Diversification Merits Strong Consideration Whenever A Single-Business Company Product Page / Small 2 Piece Sectional With Chaise

Tuesday, 30 July 2024
Score Market size and projected growth rate 0. C. generates positive retained earnings, whereas a cash hog business produces negative retained earnings. The three tests for judging whether a particular diversification move can create value for shareholders are the. Diversification merits strong consideration whenever a single-business company website. Some diversified companies are really dominant-business enterprises—one major "core" business accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated businesses accounts for the remainder. Sometimes, cash flow generation is a big consideration. What makes a strategy of multinational diversification exceptionally appealing is that all five paths to competitive advantage can be pursued simultaneously.

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A second way that a parent company can provide value to its unrelated business occurs when a corporate parent has a well-recognized or highly reputable name or brand that is not strongly attached to a certain product and thus can readily be shared by many or all of its individual businesses. The sum of weighted ratings across all the strength measures provides a quantitative measure of a business unit's overall competitive strength. Copyright © 2020 by Arthur A. Thompson. While additional capital can usually be raised in financial markets if internal cash flows are deficient, it is still important for a diversified firm to have a healthy internal capital market adequate to support the financial requirements of its business lineup. But there are successful diversified companies also. Locating businesses with well-known brand names and large market shares. N A multinational diversification strategy provides opportunities to leverage use of a well-known and competitively powerful brand name. Share with Email, opens mail client. Diversification merits strong consideration whenever a single-business company ltd. E. "managing by the numbers"—that is, keeping a close track on the financial and operating results of each subsidiary. "19 When the answer is no or probably not, divestiture should be considered. Hence the likelihood that a strategy of related diversification can add more shareholder value than a strategy of unrelated diversification is indeed high. Note that only business units that are market share leaders in their respective industries can have relative market shares greater than 1.

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Next, every industry is rated on each of the chosen industry attractiveness measures, using a rating scale of 1 to 10 (where a high rating signifies high attractiveness and a low rating signifies low attractiveness). Several of the world's largest banks (Citigroup and Royal Bank of Scotland) recently found themselves so undercapitalized and financially overextended they had to sell some of their business assets to meet regulatory requirements and restore confidence in their solvency. Diversification merits strong consideration whenever a single-business company. E. rank each business unit's strategy from best to worst. A. utilize activity-based costing and benchmarking to determine the funding needs of each business unit.

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When buyers are not loyal to pioneering firms in making repeat purchases. D. the businesses have several key suppliers in common. Click to expand document information. D. in production and distribution activities only. One is sluggish growth and meager performance improvements that make the potential revenue and profit boost of a newly acquired business look attractive. But sometimes a business selected for divestiture has ample resource strengths to compete successfully on its own. C. corporate executives are excited about market opportunities. Conditions in the target industry are sufficiently attractive to permit earning consistently good profits and returns on investment. But more than CORE CONCEPT just checking for the presence of good strategic fits is required. A. reduce risk by spreading the company's investments over a set of truly diverse industries. E. companies that are employing the same basic type of competitive strategy as the parent corporation's existing businesses. Management Theory Review: Corporate Diversification Strategy - Theory - Review Notes. Technological change is rapid and following rivals find it easy to leapfrog the pioneer with next-generation products of their own. Restructuring is also undertaken when a newly appointed CEO decides to redirect the company.

Diversification Merits Strong Consideration Whenever A Single-Business Company Info

Opportunities for cross-business strategic fit exist. 9 The more unrelated businesses that a company has diversified into, the harder it is for corporate executives to have in-depth knowledge about each business (consider, for example, that corporations like General Electric, Samsung, 3M, Honeywell, Johnson & Johnson, and Mitsubishi have dozens of business subsidiaries making hundreds and sometimes thousands of products). Corporate Diversification Strategy - Theory - Review Notes. PlayStations and video games, it is easier to sell consumers in that country Sony TVs, DVD players, home theater products, headphones, cameras, and tablets. Demanding managerial requirements. Plus, it had the marketing clout and instant brand name credibility to persuade retailers to give Sony's PlayStation products prime shelf space and promotional support. First-mover disadvantages arise when. The better-off test, the competitive advantage test, the profit expectations test and the shareholder value test.

