Kế hoạch kinh doanh - Diversification and corporate strategy

Diversification: Strategies for Managing a Group of BusinessesScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy University-Florida Region Diversification andCorporate Strategy A company is diversified when it is in two or more lines of business that operate in diverse market environmentsStrategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business A diversified company needs a multi-industry,multi-business strategyA strategic action plan must be developedfor several different businesses competingin diverse industry environmentsIt is faced with diminishing growth prospects in present businessIt has opportunities to expand into industries whose technologies and products complement its present businessIt can leverage existing competencies and capabilities by expanding into businesses where these resource strengths are key success factorsIt can reduce costs by diversifyinginto closely related businessesIt has a powerful brand name it cantransfer to products of other businesses toincrease sales and profits of these businessesWhen Should a Firm Diversify?Why Diversify?To build shareholder value!Diversification is capable of building shareholder value if it passes three testsIndustry Attractiveness Test — the industry presents good long-term profit opportunitiesCost of Entry Test — the cost of entering is not so high as to spoil the profit opportunitiesBetter-Off Test — the company’s different businesses should perform better together than as stand-alone enterprises, such that company A’s diversification into business B produces a 1 + 1 = 3 effect for shareholders1 + 1 = 3Strategies for EnteringNew BusinessesAcquire existing companyInternal start-upJoint ventures/strategic partnershipsAcquisition of an Existing CompanyMost popular approach to diversificationAdvantages Quicker entry into target marketEasier to hurdle certain entry barriersAcquiring technological know-howEstablishing supplier relationshipsBecoming big enough to match rivals’efficiency and costsHaving to spend large sums onintroductory advertising and promotionSecuring adequate distribution access Internal StartupMore attractive whenParent firm already has most of needed resources to build a new businessAmple time exists to launch a new businessInternal entry has lower coststhan entry via acquisitionNew start-up does not have to gohead-to-head against powerful rivalsAdditional capacity will not adversely impactsupply-demand balance in industry Incumbents are slow in responding to new entryGood way to diversify whenUneconomical or risky to go it alonePooling competencies of two partners provides more competitive strengthOnly way to gain entry into a desirable foreign marketForeign partners are needed toSurmount tariff barriers and import quotasOffer local knowledge aboutMarket conditionsCustoms and cultural factorsCustomer buying habitsAccess to distribution outletsJoint Ventures and Strategic PartnershipsRaises questionsWhich partner will do what Who has effective controlPotential conflictsConflicting objectivesDisagreements over how to best operate the ventureCulture clashesDrawbacks of Joint VenturesRelated DiversificationInvolves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with value chain(s) of firm’s present business(es)Unrelated DiversificationInvolves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firm’s present business(es)Related vs. Unrelated DiversificationFig. 9.1: Strategy Alternatives for a Company Looking to DiversifyInvolves diversifying into businesses whose valuechains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es)Capturing the “strategic fits” makes related diversification a 1 + 1 = 3 phenomenonWhat Is Related Diversification?Exists whenever one or more activities in the value chains of different businesses are sufficiently similar to present opportunities for Transferring competitively valuableexpertise or technological know-howfrom one business to anotherCombining performance of commonvalue chain activities to achieve lower costsExploiting use of a well-known brand nameCross-business collaboration to create competitively valuable resource strengths and capabilitiesCore Concept: Strategic FitFig. 9.2: Related Businesses Possess Related ValueChain Activities and Competitively Valuable Strategic FitsStrategic Appeal of Related DiversificationReap competitive advantage benefits ofSkills transferLower costsCommon brand name usageStronger competitive capabilitiesSpread investor risks over a broader basePreserve strategic unity across businesses Achieve consolidated performance greater than the sum of what individual businesses can earn operating independently (1 + 1 = 3 outcomes)Cross-business strategic fits can exist anywhere along the value chainR&D and technology activitiesSupply chain activitiesManufacturing activitiesSales and marketing activitiesDistribution activitiesManagerial and administrative support activitiesTypes of Strategic FitsCore Concept: Economies of ScopeStem from cross-business opportunities to reduce costsArise when costs can be cutby operating two or more businessesunder same corporate umbrellaCost saving opportunities can stem from interrelationships anywhere along the value chains of differentbusinessesInvolves diversifying into businesses withNo strategic fitNo meaningful value chainrelationshipsNo unifying strategic themeBasic approach – Diversify intoany industry where potential existsto realize good financial results While industry attractiveness and cost-of-entry tests are important, better-off test is secondaryWhat Is Unrelated Diversification?Fig. 9.3: Unrelated Businesses Have Unrelated Value Chains and No Strategic FitsFig. 