1. Strategy and Competitive Advantage in Diversified Companies

2. Strategy Tasks Picking the industries to enter and how to enter
Actions to boost the combined performance of the businesses
Leverage business relationships into a competitive advantage
Establish investment priorities

3. When to Diversify
There are organizational, managerial and strategic advantages to focusing on a single business
Consider diversification when firm begins to run out of opportunities in its main business
Risk is putting all your eggs in one basket

4. When to Diversify Diminishing growth prospects in current business
Opportunities to
Add value to customers
Gain competitive advantage
Transfer existing competencies
Cost saving opportunities
Have financial and organizational resources

5. When to Diversify Justifiable only if it builds shareholder wealth
The 3 tests to judge
Industry attractiveness
Cost-of-entry
Better-off

6. Related Diversification
Businesses share competitively valuable relationships
Transfer expertise or capabilities
Combining activities lowers costs
Exploit common brand name
Collaboration creates strengths
Develops synergy

7. Related Diversification
Strategic fits along the value chain
Upstream
Company
R & D and technology
Sales and marketing
Manufacturing
Managerial and support
Downstream
Economies of scope

8. Unrelated Diversification
Acquisition of “good” companies
Targets are usually judged on their ability to provide financial gain
Companies with undervalued assets
Companies in financial distress

9. Unrelated Diversification
Pros
Diversify risk over several industries
Invest capital to best advantage
Stabilize profits
Shrewd acquisitions can enhance shareholder wealth
Cons
Unreasonable expectations for managers
Corporate meddling
Stabilization of profits is not realized in practice

10. Unrelated Diversification
No synergies are produced
Exceptional managerial talent is required to enhance shareholder wealth
Consistent success is difficult to achieve
Historically most have failed

11. Entering New Businesses
Acquisition of an existing business
Vertical integration
Internal development
Joint ventures

12. Diversified Company Strategies
Enter into additional businesses
Retrenching and divestiture
Restructure the portfolio of businesses
Multinational diversification
Related DMNC can outperform rivals
Higher than average overall returns
Lower than average overall risk