1. Diversification and Corporate Strategy
Corporate Level Strategy – the strategy for a company and all of its business units as a whole
Diversification – the primary approach to corporate level strategy
Diversified firms vary according to
Level of diversification
Degree of relatedness

2. Four Main Tasks in Crafting Corporate Strategy
Pick new industries to enter and decide on means of entry
Initiate actions to boost combined performance of businesses
Pursue opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage
Establish investment priorities, steering resources into most attractive business units

3. Why do Firms Diversify?
When they have excess resources, capabilities, and core competencies that have multiple uses
Diminishing growth prospects in present industry
Cost saving opportunities
Capture strategic fits
Capture financial economies
Spread business risk
Leverage brand name

4. Building Shareholder Value
Ultimate justification for diversifying
A diversification move must pass three tests
The industry attractiveness test
The cost-of-entry test
The better-off test

5. Making the Diversification Decision
Decision to Diversify Requires Two Additional Decisions:
Level and Degree of Diversification
Number and Relatedness
Mode of Diversification
Acquisition, Internal Development, Joint Venture

6. Major Corporate Level Strategies
Single Business
Dominant Business
Related Diversification
Unrelated Diversification

7. What is Related Diversification?
Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es)
Capturing the “strategic fits” makes related diversification a = 3 phenomenon

8. Examples of Related Diversification?
Proctor and Gamble (distribution/marketing)
Provides branded consumer goods products worldwide
3 GBUs
Beauty GBU
Beauty segment
Grooming segment
Health and Well-Being GBU
Health Care segment
Snacks, Coffee, and Pet Care segment
Household Care GBU
Fabric Care and Home Care segment
Baby Care and Family Care segment

9. Examples of Related Diversification?
Johnson and Johnson
Engages in the research and development, manufacture, and sale of various products in the health care field worldwide
3 segments
Consumer segment
Products for baby care, skin care, oral care, wound care, and women’s health care fields, as well as nutritional and over-the-counter pharmaceutical products
Pharmaceutical segment
Products for anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology, and virology
Medical Devices and Diagnostics segment
Products for circulatory disease management, orthopaedic joint reconstruction and spinal care, wound care and women’s health, minimally invasive surgical, blood glucose monitoring and insulin delivery, and diagnostic products, as well as disposable contact lenses

10. Examples of Related Diversification?
Campbell Soup Company
Engages in the manufacture and marketing of branded convenience food products worldwide
4 segments
U.S. Soup, Sauces, and Beverages
Baking and Snacking
International Soup, Sauces, and Beverages
North America Foodservice
Upjohn (R&D/product)
Human and Agricultural
Laser Company (technology)
Defense, Health Care, Manufacturing

11. Strategic Appeal of Related Diversification
Capture Strategic Fits/Synergies/Scope Economies
Strategic fits along value chain
Cost reductions
Spread investor risks over a broader base
Preserves strategic unity in its business activities
Achieve consolidated performance greater than the sum of what individual businesses can earn operating independently

12. What is Unrelated Diversification?
Involves diversifying into businesses with
No strategic fit
No meaningful value chain relationships
No unifying strategic theme
Approach is to venture into “any business in which we think we can make a profit”
Firms pursuing unrelated diversification are often referred to as conglomerates

13. Example of Unrelated Diversification?
W. R. Grace
Chemicals
Coal Mining
Oil and Gas Extraction
Food Manufacturing
Paper Products
Health Services

14. Example of Unrelated Diversification?
United Technologies Corporation
Provides technology products and services to the building systems and aerospace industries worldwide
Otis segment – elevators and escalators
Carrier segment – air conditioning and refrigeration
UTC Fire and Security segment.
Pratt and Whitney segment - aircraft engines; parts and services
Hamilton Sundstrand segment - aerospace products and aftermarket services
Sikorsky segment – helicopters
UTC also engages in the development and marketing of distributed generation power systems and fuel cell power plants for stationary, transportation, space, and defense applications

15. Example of Unrelated Diversification?
Textron, Inc.
Operates in the aircraft, industrial, and finance industries worldwide.
4 segments
Bell – helicopters plus parts and service
Cessna – general aviation aircraft
Industrial – auto parts, food containers, hydrolics, golf carts
Finance – aircraft finance, asset-based lending, distribution finance, golf finance, resort finance

16. Diversification and Shareholder Value
Related Diversification
A strategy-driven approach to creating shareholder value
Unrelated Diversification
A finance-driven approach to creating shareholder value

17. Combination Related-Unrelated Diversification Strategies
Dominant-business firms
One major core business accounting for percent of revenues, with several small related or unrelated businesses accounting for remainder
Narrowly diversified firms
Diversification includes a few (2 - 5) related or unrelated businesses
Broadly diversified firms
Diversification includes a wide collection of either related or unrelated businesses or a mixture
Multibusiness firms
Diversification portfolio includes several unrelated groups of related businesses

18. STRATEGIES FOR ENTERING NEW BUSINESSES
Diversifying into New Businesses
Acquisition
Internal new venture (start-up)
Joint venture

19. Evaluating the Strategy of a Diversified Company
Step 1: Assess attractiveness of each industry firm competes in
Step 2: Assess competitive strength of firm’s business units
Step 3: Check competitive advantage potential of cross-business strategic fits among business units
Step 4: Check whether firm’s resources fit requirements of present businesses
Step 5: Rank performance prospects of businesses and assign a priority for resource allocation
Step 6: Craft new strategic moves to improve overall company performance

20. Figure 8.6 Strategy Options for a Firm That Is Already Diversified
Stick with the Existing Business Lineup
Broaden the Diversification Base with New Acquisitions
Divest and Retrench to a Narrower Diversification Base
Restructure through Divestitures and Acquisitions

21. Why Firms Expand Globally
Gain access to new customers
Achieve lower costs and enhance competitiveness
Capitalize on core competencies
Spread business risk across wider market base
Access to raw materials
Exchange rate fluctuations
Trade policies – tariffs

22. Cross Country Differences
Cultures and lifestyles
Market demographics
Market conditions
Growth rate
Distribution systems
Need for responsiveness
Location advantages
Exchange rates
Host government restrictions

23. Two Primary Patterns of International Competition
Multi-domestic Competition
Global Competition

24. Strategy (Mode) Options for International Markets
Exporting
Maintain national production and export goods to foreign markets
Licensing
Allow foreign firms to produce and distribute your product or use your technology
Franchising
Similar to licensing
More suited to services and retailers

25. Strategy (Mode) Options for International Markets
Acquisition / Merger
Acquire or merge with company competing in foreign market
Greenfield Venture / Internal Development
Start up new business unit and use it to enter in to foreign market
Strategic Alliances and Joint Ventures
Combine resources with foreign partner(s)

26. Strategy Options for International Markets
Multicountry
Think-local, act-local
Tailor strategy to each country
Global
Think-global, act-global
Pursue same basic strategy worldwide
Transnational
Think-global, act-local
Combination global-local strategy

27. Building Competitive Advantage in Foreign Markets
Locating activities
Transferring of competencies to foreign markets
Coordinating cross-border activities
Profit sanctuaries
Cross-market subsidization

28. Competing Internationally Versus Competing Globally
Compete in a select few foreign markets
Global
Has or pursue a market presence on most continents and in all major countries