Corporate Diversification: Expanding Beyond a Single Market
19 important questions on Corporate Diversification: Expanding Beyond a Single Market
What is the Product-Market Diversification Strategy?
Types of Corporate Diversification: What is the Dominant Business?
o Pursues at least one other business activity
Types of Corporate Diversification: What is the Related Diversification?
o Obtains revenues from other lines of business that are linked to the primary business activity
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What is Related-Constrained Diversification?
What is Related-Linked Diversification?
What is a Conglomerate?
What is the Competence-Market Matrix?
by Gary Hamel and C.K Prahalad
What are the Four options to Formulate Corporate Strategy via Core Competencies?
2) Build new core competencies to protect and extent current market position
3) Redeploy and Recombine existing core competencies to compete in markets of the future
4) Build new core competencies to create and compete in markets of the future
The Diversification Performance Relationship
What is Diversification Premium?
BCG Growth Matrix: What are Dogs?
Market growth/share:
- small market share in a low-growth market
- low, unstable earnings and neutral/negative cash flows
Strategic Recommendation:
- Divest or Harvest the business
(=Stop investing in the business and squeeze out as much cash flow as possible before shutting down/selling)
BCG Growth Matrix: What are Stars?
- High market share
- Fast-growing market
- Stable or growing earnings
Strategic Recommendation:
- Invest sufficient resources to hold position
(or even increase investment for future growth)
Note: they may turn into cash cows in the maturity stage
BCG Growth Matrix: What are Question Marks?
- Low, unstable earnings (possibly growing)
- Negative Cash flow
Strategic Recommendation:
- Invest to increase market share
- Harvest cash flow or divest the SBU
(= not clear whether they will turn into dogs or stars)
To enhance firm performance (using diversification strategy), What should firms do?
- Exploit Economies of Scope (increases value)
- Reduce Costs and Increase Value
What are Potential Benefits to Firm Performance using the Diversification Strategy?
- Restructuring
- Using Internal Capital Markets
Benefits Diversification strategy (to firm perf): Restructuring
Helpful tool = BCG Growth Matrix
Benefits Diversification strategy (to firm perf): Internal Capital Markets
- Source of value creation - Access capital at a lower cost
Related Diversification Strategy: What are Coordination Costs?
Related Diversification Strategy: What are Influence Costs?
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