managing multi-business firm

8/9/2019 Managing Multi-business Firm

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MANAGING THE MULTI BUSINESSCORPORTION

When a frm has diversifed into more than one line o

business it is called multi business frm. . The primary

objective o a multi-business frm is achieving higher

fnancial perormance than the frms units would

achieve Having one successul company makes it

easier to start a second one but it!s also a risky

venture that"i not done correctly"could jeopardi#e

not only the new company but the established one as

well i they were independent.


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Why e$pand business%%

Expand market share and increase sae

C!ntr!in" expenses

&very business wants to have low e$penses' sosome companies will thereore enter the globalarena to minimi#e their costs. (ompanies wille$amine the resources they need and where theycan get them at the lowest price. )y searchingoutside o their own borders companies hope tofnd more economical solutions to the productionand manuacturing problems they have.


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#i$ersi%cati!n

(ompanies have a oothold in a number o countries sothey dont have to depend on the economy o onecountry. (ompanies engaged in international businesscan protect their investments and their markets bydealing with countries in a variety o countries. *

recession in one county wont have a huge e+ect ibusiness is doing well in another country.

c!mpetiti$eness

,any companies e$pand globally or deensive reasons-

to protect themselves rom competitors or potentialcompetitors or to gain advantage over them.


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Why o irms iversiy%

To /row

0ncrease sales 1 proftability beyond what frms corebusinesses can provide

,anagerial sel-serving behavior -- compensation

,anagerial 2hubris3 -- pride or status that come rommanaging a large business

To more ully utili#e e$isting resources and capabilities

4kills in sales 1 marketing general management

skills 1 knowledge distribution channels etc.


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Why o irms iversiy%

5isk reduction and6or spreading

&scape rom unattractive or undesirable industries7e.g. tobacco 1 oil companies8

4tability o proft 9ows 7(*:,; systematic vs.

unsystematic risks' shareholders 1 diversifedportolios8

To make use o surplus cash 9ows

? > @ A; The whole should be greater thanthe sum o the parts


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P!rt&!i! Ana'sis !r Strate"ies2 the strategic units that make up the company and the

attempts to evaluate current e+ectiveness andvulnerabilities3 7,conald et al BCC>8

How much of our time and money shouldwe spend on our best products to ensurethat they continue to be successful?

How much of our time and money shouldwe spend developing new costly products,most of which will never be successful?


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&$amples o :ortolios

Unie$er; ice cream tea spreads

Pr!ct!r 1 /amble; etergentsnappies

Giette; batteries 4having products

(ir"in' trains planes cola musicstores


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4ingle 1 ,ultiple )usinessDrgani#ations

4ingle business organi#ations

Dperates primarily in only one industry 7e.g. (oca-

(ola E )everage 0ndustry' Wrigley Fr. (ompany E(hewing /um8

,ultiple )usiness Drgani#ations

Dperates in more than one industry

&$ample; :epsi(o E 4nack ood 0ndustry business7rito


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Types o /rowth 4trategies

Drgani#ational/rowth

iversifcation

5elated=nrelated

Hori#ontal0ntegration

ertical0ntegration)ackwardorward

(oncentration0nternational


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(oncentration 4trategy

* growth strategy where the frm

(oncentrates on its primary line o business


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ertical 0ntegration4trategies

*n organi#ations attempt to gaincontrol o 0ts inputs 7backward integration8 -- supplier

0ts output 7orward integration8 -- distributor Dr both inputs and output :urpose is to 7B8 reduce resource acIuisition

costs 1 7>8 deal with ineJcient operations

ertical 0ntegration (onsidered a growth strategy because the

frms operations are e$panded beyondprimary business

,i$ed empirical results as to whetherstrategy helps or hurt perormance

What is the role o outsourcing in achieving


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Hori#ontal 0ntegration4trategies

&$panding the frm!s operations through combiningwith competitors operating in the same industry 1doing the same things

0t is an appropriate corporate growth strategy as longas

0t enables the company to meet its growthobjectives

0t can be strategically managed to attain asustainable competitive advantage

0t satisfes legal and regulatory guidelines


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iversifcation 4trategies

* corporate growth strategy in which a frm e$pands itsoperation by moving into a di+erent industry

,any reasons or motives or diversifcation

Two major types o diversifcation

5elated 7concentric8 diversifcation

=nrelated 7conglomerate8 diversifcation


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0mplementing /rowth4trategies

,ergers 1 *cIuisitions A mer"eris a legal transaction in

which two or more organi#ationscombine through an e$change o stockbut only one frm actually remain

*n ac)*isiti!nis an outright purchaseo an organi#ation by another

What is a Take!$er%


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4trategic :artnering When two or more frms establish a

legitimate relationship by combining

their resources core competenciesdistinctive capabilities or somebusiness purpose

*rrangement can be used toimplement any o the growthstrategies ertical 0ntegration

Hori#ontal 0ntegration 5elated iversifcation


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Types o 4trategic :artnerships

Foint enture 7F8

Two or more separate organi#ation orm anindependent organi#ation or strategic purposes

:artners usually own eIual shares o newventure

=sed when partners do not want to be legallyjoined

managing multi-business firm

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