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Multi-Product Diversification Strategies
Transcript of Multi-Product Diversification Strategies
"Contemporary Strategy Analysis" by Robert M. Grant, Case 20: Richard Branson and the Virgin Group of Companies in 2007*
Multi-Product Diversification Strategies
A group of businesses or conglomerate that their subsidiaries or group of companies have nothing to do with each other
The companies that are owned by the conglomerate do not share any of the core competencies between businesses
The companies that are owned by the conglomerate are unable to share any of the resources that are used by their other companies
Related Constrained Diversification
Moderate to High Levels of Diversification
Economies of scope
Firms businesses are related
-Low corporate, high operational
Share resources, activities to make and sell products
We are going to provide examples of companies for each of the following Strategies of Diversification
Unrelated Diversification - Virgin Group
Related Constrained Diversification - Campbell's
Related Linked Diversification - General Electric
Both Operational and Corporate Relatedness - Disney
Explain why it fits that category
Simultaneous Operational and Corporate Relatedness
The Walt Disney Company
Owned by Sir Richard Branson
Employs more than 50,000 people around the world in 50 countries
Global revenues of $24 billion in 2012
Has launched over 200 branded companies with the Virgin name
Most valuable Virgin Brands
Virgin Airlines (America, Atlantic, Australia)
Virgin Mobile (9 countries including USA, Australia, Canada, and India)
Virgin Train (UK)
Related Linked Diversification
Planes built from suppliers
Marketing & Sales
Award Winning Service, S'Wonderful Campaign
Operational Relatedness = Sharing primary tangible resources and activities
Corporate Relatedness = Firm successfully transfers corporate level core competencies into its different businesses.
BOTH? = The ability to simultaneously create economies of scope by sharing activities (operational relatedness) and transferring core competencies (corporate relatedness).
Production Sets (Touchstone, Hollywood Pictures)
Resources/Activities of film
Consistency of movie themes (Lion King)
Core competency ANIMATRONICS: transferred to different SBU's
Core competency CROSS SELLING
Core competency KNOWLEDGE OF CONSUMER TRENDS
Core competency PRODUCT PROMOTION: knowledge transferred
DEFINITION: A process that takes place when a business expands its activities into product lines that are similar to those it currently offers.
Firms using a related diversification multiproduct strategy try to create economies of scope.
Economies of scope are cost savings the firm accrues when it successfully transfers corporate-level core competencies into its business.
General Electric has six strategic business units (SBU's)
5 Major segments
General Technology Infrastructure
General Capital Finance
Major U.S. corporation
One of the largest companies in the world.
Incorporated in 1892, acquiring all the assets of the Edison General Electric Co.
In 1986 GE purchased NBC.
General Electric Core Competencies - Three Aspects
1. Management innovation
Jack Welch (CEO) reduced the levels of organization
Information can be communicated directly
Improved organizational performance
2. Product innovation
Paid attention to product’s brand innovations and functional innovations
ADD importance to the innovation of the product value-added and service innovation.
3. Employing innovation
Concept: talents are everything, and who owns is the biggest winner
Continually supplies challenging work to staffs for mobilizing their enthusiasm and increasing organization performance
Founded in 1869
CEO- Denise Morrison
Global revenue- 7.7 billion
Convenience food products
Use same warehouses
Suppliers- similar ingredients
Notable Mention: NIKE
Nike's Operational Relatedness:
Nike's Corporate Relatedness:
Human Resource Management
1) Unrelated Diversification:
Low levels of operational and corporate relatedness
Companies have little to do with each other
2) Related Operational Diversification:
High levels of operational relatedness, low levels of corporate relatedness
Lots of resource and activity sharing-economies of scope
3) Related Linked Diversification:
High levels of corporate relatedness, low levels of operational.
Companies successfully transferring corporate level core competencies into it's different businesses.
4) Simultaneous Operational/Corporate Relatedness:
Sharing both tangible primary/secondary resources and activities and intangible knowledge about core competencies
May lead to dis economies of scope
Walt Disney, Nike
Edison Engineering Development Program (EEDP)
The Human Resources Leadership Program (HRLP)
The Experienced Commercial Leadership Program (ECLP)
Business Specific Programs
Diversification-more about Five segments
Cross Division Multiple Access Network (CDMA) provided by Sprint, and customer service
Marketing and Sales
1. GE Energy Infrastructure
Stem, gas, generators, combined cycle systems, and renewable energy solution and water treatment equipment and services.
2. GE Technology Infrastructure
Jet engines, turboprop and turbo shaft engines and its replacement parts for using in commercial and military aircraft.
3. GE Capital Finance
Commercial lending and leasing products to distributors, and end-users of equipment and capital assets.
4. GE NBC Universal segment
Distribution and operation of films and television programs.
5. GE Consumer & Industrial
Various lighting products, home appliances and control products.
Superior flying experience at a low cost
Friendly environment & customer service
Ability to have low prices for service
Award winning service with on-flight entertainment
Phones from manufacturers
How they improve the lives of everyone through products and mobile service