9.3: Unrelated Businesses Have UnrelatedValue Chains and No Strategic FitsAcquisition Criteria For Unrelated Diversification StrategiesCan business meet corporate targetsfor profitability and ROI?Is business in an industry with growth potential?Is business big enough to contributeto parent firm’s bottom line?Will business require substantialinfusions of capital?Is there potential for union difficultiesor adverse government regulations?Is industry vulnerable to recession, inflation, high interest rates, or shifts in government policy?Attractive Acquisition TargetsCompanies with undervalued assetsCapital gains may be realized Companies in financial distressMay be purchased at bargain prices and turned aroundCompanies with bright growth prospects but short on investment capitalCash-poor, opportunity-rich companies are coveted acquisition candidates Business risk scattered over different industriesFinancial resources can be directed tothose industries offering best profit prospectsIf bargain-priced firms with big profit potential are bought, shareholder wealth can be enhancedStability of profits – Hard times in one industrymay be offset by good times in another industryAppeal of Unrelated DiversificationKey Drawbacks ofUnrelated DiversificationDemanding Managerial RequirementsLimitedCompetitive Advantage PotentialDominant-business firmsOne major core business accounting for 50 - 80 percent of revenues, with several small related or unrelated businesses accounting for remainderNarrowly diversified firmsDiversification includes a few (2 - 5) related or unrelated businessesBroadly diversified firmsDiversification includes a wide collection of either related or unrelated businesses or a mixtureMultibusiness firmsDiversification portfolio includes several unrelated groups of related businessesCombination Related-Unrelated Diversification StrategiesFig. 9.4: Identifying a Diversified Company’s StrategyHow to Evaluate aDiversified Company’s StrategyStep 1: Assess long-term attractiveness of each industry firm is inStep 2: Assess competitive strength of firm’s business unitsStep 3: Check competitive advantage potential of cross-business strategic fits among business units Step 4: Check whether firm’s resources fit requirements of present businessesStep 5: Rank performance prospects of businesses and determine priority for resource allocation Step 6: Craft new strategic moves to improve overall company performanceStep 1: Evaluate Industry AttractivenessAttractiveness of eachindustry in portfolioEach industry’s attractivenessrelative to the othersAttractiveness of allindustries as a groupObjectivesAppraise how well eachbusiness is positioned inits industry relative to rivalsEvaluate whether it is or can becompetitively strong enough tocontend for market leadershipStep 2: Evaluate Each Business-Unit’s Competitive StrengthFig. 9.5: A Nine-Cell Industry Attractiveness-Competitive Strength MatrixObjectiveDetermine competitive advantage potential of cross-business strategic fits among portfolio businessesExamine strategic fit based onWhether one or more businesseshave valuable strategic fits withother businesses in portfolioWhether each business meshes wellwith firm’s long-term strategic directionStep 3: Check Competitive Advantage Potential of Cross-Business Strategic FitsFig. 9.6: Identifying Competitive AdvantagePotential of Cross-Business Strategic Fits ObjectiveDetermine how well firm’s resourcesmatch business unit requirementsGood resource fit exists whenA business adds to a firm’s resource strengths,either financially or strategicallyFirm has resources to adequately support requirementsof its businesses as a groupStep 4: Check Resource FitInternal cash flows are inadequate to fully fund needs for working capital and new capital investmentParent company has to continually pump in capitalto “feed the hog”Strategic optionsAggressively invest in attractive cash hogsDivest cash hogs lacking long-term potentialCharacteristics of Cash Hog BusinessesGenerate cash surpluses over what is needed to sustain present market positionSuch businesses are valuable because surplus cash can be used to Pay corporate dividendsFinance new acquisitionsInvest in promising cash hogsStrategic objectivesFortify and defend present market positionKeep the business healthyCharacteristics of Cash Cow BusinessesStep 5: Rank Business Units Based onPerformance and Priority for Resource Allocation Factors to consider in judgingbusiness-unit performanceSales growthProfit growthContribution to company earningsReturn on capital employed in businessEconomic value addedCash flow generationIndustry attractiveness and business strength ratingsFig. 9.7: The Chief Strategic and Financial Options forAllocating a Diversified Company’s Financial ResourcesStick closely with existing business lineupand pursue opportunities it presentsBroaden company’s business scope bymaking new acquisitions in new industriesDivest certain businesses and retrenchto a narrower base of business operationsRestructure company’s business lineup, putting a whole new face on business makeupPursue multinational diversification, striving to globalize operations of several business unitsStep 6: Craft New StrategicMoves – Strategic OptionsFig. 9.8: A Company’s Four Main Strategic Alternatives After It Diversifies