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Corporate strategy and Diversification

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philip nash

on 12 April 2016

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Transcript of Corporate strategy and Diversification

Strategic Direction: 2
Corporate strategy and growth: The Ansoff Matrix
Identify alternative strategy options, including market penetration, product development, market development and diversification.
Assess the relative benefits of vertical integration and outsourcing
Distinguish between different diversification strategies
Objectives
Strategey Directions
The Ansoff product/market growth matrix
Diversification
Diversification involves increasing the range of products or markets served by an organisation.

Related diversification involves diversifying into products or services with relationships to the existing business.

Conglomerate (unrelated) diversification involves diversifying into products or services with no relationships to the existing businesses.

Two Key Concepts
Market penetration refers to a strategy of increasing share of current markets with the current product range.
This strategy:
builds on established capabilities
provides increased power
achieves economies of scale

Market penetration
Stay in zone A
Diversify to zones: B C & D
Contsraints of market penetration
Price wars
Competition commission
Product Development
Product development refers to a strategy by which an organisation delivers modified or new products to existing markets.

can be an expensive and high risk
may require new strategic capabilities
typically involves project management risks.

Market Development
Conglomerate Diversification
Market development refers to a strategy by which an organisation offers existing products to new markets

may also entail some product development (e.g. new styling or packaging)
attracting new users (hotels: weekend break)
can take the form of new geographies (e.g. international market) e.g. Merlin


Less risky, cheaper and quicker to excecute than product development
Takes the organisation beyond both its existing markets and products
Exploiting economies of scale/scope – e.g. efficiency gains
Stretching corporate management competences.
Exploiting superior internal processes.
Increasing market power.

Synergy refers to the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of the parts.

N.B. Synergy is often referred to as the
‘2 + 2 = 5’ effect.

Drivers of Diversification
Synergy is the goal
Diversification and performance
Potential problems

Can be just an 'ego trip' for senior managers
short term growth leading to problems down the line
e.g RBS and HBOS
Some diversification is good but perhaps not too much!
Some are very successful
Diversification through Integration: Vertical, backward, forward etc.
Package Tour
operator
Resort
Hotels
Travel
Agents
Airline
Forward Integration
(outputs)
Horizontal Integration
(diversificaton)
Backward Integration
(Inputs)
Specialist Adventure Tourism
To integrate or to outsource?
Value creation and the corporate parent
Value-adding activities

Envisioning
Facilitating synergies
Coaching
Providing central services
Intervening

The Parenting matrix
Value-destroying activities

Adding management costs
Adding bureaucratic complexity
Obscuring financial performance

4. Alien business units are misfits. They offer little opportunity to add value and the parent does not understand them. Exit is the best strategy.

1. Heartland business units - the parent understands these well and can add value. The core of future strategy.
2. Ballast business units - the parent understands these well but can do little for them. They could be just as successful as independent companies.
3. Value-trap business units are dangerous. There are attractive opportunities to add value but the parent’s lack of feel will result in more harm than good.
Virgin: A classic diversified organisation
Boeing Dreamliner
Diversification through Integration: Vertical, backward, forward etc.
Car
manufacture

Truck
Bus
Car Retail
Components
manufacture

Cruise Ships
Full transcript