corporate level strategy: related & unrelated diversification business 189 spring 2007 dr. mark...
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![Page 1: CORPORATE LEVEL STRATEGY: RELATED & UNRELATED DIVERSIFICATION BUSINESS 189 SPRING 2007 DR. MARK FRUIN](https://reader036.vdocument.in/reader036/viewer/2022081515/56649d3f5503460f94a19174/html5/thumbnails/1.jpg)
CORPORATE LEVEL STRATEGY: RELATED & UNRELATED
DIVERSIFICATION
BUSINESS 189
SPRING 2007
DR. MARK FRUIN
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H & V INTEGRATION VERSUS DIVERSIFICATION
• CHAPTERS 9 & 10 NEED TO BE UNDERSTOOD TOGETHER
• THEY CONSIDER THE SAME ISSUE, CORPORATE LEVEL (MULTIBUSINESS) STRATEGIES FROM DIFFERENT ANGLES
• THE CONTEXT IS WHAT WE ARE FAMILIAR WITH - A U.S. POINT OF VIEW
• HOWEVER, DIFFERENT STORIES IN JAPAN, KOREA, CHINA, INDIA, THAILAND, AND ELSEWHERE– BECAUSE DIVERSIFICATION ACHIEVED THROUGH
BUSINESS GROUPS AND INTERFIRM NETWORKS
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3 GROWTH STRATEGIES
• DO IT YOURSELF (INTERNAL GROWTH)
• BUY IT (ACQUISITION)
• PARTNER (SHORT- TO LONG-TERM COOPERATIVE STRATEGIES)
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DISTINCTIVE v. CORE COMPETENCIES
• DISTINCTIVE COMPETENCIES– SOMETHING THAT YOU DO WELL AND
YOUR RIVALS DON’T DO AS WELL
• CORE COMPETENCIES: VERY FEW DISTINCTIVE COMP-->CORE COMP– EXPANDABILITY– TRANSFERABILITY– INIMITABILITY
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ESTABLISHING A COMPETENCY AGENDA: Prahalad & Hamel, p. 339
• INDUSTRY VS COMPETENCY AXES (NOW/EXISTING & FUTURE)
• 2 X 2: EXISTING VS NEW – PREMIER PLUS 10 (NEW COMPETENCE/
EXISTING INDUSTRY: BUILD & EXTEND)– MEGA-OPPORTUNITIES (NEW INDUSTRY/NEW
COMPETENCE - NIRVANA)– WHITE SPACES (NEW INDUSTRY/ EXISTING
COMPETENCY: TRANSFER FROM OLD TO NEW)– FILL IN THE BLANKS (IMPROVE & LEVERAGE:
EXISTING/EXISTING)
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INCREASING PROFITABILITY THRU DIVERSIFICATION
• PERFORM ONE OR MORE VALUE CREATING FUNCTIONS AT LOWER COSTS & HIGHER QUALITY (FL STRATEGY)
• PERFORM ONE OR MORE VALUE CREATING FUNCTIONS TO ALLOW DIFFERENTIATION AND GIVE BETTER PRICING OPTIONS (LB STRATEGY)
• HELP THE FIRM BETTER MANAGE INDUSTRY RIVALRY (LB STRATEGY)
• IN OTHER WORDS, USE STRATEGY STACK TO STRATEGIC ADVANTAGE
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INCREASING PROFITABILITY THROUGH DIVERSIFICATION
• TRANSFER COMPETENCIES ACROSS INDUSTRIES (TECH & MKT RELATED DIVERSIFICATION)
• LEVERAGE COMPETENCIES (MORE INTANGIBLE THAN TANGIBLE: GOOD FINANCIAL/HR SKILLS)
• SHARING RESOURCES: ECONOMIES OF SCOPE• PRODUCT BUNDLING: OFFERING
COMPLEMENTARY BUT UNRELATED GOODS & SERVICES– WINTEL IS MOST FAMOUS EXAMPLE– FOOD & ENTERTAINMENT AT NIGHTCLUB
