Forretning og Ledelse Lektion11

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Diversification
Reasons

• Economies of Scope
• Corporate managerial capabilities
• Increased market power
• Environmental change
• Risc spreading
• Expectation of powerful stakeholders

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Related Diversification

• Vertical Integration
• Backward Integration
• Forward Integration

Horizontal Integration
Unrelated Diversification
Conglomerate Dominant Management
Logic Underdeveloped Markets
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Related Diversification
Backward integration
Raw materials supply
Component Supply
Financing
Transport
Horizontal integration
Competitive Products
Manufacturer
Complementary Products
Forward integration
Distribution outlets
Repair Servicing
Transport
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High
Performance
Low
Related limited diversification
Unrelated extensively diversified
Undiversified
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Reasons for international diversity

• Globalization of markets and competition
• Follow customers
• Bypass limitations in home market
• Differencies between countries and geographical
  regions
• Broader size of the market
• Internationaliation of value added activities
  (outsourcing)

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Forretning og Ledelse Lektion11
The International Network

• Cost Advantages
• Unique Capabilities
• Characteristics of national locations

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Forretning og Ledelse Lektion11
Value Creation and the corporate parent
Value adding activities

• Corporate strategic intent
• Intervening within business to improve
  performance
• Own expertise

Value destroying activities

• Bureaucratic fog
• Financial safety net
• Focus for managerial ambition

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The role of the corporate parent

• Portfolio manager
• Synergy manager
• Parental Developer

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The parenting matrix The Ashridge Portfolio
Display
High
Ballast Businesses
Heartland Businesses
Fit between business units CSF and parent skills
Alien Businesses
Value Trap Businesses
Low
High
Fit between business unit parenting
opportunities and the parents skills
Low
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Forretning og Ledelse Lektion11
Core Competencies
Core Competencies
Sell??
SBU
Competence
Buy??
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Forretning og Ledelse Lektion11

• A company's core competency is the one thing that
  it can do better than its competitors. A core
  competency can be anything from product
  development to employee dedication. Modern
  business theories suggest that most activities
  that are not part of a company's core competency
  should be outsourced.
• IThe concept of core competencies was developed
  in the management field
• C.K. Prahalad and Gary Hamel introduced the
  concept in a 1990 Harvard Business Review
  article. They wrote that a core competency is "an
  area of specialized expertise that is the result
  of harmonizing complex streams of technology and
  work activity."
• As an example they gave Honda's expertise in
  engines. Honda was able to exploit this core
  competency to develop a variety of quality
  products from lawn mowers and snow blowers to
  trucks and automobiles. To take an example from
  the automotive industry, it has been claimed that
  Volvos core competence is safety.
• According to Prahalad and Hamel a core competence
  has three characteristics
• it provides potential access to a wide variety of
  markets,
• it increases perceived customer benefits and
• it is hard for competitors to imitate.
• For example, Black and Decker's core
  technological competency is in 200 to 600 W
  electric motors. All of their products are
  modifications of this basic technology (with the
  exception of their work benches, flash lights,
  battery charging systems, toaster ovens, and
  coffee percolators).

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The Growth Share Matrix
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Business Strength
Strong
Weak
Medium
High
Market Attractiveness
Medium
Low
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Offentlig Sektor
Ability to Serve Effectively
High
Low
High
Public Sector Star
Political Hot Box
Public Need funding attractiveness
Back Drawer Issue
Golden Fleece
Low