Lecture Contemporary strategy analysis: Concepts, techniques, applications (5th edition): Chapter 15 – Robert M. Grant

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Chapter 15 – Diversification strategy. This chapter presents the following content: Introduction: the basic issues, the trend over time, motives for diversification, competitive advantage from diversification, diversification and performance: empirical evidence, relatedness in diversification. | Diversification Diversification Strategy Strategy OUTLINE Introduction The Basic Issues The Trend over Time Motives for Diversification – Growth and Risk Reduction – Shareholder Value Porter s Essential Tests. Competitive Advantage from Diversification Diversification and Performance Empirical Evidence Relatedness in Diversification The The Basic Basic Issues Issues in in Diversification Diversification Decisions Decisions Superior profit derives from two sources INDUSTRY ATTRACTIVENESS RATE OF PROFIT gt COST OF CAPITAL COMPETITIVE ADVANTAGE Diversification decisions involve these same two issues How attractive is the sector to be entered Can the firm achieve a competitive advantage Diversification Diversificationamong amongthe theUS US Fortune Fortune500 500 1949-74 1949-74 70.2 63.5 53.7 53.9 39.9 37.0 29.8 36.5 46.3 46.1 60.1 63.0 1949 1954 1959 1964 1969 1974 Percentage of Specialized Companies single-business vertically-integrated and dominant-business Percentage of Diversified Companies related-business and unrelated business Note During the 1980s and 1990s the trend reversed as large companies refocused upon their core businesses Diversification Diversification among amongLarge LargeUK UK Corporations Corporations 1950-93 1950-93 70 60 Single business 50 40 Dominant business 30 Related business 20 Unrelated 10 business 0 1950 1960 1970 1983 1993 Diversification Diversification The TheEvolution Evolution of of Management Management Thinking Thinking and andManagement ManagementPractice Practice MANAGEMENT Quest for Growth Financial Refocusing on Competitive GOALS problems of shareholder advantage through conglomerates value Speed flexibility and capability Rise of conglomerates Refocusing on Joint ventures Emphasis on related COMPANY Related diversification core businesses Alliance corporate amp concentric DEVELOPMENTS by industrial firms Divestment venturing diversification Portfolio Value based Transaction Analysis of management cost analysis Financial .

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