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MULTIBUSINESS MODEL
• HOW TO TRANSFER & LEVERAGE COMPETENCIES ACROSS INDUSTRIES– FIRST, A BUSINESS MODEL FOR EACH
INDUSTRY IN WHICH FIRM COMPETES• HOW TO SUCCEED IN THIS BUSINESS
– SECOND, HIGHER LEVEL MODEL THAT JUSTIFIES ENTRY INTO DIFFERENT INDUSTRIES
• HOW TO COMBINE MANAGEMENT OF SEVERAL DIFFERENT BUSINESSES
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FREE CASH FLOW MEASURE
• FOR SOME, DIVERSIFICATION CHOICES ARISE WHEN FIRM GENERATES CASH IN EXCESS OF THAT REQUIRED TO FUND INVESTMENTS IN EXISTING BUSINESS/ES & TO MEET DEBT REQUIREMENTS
• OF COURSE, BY THIS DEFINITION, DIVERSIFICATION OPPORTUNITIES ARISE WHEN EXCESS RESOURCES OF ANY SORT ARE AVAILABLE, NOT JUST FREE CASH
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TRANSFERRING COMPETENCIES• IS NOT EASY• BECAUSE THEY ARE OFTEN STICKY IN
VARIOUS WAYS (E.G., SITE- & TIME- SPECIFIC)• NON-EMBEDDED VERSUS EMBEDDED
– “HYBRIDIZATION” VS. TRUE HYBRIDS
– HYBRIDS HAVE SUPERIOR TRAITS TO BOTH PARENTS
• ECONOMIES OF SCOPE ARISE WHEN TWO OR MORE BUSINESS UNITS SHARE RESOURCES, EITHER TANGIBLE OR INTANGIBLE– BRAND EQUITY
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MULTIPOINT COMPETITION
• WHEN COMPANIES COMPETE IN DIFFERENT INDUSTRIES (AT THE SAME TIME & WITH THE SAME RIVALS)– MANAGE RIVALRY– ATTACKS IN ONE INDUSTRY ARE MET OR
MATCHED IN ANOTHER– MOSTLY, MOVES ADJUST PRICES; SOMETIMES
REWORK PRODUCT OFFERINGS– WHY ARE MOVES MOSTLY MINOR?
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GENERAL ORGANIZATIONAL COMPETENCIES
• RARE, CROSS-ORG COMPETENCIES (RELATED TO IDEA OF GEN. MGMT SKILLS)– ENTREPRENEURIAL CAPABILITIES– ORGANIZATIONAL DESIGN SKILLS (SYSTEMS,
STRUCTURES & CONTROL CAPABILITIES)
– SUPERIOR STRATEGIC CAPABILITIES (INTANGIBLE GOVERNANCE SKILLS)
– (LEADERSHIP AND/OR ABILITY TO SEIZE THE MOMENT)
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TYPES OF DIVERSIFICATION
• RELATED– CONSTRAINED (MARKET-BASED)– LINKED (TECHNOLOGY-LINKED)
• UNRELATED– CONGLOMERATES– BUSINESS GROUPS
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LIMITS TO DIVERSIFICATION
• BUREAUCRATIC COSTS – NUMBER OF BUSINESSES– COORDINATION AMONG BUSINESSES
• LIMITS TO EFFECTIVE GOVERNANCE• CULTURE FALLS APART; THERE IS NO
CENTER• (FOCUS NEEDED TO SUCCEED IN
INDIVIDUAL BUSINESSES IS LOST)
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SONY’S WEB OF CORPORATE-LEVEL STRATEGY
• FIGURE ON p. 357• SONY’S CORE INDUSTRY OF CONSUMER
ELECTRONICS• SURROUNDED BY
– RELATED DIVERSIFICATION (COMPUTERS, CELL PHONES)
– UNRELATED DIVERSIFICATION (PLAY STATION)– BACKWARD INTEGRATION (COMPONENTS)– FORWARD INTEGRATION (MUSIC, MOVIES)
• WHAT DO YOU THINK OF THIS FIGURE?
