...JOURNAL OF MANAGERIAL ISSUES Vol. XVI Number 3 Fall 2004: 361-381 Diversification Strategy and Top Management Team Fit Dan Marlin Assistant Professor of Management University of South Florida — St. Petersburg Bruce T. Lamont Professor of Management The Florida State University Scott W. Geiger Assistant Professor of Management University of South Florida — St. Petersburg Matching managers to diversification strategy has long been a cornerstone of strategy implementation research (Finkelstein and Hambrick, 1996; Guthrie and Datta, 1998; Krishnan et al, 1997; Leontiades, 1982; Michel and Hambrick, 1992; Pitts, 1977; Reed and Reed, 1989; Song, 1982; Tihanyi et al, 2000). The basic premise underlying this body of research is that different strategies pose different management challenges that, in turn, require systematically different management skills and experiences to be implemented successfiilly. Managers with backgrounds and skills matched to the critical task demands of a firm's diversification strategy, therefore, should be reflected in superior financial performance. Despite the logical appeal of these arguments, their empirical support remains limited and uneven. The cumulative findings suggest that managers of multi-business firms are generally matched to the task demands of their firm's diversification strategies (Michel and Hambrick, 1992; Pitts, 1977; Song, 1982), although contrary evidence has been found as well (Reed and Reed, 1989). Further, the...
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...Questions By Aaron Dowling What is Corporate Level Strategy and why is it important? The formal definition of a corporate level strategy is ‘an action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets’. An example of Virgin Worldwide’s corporate level strategy is the corporate synergies between its business units, allowing individual businesses to focus on and develop as autonomous enterprises under a single unified brand name. This decentralization of organizational structure and decision making allows an entrepreneurial environment for managers to pursue their businesses effectively, while avoiding the bureaucracy associated with large centralised corporations. At the same time, the individual businesses benefit from the world-wide, inter-industrial reputation of the parent corporation’s Virgin brand and are able utilize this brand recognition in their marketing efforts. The corporate level strategy is important in that it is the defining factor of what makes the ‘whole’ of the corporation add up to greater than the sum of its parts. It sets the corporation apart from its competitors and is unique to the particular company. What are the different levels of diversification firms can pursue by using different corporate-level strategies? There are 3 distinct levels of diversification firms can pursue by using different corporate-level strategies. These are Low-level, Moderate-level...
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...crafting corporate strategy for a diversified company encompasses A. picking the new industries to enter and deciding on the means of entry. B. initiating actions to boost the combined performance of the businesses the firm has entered. C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage. D. steering corporate resources into the most attractive business units. E. All of these. 2. Which one of the following is not one of the elements of crafting corporate strategy for a diversified company? A. Picking new industries to enter and deciding on the means of entry B. Choosing the appropriate value chain for each business the company has entered C. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage D. Steering corporate resources into the most attractive business units E. Initiating actions to boost the combined performance of the businesses the firm has entered 3. Diversification merits strong consideration whenever a single-business company A. has integrated backward and forward as far as it can. B. is faced with diminishing market opportunities and stagnating sales in its principal business. C. has achieved industry leadership in its main line of business. D. encounters declining profits in its mainstay business. E. faces strong competition and is struggling to earn a good profit. 4. Diversification ought to be...
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...revenue annually. The purpose of this essay is to discuss how the diversification strategy changed Procter & Gamble in Singapore over the last ten years. The main position in this essay is that diversification can be considered as one of the main strategies used to assist Procter & Gamble build up business competitive advantage. This essay will use theoretical evidence from literature review to analysis the impact of diversification on Procter & Gamble in different time period. The analyses of Procter & Gamble will be carried out in 3 perspectives: the operation of business, the performance of business and the brand of business. Literature Review & analyses of organization Diversification can be defined as a strategy used to increase the range of products or markets of organization. (Johnson, Scholes & Whittington, 2008) There is a range of reasons result the diversification of organization such as spreading the business risk and increasing the business expectation of stakeholder. (Johnson, Scholes & Whittington, 2008) But the result of research from Aisjah and Subroto (2011) indicated that there are two main reasons boost the diversification of business: firstly, diversification expands the economics of scope of the organization; secondly, diversified business helps organization develop the market power. Similarly, Kotler & Armstrong (2008) also claimed that the diversification enable organization acquire business not only from current products...
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...How can a company overcome the limitations of being in a fragmented industry? Fragmented industry consists of many small and medium sized companies or firms. There is few scale economies and hence large company cannot have advantage overall advantage. Furthermore the lack of scale economies low barriers to entry characterize many fragmented industries and new entry keeps the industry fragment.. Similarly transportation cost may keep the industry fragmented. Entrepreneurs are eager to gain the cost advantage of pursuing a low cost strategy of a fragmented industry. The required rate of return from consolidating industry is often huge. A fragmented industry is a sector of business without a distinct industry leader to control market trends. This business phenomenon happens frequently in local markets with small businesses, including restaurants, auto repair shops and construction companies. A small business owner can use several proactive strategies to overcome industry fragmentation and begin to distinguish her company in the minds and wallets of consumers. A fragmented industry is an entrepreneur's dream, and offers unbelievable opportunity compared to more homogeneous industries. Restaurants, Home Improvement Outlets and Homebuilders, and other Mom-and-Pop endeavors are good examples. Tons of small competitors and no consistent supply chain. Compare this to the a handful of competitors serving homogeneous markets and all using the same 'stuff' made the same way from the...
