Lecture 5- Corporate strategy & diversification

Corporate ‘parent’- Head office of [blank_start]business[blank_end] & its senior [blank_start]managers[blank_end]. In small- or medium-sized company (SME), it may simply be one [blank_start]person[blank_end]. However, in multi-business organisation, this is often separate [blank_start]entity[blank_end] from business units themselves

One key aspect of corporate parenting are [blank_start]responsibility[blank_end] of corporate parent for [blank_start]value[blank_end] creation. Another key aspect is corporate parent’s [blank_start]role[blank_end] as bridge between [blank_start]corporate[blank_end] & [blank_start]business[blank_end]-level strategies

According to Henry (2018) one area in which corporate parents [blank_start]assist[blank_end] business units is [blank_start]standalone influence[blank_end]. This concerns parent company’s impact upon [blank_start]strategies[blank_end] & [blank_start]performance[blank_end] of each business, parent owns

According to Henry (2018) another area in which corporate parents [blank_start]assist[blank_end] business units is [blank_start]linkage influence[blank_end]. This occurs when parent seeks to create [blank_start]value[blank_end] by enhancing [blank_start]linkages[blank_end]

According to Henry (2018) third area in which corporate parents [blank_start]assist[blank_end] business units is [blank_start]functional & services influence[blank_end]. This is when parent can provide [blank_start]functional[blank_end] leadership & [blank_start]cost-effective[blank_end] services for businesses

According to Henry (2018) fourth area in which corporate parents [blank_start]assist[blank_end] business units is [blank_start]corporate development activities[blank_end]. This involves parent creating [blank_start]value[blank_end] by changing [blank_start]composition[blank_end] of its portfolio of businesses

Ansoff's growth matrix- Framework helps to [blank_start]identify[blank_end] what best approach for [blank_start]growth[blank_end] is & relevant for [blank_start]decision making[blank_end]

One quadrant of Ansoff's growth matrix is [blank_start]diversification[blank_end]. This involves increasing [blank_start]range[blank_end] of products or markets served by an [blank_start]organisation[blank_end]. One type is [blank_start]related diversification[blank_end] which involves [blank_start]diversifying[blank_end] into products or services with [blank_start]relationships[blank_end] to existing business. Another type is conglomerate [blank_start](unrelated) diversification[blank_end] which involves [blank_start]diversifying[blank_end] into products or services with no [blank_start]relationships[blank_end] to existing businesses

Another quadrant of Ansoff's growth matrix is [blank_start]market penetration[blank_end]. This implies increasing [blank_start]share[blank_end] of current markets with [blank_start]current[blank_end] product range. This strategy builds on established [blank_start]strategic[blank_end] capabilities‘, means organisation’s scope is [blank_start]unchanged[blank_end], leads to [blank_start]greater[blank_end] market share & [blank_start]increased[blank_end] power in relation to buyers & suppliers & provides [blank_start]greater[blank_end] economies of scale & experience curve benefits

Third quadrant of Ansoff's growth matrix is [blank_start]product development[blank_end]. This is where an organisation delivers [blank_start]modified[blank_end] or [blank_start]new[blank_end] products (or services) to existing markets. This strategy involves varying degrees of related [blank_start]diversification[blank_end] (in terms of products), can be [blank_start]expensive[blank_end] & high [blank_start]risk[blank_end], may require new [blank_start]strategic[blank_end] capabilities & typically involves project management [blank_start]risks[blank_end]

Fourth quadrant of Ansoff's growth matrix is [blank_start]market development[blank_end]. This involves offering [blank_start]existing[blank_end] products to [blank_start]new[blank_end] markets. This strategy involves [blank_start]product[blank_end] development (e.g. packaging or service), [blank_start]new[blank_end] users (e.g. extending use of aluminium to automobile industry), new [blank_start]geographies[blank_end] (e.g. extending market to new areas- international markets), meeting critical [blank_start]success[blank_end] factors of market & new [blank_start]strategic[blank_end] capabilities (e.g. in marketing).

Conglomerate (or unrelated) diversification takes organisation beyond both its existing [blank_start]markets[blank_end] & its existing [blank_start]products[blank_end] & completely increases organisation’s [blank_start]scope[blank_end]. Potential benefits to an acquired business is that it gains from [blank_start]reputation[blank_end] of group & potentially lowers [blank_start]financing[blank_end] costs. Potential costs arise because there are no obvious ways to generate [blank_start]additional[blank_end] value

One driver for diversification is exploiting [blank_start]economies of scope[blank_end]. Efficiency [blank_start]gains[blank_end] through applying organisation’s [blank_start]existing[blank_end] resources or competences to [blank_start]new[blank_end] markets or services

Another driver for diversification is stretching [blank_start]corporate[blank_end] management [blank_start]competences[blank_end]. ‘Dominant [blank_start]logics[blank_end]’ i.e. applying these [blank_start]competences[blank_end] across portfolio of businesses

Third driver for diversification is exploiting superior [blank_start]internal processes[blank_end]

Fourth driver for diversification is increasing [blank_start]market[blank_end] power via mutual [blank_start]tolerance[blank_end] or cross [blank_start]subsidisation[blank_end]

Fifth driver for diversification is [blank_start]synergy[blank_end]. This refers to [blank_start]benefits[blank_end] gained where activities or assets [blank_start]complement[blank_end] each other so that their [blank_start]combined[blank_end] effect is greater than [blank_start]sum[blank_end] of parts

Sixth possible driver for diversification is [blank_start]value destruction[blank_end] (negative [blank_start]synergies[blank_end]). This involves responding to market [blank_start]decline[blank_end], spreading [blank_start]risk[blank_end] & [blank_start]managerial[blank_end] ambition

One type of integration is [blank_start]vertical integration[blank_end]. This means entering [blank_start]activities[blank_end] where organisation is its [blank_start]own[blank_end] supplier or customer

Another type of integration is [blank_start]backward integration[blank_end]. This refers to development into [blank_start]activities[blank_end] concerned with [blank_start]inputs[blank_end] into company’s current business

Third type of integration is [blank_start]forward integration[blank_end]. This refers to development into [blank_start]activities[blank_end] concerned with [blank_start]outputs[blank_end] into company’s current business

Fourth type of integration is [blank_start]horizontal integration[blank_end]. This refers to firm which [blank_start]acquires[blank_end] provider of [blank_start]complementary[blank_end] products or services