(Initial) assignment feedback
Make sure you follow/understand the instructions
VRIO is used for internal analysis
PESTLE is used for macro analysis
The report should be focused on the industry structure and competitors.
Be specific when you provide information
What does large, increasing, growing, etc. mean? Provide the details if possible. If you already provide them in the appendix, restate them in the repot
The report is not just a shortened version of the appendix.
Highlight the most important factors and discuss them in sufficient depth.
It is not about death by information, be selective about what you include, also in the appendix.
Today’s learning objectives
Define corporate level-strategy
Understand diversification and its different levels
Explain when reasons firms diversify
Understand the risks and benefits of diversification
Corporate level strategy
• Only firms with multiple businesses need a corporate strategy
Scope decisions Corporate parenting SBU decisions
Which combination of businesses What does the corporate parent How to play at the SBU level? do?
How does the ‘parent’ add value?
Corporate strategy
Market/Product development
Product line depth and width decisions
Integration
Vertical: Extending the business long the value chain
Horizontal: Extending on the same level in the value chain
Diversification
Diversification and vertical integration
Engaging in multiple businesses (markets & industries)
Portfolio of businesses
Using resources across businesses (i.e., excess resources)
Vertical integration (backwards and forward)
Moving up or down the value chain
Remember the IKEA example?
Inter IKEA
Holding BV
Inter IKEA
Systems BV
Franchise
IKEA of
Sweden AB
Product offering &
Development
IKEA Supply
AG
Source and distribution
IKEA
Industry AB
Manufacture
Inter IKEA
Holding BV
Inter IKEA
Systems BV
Franchise
IKEA of
Sweden AB
Product offering &
Development
IKEA Supply
AG
Source and distribution
IKEA
Industry AB
Manufacture
Levels of diversification
Low levels
Most revenue comes from a single or a few businesses
Moderate levels
Revenues are more equally balanced across a few businesses
High levels
Revenues are balanced across many businesses
Types of diversification
Constrained
Strong sharing of ‘operational’ resources (e.g. technology, distribution)
Related
Sharing of ‘operational’ resources (e.g. technology, distribution)
Related linked
Some sharing of ‘operational’ resources (e.g. technology, distribution), sharing of ‘other’ resources
Unrelated
Sharing of ‘other’ resources (non-operational)
Value creation in diversification
Related diversification
Economies of scope & synergies (sharing of tangible resources)
Transfer of competencies (sharing of intangible resources)
Market power
Unrelated diversification
Financial economies (e.g. taxation, reduced revenue fluctuation)
Internal capital market (e.g. reduction in information asymmetries) • Bridge institutional voids
Value destruction in diversification
Managerial self-interest
Related diversification
Coordination and bureaucracy
Dependencies
Unrelated diversification
Financial mismanagement
Inefficient internal capital market
Next week
Acquisitions and restructuring
Required reading: Chapter 7
Required reading: Divestiture: Strategy’s missing link
Don’t forget your preparation (poste on comment).
Thank you
Thank you
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