Strategic Market Manangement 7th Edition

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Chapter Fourteen
Diversification
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Tis the part of a wise man to keep himself today
for tomorrow, and not venture all his eggs in one
basket. - Miguel de Cervantes
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Put all your eggs in one basket and WATCH THAT
BASKET. - Mark Twain
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Leveraging Assets and Competencies
Identify Business Plans that will Leverage
Assets and Competencies
Implement the Business Plans
Assess Assets, Competencies, and Excess Capacity
Figure 14.1
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Related Diversification

• Exporting or Exchanging Assets and Competencies
• Brand Name
• Marketing Skills
• Capacity in Sales or Distribution
• Manufacturing Skills
• RD Skills
• Achieving Economies of Scale

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The Mirage of Synergy

• Potential synergy does not exist
• Potential synergy exists, but implementation
  barriers make it unattainable
• Potential synergy is overvalued

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Unrelated Diversification

• Managing and Allocating Cash Flow
• Entering Business Areas with High ROI Prospects
• Obtaining a Bargain Price for a Business
• The Potential to Refocus a Firm
• Reducing Risk
• Tax Implications

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Unrelated Diversification

• Obtaining Liquid Assets
• Vertical Integration Motivations
• Defending Against a Takeover
• Providing Executive Interest
• Risks of Unrelated Diversification
• Performance of Diversified Firms

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Entry Strategies
Entry Strategies Major Advantages Major
Disadvantages

• Uses existing resources
• Avoids acquisition cost
• Especially if unfamiliar with product/market

• Time lag
• Uncertain prospects

Internal Development

• Mixed success record
• Can create internal stresses

• Uses existing resources
• May keep talented entrepreneurs

Internal Venture

• costly-usually buy redundant assets
• Problem of integrating two organizations

• Saves calendar time
• Overcomes entry barriers

Acquisition

• Potential for conflict in operations between
  firms
• Value of one firm may be reduced over time

• Technological/marketing unions can exploit
  small/large firm synergies
• Distributes risk

Joint Venture or Alliance
Figure 14.3
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Entry Strategies
Entry Strategies Major Advantages Major
Disadvantages

• Rapid access to technology
• Reduced financial risk

• Will lack proprietary technology and
  technological skills
• Will be dependent on licensor

Licensing from Others
Educational acquisitions

• Provides window and initial staff

• Risk of departure of entrepreneurs

• Unlikely alone to be a major stimulus of firm
  growth

• Can provide window on new technology or market

Venture Capital and Nurturing

• Will lack knowledge/control of market
• Will be dependent on licensee

• Rapid access to a market
• Low cost/risk

Licensing to Others
Figure 14.3
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Optimal Entry Strategies
Technologies or Services Embodied in the Product
Base
New/Unfamiliar
New/Familiar
New/ Unfamiliar
New/ Familiar
Market Factors
Base
Figure 14.4
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Key Learnings

• Related diversification involves the potential to
  attain synergies by exporting or exchanging
  assets or competencies.
• The brand is one asset that often can be
  leveraged. Disney and Sony are examples of brands
  that have provided the basis for a broad array of
  businesses.
• A brand should fit a proposed new product market
  and add value. And, importantly, the new product
  market context should enhance and reinforce the
  brand (and certainly should not damage it).
• Synergy can be illusory, being perceived when in
  fact it does not exist, implementation barriers
  make it unachievable, or it is overvalued.
• There are eleven motivations for unrelated
  diversification, including to manage cash flow,
  to obtain attractive businesses, to refocus a
  firm and to reduce risk.
• Figure 14.3 illustrates eight approaches to
  market entry based on how new the technology or
  market is to the organization.

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Ancillary Slides
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Indecision and delays are the parents of
failure. - George Canning
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You cant depend on your eyes when your
imagination is out of focus. - Mark Twain
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In the modern world of business, it is useless
to be a creative original thinker unless you can
also sell what you create. Management cannot be
expected to recognize a good idea unless it is
presented to them by a good salesman. - David M.
Ogilvy
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