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...Management, Strategy and Organisations Name: Professor: Course: Date: Table of Contents Introduction 2 Diversification of Associated British Foods 2 Logic of the Portfolio 3 Nature of Corporate Parent 5 Justification for the inclusion of Primark in ABF’s Portfolio 6 How ABF’s Development Reflect Goold and Luch’s Historical Perspective of Corporate Diversification 6 References: 9 Management, Strategy and Organisations Introduction Associated British Foods is a differentiated global food, ingredients and wholesale group with annual sales of over £13.3bn and a work force of over 113,000 individuals spread in 47 countries across Europe, Africa, America, Asia and Australia. According to its financial reports, results for 2012/13 exceeded expectation. Generally, operating in a harsh business setting, proceeds improved by 9 % whereas attuned working profits went up by 10% and the attuned incomes per share increased by 13% in the preceding year. Over the last three years, ABF’s share price has outperformed the FTSE 100 share index and other listed food producers. Diversification of Associated British Foods Being a multinational corporation, ABFs operate in five key areas: Sugar, Agriculture, Retail, Grocery and Ingredients. It is a leading multinational producer of sugar and sugar derived products. In Europe, it has Azucarera as its largest producer. Similarly, its British sugar is the only processor of sugar beet crop in Europe with the company being a supplier of half of the...
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...ST 504 E Session 3. 1 Corporate Strategy Diversification Maryam Nasiriyar maryam.nasiriyar@esc-rennes.fr Key Strategic Choices Business level (CA) Cost Leadership (Volume) Differentiation Focused (Niche) Corporate level (CA) Expansion within the same industry versus Diversification Vertical Integration along the value chain or Outsourcing Internationalization Learning Objectives 1.Understand when and how business diversification can enhance shareholder value. 2.Gain an understanding of how related diversification strategies can produce cross-business strategic fit capable of delivering competitive advantage. 3.Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. 4.Gain command of the analytical tools for evaluating a firm’s diversification strategy. ’ When to Diversity A firm should consider diversifying when: • It can expand into businesses whose technologies and products complement its present business. • Its resources and capabilities can be used as valuable competitive assets in other businesses. • Costs can be reduced by cross-business sharing or transfer of resources and capabilities. • Transferring a strong brand name to the products of other businesses helps drive up sales and profits of those businesses. Testing Whether Diversification Will Add Value The Attractiveness Test: • Are the industry’s returns on investment as good or better than present business(es)? The Cost of Entry Test: • Is the...
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...CORPORATE STRATEGY AND DIVERSIFICATION Definition of Corporate Strategy Business Strategy addresses the question How should a firm or business compete with sustained advantage in a given competitive environment? Corporate Strategy addresses the question What should be the appropriate scale and scope of the enterprise? Corporate Strategy therefore influences how large and how diversified a firm should be. The definition of a business determines to a large extent the Corporate strategy. A firm can be a single business firm operating in a single industry environment with a fairly apparent definition. On the other hand a large and widely diversified firm with many different businesses each operating in a different industry environment, faces the challenge of defining each of its various businesses as well as developing an overall definition. It is easier for Microsoft to define its business than it is for G.E. or the Tata group to develop an overall business definition. Why do Firms Diversify. 1) To Grow. Growth is an implicit objective in nearly all organisations. Stock markets tend to reward growing companies. Managers find growth extremely attractive because it hold out the prospects of increased earnings for the firm leading to increased compensations for themselves. They also see the acquisition of new knowledge as instrumental in improving their self actualisation prospects. 2) Fuller utilisation of Resources and Capabilities. Firms find that they have un utilised...
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...| | |CORPORATE LEVEL STRATEGY | |APPLE COMPUTER, INC | | | |PREPARED BY: | |TETY JUANITA MOHD KAMAL | |WONG WAI SIONG | |LAI CHOON HOONG | |WAN HAZIRA WAN MUHAMMAD | |WAN HAMIZA WAN MUHAMMAD | |7/31/2010 ...
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...CHAPTER SEVEN STRATEGY FORMULATION: CORPORATE STRATEGY True/False 1. Corporate strategy deals primarily with the choice of direction for the firm as a whole and the management of its business or product portfolio. Answer: T (pp.164-165) 2. Corporate parenting is the coordination of cash flow among units. Answer: F (p.165) 3. The most widely pursued corporate directional strategies are those designed to achieve growth. Answer: T (pp.165-166) 4. A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives. Answer: T (p.166) 5. A strategic alliance is a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. Answer: T (p.166) 6. The two basic growth strategies are concentration and strategic alliances. Answer: F (p.166) 7. Vertical integration is going backward on an industry’s value chain. Answer: F (p.167) 8. Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing. Answer: T (p.167) 9. Forward integration is often more profitable than backward integration. Answer: F (p.167) 10. BP Amoco and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors...
