Chapter 9 Diversification

Snack Foods Beverages Foods Frito-Lay North America Frito-Lay International Quaker North America Pepsi-Cola North America Gatorade/Tropicana North America PepsiCo Beverages International

Snack Foods Frito-Lay North America Lay’s Funyuns Ruffles Sunchips Doritos Santitas Fritos Cheetos Rold Gold Funyuns Sunchips Cracker Jack Chester’s popcorn Grandma’s cookies Munchos Smartfood Baken-ets fried pork skins Oberto meat snacks

Frito-Lay International Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks

Frito-Lay International Snack Foods Frito-Lay International Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Hamkas snacks Niknaks cheese sticks Quavers potato snacks Sabritas potato chips Twisties cheese snacks Walkers potato crisps Walkers Square potato snacks Walkers Monster Munch Corn snacks Miss Vickie’s potato chips Gamesa cookies Dippas Sonric’s sweet snacks

Beverages Pepsi-Cola North America Pepsi-Cola Mountain Dew Slice Mug Sierra Mist FruitWorks Lipton Dole Aquafina Frappuccino SoBe AMP

Beverages Gatorade/Tropicana North America Gatorade Propel Tropicana Dole juices

Beverages PepsiCo Beverages International Loóza juices and nectars Copella juices Frui’Vita juices Tropicana 100 juices

Foods Quaker North America Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits

Foods Business Level Strategies How are we going to compete and gain a competitive advantage in each of our businesses? Foods Business Level Strategies Quaker North America Quaker Oats Cap’n Crunch cereal Life cereal Quisp cereal King Vitaman cereal Mother’s cereal Quaker rice cakes and granola bars Rice-A-Roni side dishes Near East couscous/pilafs Aunt Jemima mixes & syrups Quaker grits

Snack Foods Beverages Foods Corporate Level Strategy 1) What businesses do we want to compete in? 2) How do manage effectively across businesses

Where did they go?

Goals of Corporate Strategy Moves to enter new businesses Boosting combined performance of the businesses Capturing synergies and turning them into competitive advantages Establishing investment priorities and steering resources into business units

4 Conditions of Successful Diversification 1) Growing industries with complementary products and technologies Apple IPhone 2) Leverage existing capabilities which match the KSFs in other arenas Disney Cruise Lines 3) Closely related moves which reduce costs Kroger & Fred Meyer 4) Powerful brand and reputation Marguerittaville, NASCAR Café, or Emril’s

When/Why to Diversify? To create shareholder value Porter’s Three Point Test 1) Attractiveness Test 2) Cost of Entry Test 3) Better off Test Should pass all 3

Related Diversification at Disney Entertainment/Production Theme Parks Resorts Entertainment/Broadcasting Retailing Cruise Lines

Levels of Diversification Related Diversification - entering product markets that share some resource or capability requirements with the current business – horizontal relationships across businesses – synergies. Overlap in value chain activities. Advantages of related diversification include: Leveraging Core Competencies Sharing Activities Market Power

Tyco Telecommunications Tyco Fire and Security Tyco Safety Products Tyco Electronics Tyco Telecommunications Tyco Fire and Security Tyco Safety Products Tyco Healthcare Tyco Plastics Tyco Adhesives Tyco Flow Control Tyco Electrical and Metal Products Tyco Fire and Building Products Tyco Infrastructure Services

GE Advanced materials Commercial loans Appliances Insurance Jet engines Electric power generation Medical imaging NBU Universal Chemical Treatment Equipment services and rentals

Levels of Diversification (cont.) Unrelated Diversification - few similarities in the resources and capabilities required among the firm’s businesses Conglomerate Diversification - no relatedness between businesses

Drawbacks for Unrelated Demanding requirements Limited to no opportunities to share advantages

Portfolio analysis BCG Growth-Share Matrix GE- Nine Cell Matrix question marks, dogs, cash cows, stars GE- Nine Cell Matrix

Boston Consulting Group Matrix Relative Market Share Question Marks Stars Growth Rate Cash Cows Dogs 16

BCG Matrix for PepsiCo - Early 1990s Relative Market Share High Taco Bell Growth Rate 10% Pizza Hut Frito Lay Low Soft Drinks KFC Low High 1.0 17

BCG Matrix for PepsiCo - Early 1990s Relative Market Share Pizza Hut Taco Bell High Growth Rate Frito Lay 5% KFC Soft Drinks Low Low High .75 18

Competitive Strengths GE 9 Cell Matrix Competitive Strengths High Low High Invest Grow Attractiveness Hold Harvest Divest Low 19

GE 9 Cell Matrix for Pepsico Competitive Strengths High Low High Snack Foods Attractiveness Soft Drinks Low 20