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INTERNAL NEW VENTURES• A KIND OF DIVERSIFICATION• WHY NEW VENTURES FAIL
– MARKET ENTRY TOO SMALL A SCALE• LARGE SCALE ENTRY A PRECONDITION OF
SUCCESS, ESP. FOR LARGE FIRMS
– POOR COMMERCIALIZATION SKILLS• CROSSING THE CHASM (TWICE)
– POOR MANAGEMENT OF VENTURE PROCESS• TOO MANY NEW VENTURES STARTED• MISUNDERSTAND STRATEGIC CONTEXT• UNDERESTIMATE TIME & COSTS INVOLVED• POOR IMPLEMENTATION/EXECUTION
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GUIDELINES FOR SUCCESSFUL INTERNAL VENTURING
• UNDERSTAND BOTH THE “R” & THE “D” OF R&D
• DOWNSTREAM LINKS TO MARKETING & SALES ARE CRITICAL DURING “D”
• KEY OBJECTIVES FOR STRATEGIC SUCCESS ARTICULATED EARLY & OFTEN
• CROSS-FUNCTIONAL DEVELOPMENT TEAMS
• KNOW WHEN TO HOLD’EM & FOLD’EM
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VENTURE STAGES-PHASES-STEPS
• 30 + STEPS FROM START TO STOP
• DOES NOT STANDARDIZE CYCLE TIMES - THESE VARY BY INDUSTRY?
• DOES NOT ESTIMATE PHYSICAL AND PSYCHOLOGICAL COSTS
• MOST FIRMS DO NOT WIND UP FINISHING WHAT THEY SET OUT TO DO
• INITIAL RESOURCES, INCLUDING HR, ARE NOT WHAT IS NEEDED ALONG WAY
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ACQUISITIONS STRATEGY• GUIDELINES FOR SUCCESS
– IDENTIFICATION & SCREENING– BIDDING STRATEGY (AVOID BIDDING WARS)– INTEGRATION (PRE- & POST-INTEGRATION)– LEARNING FROM EXPERIENCE (OF MAKING
ACQUISITIONS; LEARNING FROM ACQUIRED FIRMS; VICARIOUS LEARNING (OTHERS DOING THE SAME THING)
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PORTER’S GUIDELINES
• 3 TESTS– ATTRACTIVE INDUSTRY?– RECOVER INITIAL INVESTMENT?– BETTER OFF WITH (OR WITHOUT)
• 4 STRATEGIES– SHARING ACTIVITIES (POOLING)– RESTRUCTURING– SKILLS TRANSFER– FINANCIAL MANAGEMENT
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RESTRUCTURING
• DIVERSIFICATION DISCOUNT– THE WHOLE IS NOT MORE THAN THE SUM OF
THE PARTS
• EXIT STRATEGIES– DIVESTMENT
• MARKET-BASED VS MANAGEMENT BUYOUT (MBO)
– HARVEST AND THEN LIQUIDATE• DELAYED DIVESTMENT
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ALTERNATIVES TO FIRM-LEVEL DIVERSIFICATION
• BUSINESS GROUPS– HOLDING COMPANY MODEL (EUROPE)– FAMILY-BASED IN EMERGING ECONOMIES
• INTERFIRM NETWORKS– INTERMARKET AND VERTICAL
• CONSORTIUMS– EASIEST AT PRE-COMPETITIVE STAGES
• INDUSTRIAL DISTRICTS– STRENGTH & DIVERSITY BY BEING THERE
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PHILIPS V. MATSUSHITA• WHAT KIND OF C-L STRATEGIES ARE
BEING DEPLOYED• DISSIMILAR WHEN IN DIFFERENT
INDUSTRIES BUT SIMILAR IN THE SAME INDUSTRIES?
• WHAT IS PHILIPS GOOD AT? MATSUSHITA?
• WHAT FACTORS ARE LIKELY TO INFLUENCE SUCCESS OF C-L STRATEGIES?