The Evolution of Strategy and Management Thinking DEVELOPMENTS IN CORPORATE STRATEGY MANAGEMENT PRIORITIES STRATEGY TOOLS & CONCEPTS Quest for Growth Addressing under-performance of widely-diversified firms Creating shareholder value 1960 1970 1980 1990 2000 2006 ,[object Object],[object Object],Emphasis on “ related’ & “ concentric” diversification ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Motives for Diversification ,[object Object],[object Object],[object Object],[object Object],[object Object],RISK --Diversification reduces variance of profit flows SPREADING -- But , doesn ’ t create value for shareholders —they c an hold diversified portfolios of securities . --Capital Asset Pricing Model shows that diversification lowers unsystematic risk not systematic risk . PROFIT --For diversification to create shareholder value, the n bringing together of different businesses under common ownership & must somehow increase their profitability.

Diversification and Shareholder Value: Porter’s Three Essential Tests ,[object Object],[object Object],[object Object],[object Object],Additional source of value from diversification: Option value

Competitive Advantage from Diversification ,[object Object],[object Object],[object Object],MARKET POWER ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ECONOMIES OF SCOPE ECONOMIES FROM INTERNALIZING TRANSACTIONS

Relatedness in Diversification ,[object Object],[object Object],[object Object],[object Object]

Branson & the Virgin Companies: Making strategic sense of apparent entrepreneurial chaos ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Diversification Strategy Introduction: Key Issues

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