Corporate level strategy: Diversification

1
Corporate level strategy Diversification

• What businesses to be in?
• How create value of scope via synergies?
• Build, buy, or partner?

2
Basic principle FOCUS

• Resources competencies are specific
• Managers have focus budget

3
Unrelated diversification?

• Risk reduction?
• Manage firms, not portfolios
• Let shareholders do it

4
Value from diversification Leveraging core
competencies

• Shared elements (not products) are CC-enhanced
  across businesses
• Competence from A adds value in B

5
Value from diversification Sharing resources

• Negotiating power
• Purchasing
• Selling
• Manufacturing facilities
• Distribution channels
• Sales forces
• Scope and scale?

6
Value from diversification Vertical integration

• Reduce input pricing risks
• Increase quality control
• Expand competencies

BUT

• Lose flexibility
• Increase complexity

7
Another take on vertical integration Are
transaction costs reduced?

• Market transaction problems
• Asset specificity
• Opportunism
• Market transaction costs
• Search
• Negotiation contracting
• Monitoring enforcement
• Cheaper to bring in-house?

8
Diversification value chain

• Value chain extension vertical integration
• Cross-SBU value chain fits
• Technology transfers
• Skills transfers
• Cost reductions
• Brand leveraging

ALL building upon building pool of resources
competencies
9
Related? Adding value?

• Disney Co.
• Theme parks
• Cruise line
• Resort properties
• Film production
• TV radio
• Sports teams
• Books mags
• Software
• Retail shops

• Textron, Inc.
• Helicopters
• Small aircraft
• Golf carts
• Plastic auto components
• Turf care equipment
• Financial services
• Fastening systems

10
Build, buy, or partner?

• Build internally
• Competence-using strengthening
• Distinctive advantage
• Buy via acquisition
• Faster
• Fit integration problems
• Build-buy cost comparison State of the stock
  market
• Partner
• Joint venture
• Strategic alliance
• Knowledge transfer?

11
Destroying value via diversification

• Empire building
• Deal-making focus
• Managing company not competence portfolios
• Collateral damage to stakeholder relations