an especially critical issue when firms seek to diversify from their initial activities or operations into new areas. Corporate strategy issues are key to extending the firms competitive advantage from one business to another.
Scope of Operations:
The extent of a firms involvement in different activities, products, and markets.
Diversification: A strategy that takes the firm into new industries and markets. Related Diversification: A strategy that expands the firms operations into similar industries and markets; extends the firms distinctive competence to other lines of business that are similar to the firms initial base. Unrelated Diversification: A strategy that expands the firms operations into industries and markets that are not similar or related to the firms initial base; does not involve sharing the firms distinctive competence across different lines of business. Full Integration: Vertical integration that seeks to control every activity in the value chain. IN full integration, firms bring all activities required to design, develop, produce, and market a product in-house.
Partial Integration: Vertical integration that is selective about which areas of activity the firm will choose to undertake. In partial integration, firms do not control every activity required to design, develop, produce, and market a product. Synergy: An economic effect in which the different parts of the company contribute a unique source of heightened value to the firm when managed as a single, unified entity. Conglomerates:
B. Access to resources Physical assets and access to markets Technologies and skills Experience
C. Sharing of activities
Company
Hewklett-Packard
Shared Expertise
Engineering skills Rapid product development Distinctive manufacturing quality Leverage design skills Precision manufacturing Flat-screen technology Miniaturization Fast innovation
Sharp Corp.
PepsiCo
Soft drinks (Pepsi, Mountain Dew) Snaks Distribution systems food (frito-Lay) Gatorade (Quaker Oats) Marketing research Tropicana juices Segmentation skills Consumer advertising Brand development Advertising
Heart devices Insulin pumps Spinal Surgery Nervous system disorders Shared R&D skills Wireless initiatives Advanced technologies for less invasive treatments
Medtronic
Firm
3M
Altria.
IBM
Fidelity Investments
Ignorance
Neglect Coordination
Corporate restructurings:
Spinning off:
Firm
Baxter Healthcare AT&T PepsiCo Ralston-Purina Ford
Spun-off Unit
Allegiance Lucent Technologies Tricon Global Restaurants Yum! Brands Ralston Ralcorp. Associates First Capital
Industry/Intent
Divest low margin, mature medical supply unit Separate telecom equipment Free up KFC, Raco Bell, Pizza Hut into new unit Separate animal feed business cereals business Divest commercial lending unit to focus on automobile business
Visteon Corp.
Monsanto DuPont ICI Solutia Conoco Zeneca
Motorola
Freescale
Firm
Motorola
Spun-off Unit
Freescale
Industry/Intent
Separation of chip-making unit from cell phone manufacturing unit
Separation of hotel management and real estate businesses Divest restaurant unit to focus on core foods business Divest four financial services units to focus on retailing
Host Marriott
Darden Group Allstate Insurance Coldwell Banker Dean Witter Discover Lehman Brothers
American Express
Separation of brokerage/ underwriting unit from travel services Focus on digital photography and imaging Renew focus to become a pure play media company Focus on core long-distance business
Firm
Tyco International Citigroup Lucent Technologies
Merck H.J. Heinz Hewlett-Packard
Spun-off Unit
Four business units Travelers unit Agere Systems
Industry/Intent
Increase transparency to shareholders Divest of some noncore property/casualty business Divest of chipmaking unit to focus on wireless and optical segments
Focus on core drug development activities Focus on condiment and flavorings business Focus on printing, digital imaging, and computing systems Divest of software and reservations systems Unlock food value unit Divest of auto part-making unit