Diversification, acquisitions and internal ventures

1
Diversification, acquisitions and internal
ventures

• Session 14

2
Corporate strategy

• Which business opportunities to pursue?
• Review existing portfolio
• Portfolio of core competencies
• How to pursue these opportunities?
• How to exit from businesses that dont fit?

3
Electronic Arts diversification

• Worlds biggest video-game publisher flourishes
• Diversified product portfolio - does not rely
  heavily on one single game internal
• Industry growth fueled by launch of hardware
  platforms external

Source NY Times, ea.com
4
Source Vivendi web site
5
Breaking up Vivendi

• Businesses - Music, Publishing, TV Film,
  Telecom, Internet and Environment
• From simple French water utility to a complex
  media and entertainment business
• 18 billion in debt unfocused acquisition and
  diversification strategy

6
NBC buys Telemundo

• Gives NBC access to fast growing segment
• Use of acquisitions to enter new markets/
  segments
• Deal worth 1.98 billion plus 700 million of
  debt
• Problems in valuing acquisitions

Source New York Times
7
Portfolio of distinctive competencies
Premier plus 10
Mega-opportunities Fill in the blanks
White spaces
New Competence Existing
Existing
New Industry
8
Diversification

• Related versus unrelated
• Advantages
• Market power
• Transfer of competencies, Leveraging competencies
• Economies of scope
• Managing rivalry through multipoint competition
• Exploiting organizational competencies
• Disadvantages
• Bureaucratic costs (information overload0
• Co-ordination costs
• Accountability issues

9
Diversification

• How attractive is the industry to be entered?
• Can the firm establish a competitive advantage
  within an industry?
• Motives for diversification
• Growth
• Risk reduction
• Profitability

Source Grant
10
Mode of Entry

• Internal new venture (greenfield subsidiary)
• Acquisitions
• Joint ventures

11
Internal New Ventures

• Firm possesses certain core competencies
• Entry into embryonic industry
• High failure rate
• Small scale of entry
• Poor commercialization
• Poor implementation

12
Acquisitions

• To enter new businesses in which firm lacks core
  competencies
• Well established industry, significant barriers
  to entry
• Speed is important
• Lower risks
• Disadvantages
• Inspection
• Integration

13
Are you paying too much for that acquisition?
Source Eccles et al , 1999
14
Joint Ventures

• Sharing of risks and costs of project
• Access to complementary resources
• Establish standards
• Disadvantages
• Profit sharing
• Leakage of core competencies
• Shared control

15
JVs Planning for the end
Source Champion, 1999
16
Restructuring

• Reducing business scope
• Exit strategies
• Divestment (Spinoff, Management Buyout)
• Harvest
• Liquidation