Professional Documents
Culture Documents
Corporate-Level Strategy
Focuses on building value by
managing operations in multiple
businesses
Addresses two issues:
What businesses should a corporation
participate in
How can these businesses be managed
so they create synergy
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Topics to Discuss
Diversification
Related vs. Unrelated
Synergies
Types
How to achieve
Issues to consider
Diversification
Diversification is the expansion of
operations by entering new
businesses or product lines
Unrelated
Diversifying into activity that is unrelated
to existing business(es)
Synergy
The rationale for diversification is to achieve
synergies
Otherwise, why diversify?
If you get $5 of value out of something that you pay $5 for, you
havent created value
Diversification can (potentially) lead to value creation
Revenue enhancements
Impact of Diversification on
Synergies
The nature of synergies is affected
by the type of diversification
We will explore synergies in more
detail under:
Related diversification
Unrelated diversification
Related Diversification
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Vertical Integration
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Benefits of Vertical
Integration
Results in secure supply of raw materials or
distribution channel that can not be held
hostage by market forces
Protection and control over assets and
services required to produce and deliver
valuable products and services
Access to new business opportunities and
new forms of technology
Simplified procurement and administrative
procedures
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Summary: Related
Diversification
Synergies can take the form of:
Cost savings
Revenue enhancements
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Unrelated Diversification
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Unrelated Diversification
Unrelated diversification limits the
opportunity to obtain synergies from
Sharing resources
Enhanced market power
Unrelated Diversification
Two main sources of synergy
1. Corporate office can contribute to:
Parenting (positive contributions as a result of
support)
Restructuring of acquired businesses
Restructuring
Asset Restructuring
Sale of unproductive assets (or whole businesses); or
possibly, acquisitions that strengthen core business
Capital Restructuring
Change of debt-equity mix, or mix between different
classes of debt or equity
Management Restructuring
Change in composition of top management team,
organizational structure, reporting relationships
Tight financial controls, rewards based on achievement of
short- or medium-term goals
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Portfolio Management
Three key aspects to portfolio management:
Assess competitive position of each business
Suggest strategic alternatives for each business
Allocate resources across the businesses
Key purpose:
Achieve a balanced portfolio of businesses
That is, businesses whose profitability, growth,
and cash flow complement each other
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Methods of Diversification
Internal development / organic
growth
Strategic alliances (cooperative
relationship)
Joint ventures more formal alliance
created when two firms contribute
equity to a new legal entity
Mergers and acquisitions
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