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This word is used to identify the direction of development which take the organization away from its present markets and its present products at the same time
When to diversify depends partly upon companys growth opportunities in its present industry and partly on the opportunities to utilize its resources, expertise and capabilities in other market arenas. Diminishing growth prospects in its present business Opportunities to add value for its customer Gain competitive advantage by broadening its present business to include complementary products or technologies. To create shareholders value, to spread the business risk across various industries Cost saving opportunities that can be exploited by diversifying into closely related businesses
Backward integration Related diversification Strategy options for a company looking to diversify Unrelated diversification Forward integration Horizontal integration
Development into activities which are competitive with, or directly complementary to a companys present activities
New market and new product Creation of genuinely new market New competencies are developed for new opportunities
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Machinery Supply
Financing
By-products
Distribution Outlet
Transport
Marketing information
Note: Some companies will manufacture components or semi-finished items. In those cases there will be additional integration opportunities into assembly or finished product manufacture.
Forward Integration
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Horizontal Integration
Components Product
Backward Integration
Businesses are said to be unrelated when the activities comprising their respective value chains are so dissimilar that no real potential exists to transfer skills or technology from one business to another or to combine similar activities and reduce costs or to otherwise produce competitively valuable benefits from operating under a common corporate umbrella. The basic premise of unrelated diversification is that any company that can be acquired on good financial terms and that has satisfactorily profit prospects presents a good business to diversify. Two types of businesses hold attraction for unrelated diversification: Companies whose assets are undervalued Companies that are financially distressed
Support Activities
Business A Supply chain Activities R&D and Technology Operations Sales and Marketing Distribution Customer service
Competitively valuable opportunities for technology or skills transfer, cost reduction, common brand name usage, and cross-business collaborations exist at one or more points along the value chains of A and B
Business B
Operations
Distribution
Customer service
Support Activities
Support Activities
Business A Supply chain Activities Technology Operations Sales and Marketing Distribution Customer service
An absence of competitively valuable strategic fits between the value chain for Business A and the value chain for Business B
Business B
Technology
Operations
Distribution
Customer service
Support Activities
Six ways to build competitive advantage: Full capture of economies of scale and experience curve effects. Opportunities to capitalize on cross-business economies of scope. Opportunities to transfer competitively valuable resources from one business to another and from one country to another. Ability to leverage use of a well-known and competitively powerful brand name. Ability to capitalize on opportunities for cross-business and cross-country collaboration and strategic coordination. Opportunities to use cross-business or cross country subsidization to outcompete rivals.
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Strategic fit
Matching of the activities of an organization to the environment in which it operates. This is known as the search for strategic fit. It exists whenever one or more activities comprising the value chains of different businesses are sufficiently similar as to present opportunities for.
Strategic fit can be used actively to evaluate the current strategic situation of a company as well as opportunities as M&A and divestitures of organizational divisions.
Strategic fit is related to the Resource-based view of the firm which suggests that the key to profitability is not only through positioning and industry selection but rather through an internal focus which seeks to utilize the unique characteristics of the companys portfolio of resources and capabilities.
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Environment-led fit Strategic fit b/w market opportunities and organizational resources Correct positioning, Differentiation directed by market need Find and defend a niche Portfolio of product/businesses Strategies of division or subsidiaries
Resource-led fit Leverage of resources to improve value for money Differentiation based on competences to or creating market need Change the rules of the game Portfolio of competences Core competences
Competitive advantage through How small player survive Risk reduction through. Corporate centre invests in.
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Synergy
cited
reason
for
both
related
and
unrelated
Potentially it occurs where two or more activities or processes complement each other, to the extent that their combined effect is greater than the sum of the parts
The conditions of synergy provides a useful link b/w the logic of synergy and the practical realities of adopting such a strategy (see slide 15. )
Determination, acceptance, and compatibility with the system and culture of the organization is also required.
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Conditions that need to be satisfied if strategies based on exploiting synergy are need to be successful
Pressure to change
Sharing is appropriate
Opportunity to improve
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