chapter eight : cooperate strategy

Assalamulalaikum…

In this chapter, I want to share with you about the cooperate strateg in deversiication and multibusiness company. Before that, you must know about what the learning objectives in this topic :

*Understand when and how business diversification can enhance shareholder value.

*Gain an understanding of how related diversification strategies can produce cross-business strategic fit capable of delivering competitive advantage.

*Become aware of the merits and risks of corporate strategies keyed to unrelated diversification.

*Gain command of the analytical tools for evaluating a firm’s diversification strategy.

*Understand a diversified firm’s four main corporate strategy options for solidifying its diversification strategy and
improving company performance.

WHAT DOES CRAFTING A DIVERSIFICATION STRATEGY ENTAIL?

*Picking new industries to enter and deciding on the means of entry.

*Pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.

*Establishing investment priorities and steering corporate resources into the most attractive business units

*Initiating actions to boost the combined performance

of the cooperation’s collection of businesses.

WHEN BUSINESS DIVERSIFICATION BECOMES A CONSIDERATION A FIRM SHOULD CONSIDER DIVERSIFYING WHEN?? 

•            It can expand into businesses whose technologies and products complement its present business.

•          Its resources and capabilities can be used as valuable competitive assets in other businesses.

•          Costs can be reduced by cross-business sharing or transfer of resources and capabilities.

•          Transferring a strong brand name to the products of other businesses helps drive up sales and profits of those businesses.

                          APPROACHES TO DIVERSIFYING THE BUSINESS LINEUP

THE CORE CONCEPTS OF :

♦      Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts—an outcome known as synergy.

♦      An acquisition premium is the amount by which the price offered exceeds the preacquisition market value of the target firm.

♦      Corporate venturing (or new venture development) is the process of developing new businesses as an outgrowth of a firm’s established business operations. It is also referred to as corporate entrepreneurship or intrapreneurship since it requires entrepreneurial-like qualities within a larger enterprise

♦      Transaction costs are the costs of completing a business agreement or deal of some sort, over and above the price of the deal. They can include the costs of searching for an attractive target, the costs of evaluating its worth, bargaining costs, and the costs of completing the transaction.

♦      Strategic fit exists whenever one or more activities constituting the value chains of different businesses are sufficiently similar as to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities.

♦      Corporate parenting refers to the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and other types of generalized resources and capabilities such as long-term planning systems, business development skills, management development processes, and incentive systems.

♦      A diversified firm has a parenting advantage when it is more able than other firms to boost the combined performance of its individual businesses through high-level guidance, general oversight, and other corporate-level contributions.

♦      Restructuring refers to overhauling and streamlining the activities of a business—combining plants with excess capacity, selling off underutilized assets, reducing unnecessary expenses, and otherwise improving the productivity and profitability of the firm.

♦      A spinoff is an independent company created when a corporate parent divests a business by distributing to its stockholders new shares in this business.

♦      Companywide restructuring (corporate restructuring) involves making major changes in a diversified company by divesting some businesses and/or acquiring others, so as to put a whole new face on the company’s business lineup.