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...TERM PAPER EFFECT OF DIVERSIFICATION ON FIRM VALUE IRENE TIURMA SIAGIAN 1.0 INTRODUCTION Corporate diversification reveal both benefits and costs to a company. Company can benefit from diversification through the creation of internal capital markets (Williamson, 1970), higher debt capacity (Lewellen, 1971; Shleifer & Vishny, 1992) and economies of scope (Teece, 1980). Meanwhile, the costs of diversification stem mainly from agency problems. Managers may diversify to protect their human capital (Amihud & Lev, 1981), to increase their private benefits (Jensen, 1986; Morck et al., 1990), or to entrench themselves (Shleifer & Vishny, 1989). Within a diversified firm, managers may have easy access to capital through cross subsidization (Meyer et all., 1992), which may lead to over-investment (Jensen, 1986; Stulz, 1990; Berger & Ofek, 1995). Recent literature shows that corporate diversification strategies are associated with significant value loss and that increasing corporate focus is value-enhancing. Examples of these studies include Lang and Stulz (1994), liebeskind and Opler (1994), Berger and Ofek (1995, 1996), Comment and Jarrell (1995), John and Ofek (1995), Servaes (1996), and Denis et. Al. (1997). The evidence in thse studies suggests that the costs of diversification outweigh the benefits. Given the extensive evidence that diversification is associated with a reduction in firm value. Even firms in the developing countries inclusive Malaysia...
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...Corporate governance intended to: * Strengthen the effectiveness of a company’s board of directors * Verify the transparency of firm’s operations * Enhance accountability to shareholders * Effectively incentivize executives, and in an overall sense * Maximize the firm’s ability to create value for stakeholders and especially for shareholders Summary * Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organization. Effective governance that aligns managers’ decisions with shareholder’s interests can help produce a competitive advantage for the firm. * Three internal governance mechanisms (1) Ownership concentration, (2) The board of directors, (3) Executive compensation. The market of corporate control is an external governance mechanism. This market is a set of potential owners seeking to acquire undervalued firms and earn above-average returns on their investments by replacing ineffective top-level management team. * Ownership is separated from control in the modern corporation. Owners hire managers to make decisions that maximize the firm’s value. Thus, modern corporations are characterized by an agency relationship that is created when one party hires and pays another party to use its decision making skills. As risk-bearing specialists, owners diversify their risk by investing in multiple corporations with different...
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...mission and goals, (2) assess the environment, (3) appraise company capabilities, (4) craft the strategy, (5) implement the strategy, and (6) evaluate and control the strategy. Business Policy is a set of prescribed and discretionary statements, limiting actions of individuals in the firm, as set forth in directives and guides. Mission is the reason for which the firm exists, and what it will do. Basically, it describes the products/services to be supplied, the markets to be served, and the technology applied (if important). Vision Statement answers the question, What do we want to become? Goals express the aspirations of the firm, general ends that cannot be measured. Ex. “In unrelenting pursuit of perfection.” Objectives are specific targets to be accomplished by a specified time. Ex. “Profits will grow at the rate of 5% annually for the next five years.” Long-term objectives (5 years or more) are strategic objectives and define the desired character of the company, at the specified time. Strategy is simply the means or general actions to be taken to achieve long-term objectives. Strategic management is the work of the General Manager. General Manager is a person who is responsible for a profit center, as opposed to a functional manager who is responsible only for a cost or revenue center. Generic Strategy is the name for a group of similar specific strategies. Levels of Strategy 1. Corporate level. What types of businesses should we be in? 2. Business level. How do we compete? 3....
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...Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally very interesting[clarification needed] entering a promising business outside of the scope of the existing business unit. Diversification is part of the four main growth strategies defined by the Product/Market Ansoff matrix[1]: Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. Note: The notion of diversification depends on the subjective interpretation of “new” market and “new” product, which should reflect the perceptions of customers rather than managers. Indeed, products tend to create or stimulate new markets; new markets promote product innovation. Contents [hide] • 1 The different types of diversification strategies o 1.1 Concentric diversification o 1.2 Horizontal diversification o 1.3 When Horizontal diversification is desirable? 1.3.1 Another...
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...Diversification Strategies According to investopedia.com, “Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.” Diversification strategies are used to increase a company’s operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are diverse from current operations. There are three types of diversifications: concentric, horizontal and conglomerate. When the new venture is related to the existing lines of business, it is called concentric diversification. When a firm develops or acquires new products that are different from its core business or technology but appeals to their current customer that is called horizontal diversification. Conglomerate diversification is when there is no common thread of strategic fit or relationship between the new and old lines of business; the new and old lines of business; the new and old businesses are unrelated (Enotes.com). Diversity at Southwest Airlines can be explained by the company having a modern and multi-faceted...
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