strategic management 12
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Strategic ManagementStrategic ManagementBHRM 31124BHRM 31124
R.A.Ishanka ChathuraniLecturer (prob)Department of Human Resource ManagementFaculty of Commerce & Management StudiesUniversity of Kelaniya
Corporate Level and Corporate Level and International Strategy International Strategy Learning outcomesAfter completing of this topic students should be able to, • Understand why organizations might increase their product and geographic diversity•Understand what is meant by related and unrelated diversification•Explain how different extents of product and geographic diversity might affect performance
Introduction Introduction What is diversity ?Diversity is a strategy that takes the
organization into both new markets and products or services
If an organization has under-utilized resources or capabilities that it cannot effectively close to other potential users, it can make sense to use these resources or capabilities by diversification into a new activity
Potentially value creating Potentially value creating reasons for diversification reasons for diversification If an organization has under-utilized
resources or capabilities that it cannot effectively close to other potential users, it can make sense to use these resources or capabilities by diversification into a new activity
There may also be gains from applying corporate managerial capabilities to new markets and products and services. In a sense this extends the point above, but highlights skills that can easily be neglected
Cont… Cont… Potentially value creating Potentially value creating reasons for diversification reasons for diversification Having a diverse range of
products or services can increase market power with a diverse of products or services, an organization can afford to cross subsidies one product from the surpluses earned by another, in a way competitors may not be able to
Related diversification Related diversification Related diversification is strategy
development beyond current products and markets, but within the capabilities or value network of the organization
Vertical integration is backward or forward integration into adjacent activities in the value network
Backward integration is development into activities concerned with the inputs into the company’s current business
Cont… Cont… Related diversification Related diversification
Forward integration is development into activities which are concerned with a company’s outputs
Horizontal integration is development into activities which are complementary to present activities
Related diversification option Related diversification option for a manufacturer for a manufacturer
Manufacturer
Competitive product
Complementary product
By-product
Financing
Product/process research/design
Machinery manufacture
Machinery supplyComponents supply
Components manufacturer
Raw materials manufacture
Raw materials supply
Repair and servicingMarketing InformationTransportDistribution outlets
Transport Backward integration
Horizontal integration
Forward integration
Unrelated diversification Unrelated diversification Unrelated diversification is the
development of products or services beyond the current capabilities or value network
Diversification and Diversification and performance performance Many scholars and policy-makers have been
concerned to establish whether diversified companies really perform better than undiversified companies
Early research suggest that firms which developed through related diversification outperformed both those that remained specialized and also those which developed through unrelated diversification
In the research work on diversification and performance since then the most generalization finding is that the diversification- performance relationship follows in inverted U-shape.
Cont… Cont… Diversification and Diversification and performance performance In other words, related limitedly
diversified companies perform better on average than both undiversified companies and heavily diversified companies or conglomerates
Diversity and performance Diversity and performance
High
Low
Performance
Undiversified Related limited diversification
Unrelated extensive
diversified
Managing the Corporate Managing the Corporate PortfolioPortfolioOne of the most common and
long-standing ways of conceiving of the balance of a portfolio of business is in terms of the relationship between the market share and market growth identified by BCG.
Growth-Share Matrix Growth-Share Matrix Developed by the Boston Developed by the Boston Consulting GroupConsulting Group
BCG MatrixBCG Matrix
• A star is a business unit which has a high market share in a growing market. •A question mark or problem child is a business unit in a growing market, but without a high market share• A cash cow is a business unit with a high market share in a mature market• Dogs are business units with a low share in static or declining markets
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