Diversification Merits Strong Consideration Whenever A Single-Business Company Website

D. encounters declining profits in its mainstay business. Procter & Gamble's acquisition of Gillette strengthened and extended P&G's reach into personal care and household products— Gillette's businesses included Oral-B toothbrushes, Gillette razors and razor blades, Duracell batteries, Braun shavers and small appliances (coffee makers, mixers, hair dryers, and electric toothbrushes), and toiletries (Right Guard, Foamy, Soft & Dry, White Rain, and Dry Idea). E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits. E. indicates the relative size of the businesses. Big industries are more attractive than small industries, and fast- growing industries tend to be more attractive than slow-growing industries, other things being equal. C. Identifying opportunities to achieve greater economies of scope. B. scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into. Strong parenting capabilities can help build shareholder value in four important ways: n Utilize the business acumen of certain corporate executives in identifying undervalued or underperforming. A third is rapidly changing conditions in one or more of a company's core businesses that make it desirable to expand into other industries. E. To carefully weigh the first-mover advantages against the first-mover disadvantages and act accordingly. But there are other important reasons for divesting one or more of a company's present businesses. D. which industries are most attractive from the standpoint of long-term growth and the growth prospects of all the industries as a group. Indeed, in actual practice, the business make-up of diversified companies varies considerably. 40 Sum of importance weights 1.

Diversification Merits Strong Consideration Whenever A Single-Business Company

A business unit's relative market share is defined as the ratio of its market share to the market share held by the largest rival firm in the industry, with market share measured in unit volume, not dollars. When to Consider Diversifying So long as a company has its hands full trying to capitalize on profitable growth opportunities in its present industry, there is no urgency to diversify into other businesses. E. the cost a company incurs to enter the target industry will raise or lower production costs. C. When a pioneer is pursuing product innovation. What rationales for unrelated diversification are not likely to increase shareholder value? In actual practice, however, there's no convincing evidence that the consolidated profits of firms with unrelated diversification strategies are more stable or less subject to reversal in periods of recession and economic stress than the profits of firms with related diversification strategies. The strategic options boil down to five broad categories of actions: n Sticking closely with the existing business lineup and pursuing the profitable growth opportunities these businesses present. D. ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into. For example, it makes sense to maximize the operating cash flows from low-performing/low-potential businesses and divert them to financing expansion of business units with greater potential for revenue and profit growth or to making new acquisitions. B. the cost to enter the target industry will strain the company's credit rating. Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up subsidiary to enter and compete in the target industry? The decision to diversify presents wide-open possibilities.

Diversification Merits Strong Consideration Whenever A Single-Business Company 2

16 Several motivating factors are in play. B. is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter. Increase dividend payments to shareholders. 50 Social, political, regulatory, and environmental factors 0. Don't want to gamble with public investments. Simple arithmetic requires that the profits be tripled if the purchaser (paying $3 million) is to earn the same 20 percent return. The real question is how much competitive value can be generated from whatever strategic fits exist? Restructuring a Company's Business Lineup Restructuring involves divesting some businesses and acquiring others to put a whole new face on the company's business lineup. 2 The Three Fundamental Strategy Alternatives for Pursuing Diversification. 23 Honda has been very successful in building corporate-level R&D expertise in gasoline engines and transferring the resulting technological advances to its businesses in automobiles, motorcycles, outboard engines, snow blowers, lawn mowers, garden tillers, and portable power generators. As long as the company's set of existing businesses have good prospects for enhancing corporate performance and these businesses have good strategic and/or resource fits, then major changes in the company's business mix are usually unnecessary. C. Related diversification is particularly well-suited for the use of offensive strategies and capturing valuable financial fits.

A. when a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment.

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