Chapter 10 - Corporate-level startegy: related and unrelated diversification Flashcards
Define Diversification
Entering new industries, distinct from a company’s core or original industry, to make new kinds of products for customers in new markets
Define Diversified company
A company that makes and sells products in two or more different or distinct industry
Define the “better off” or “cost of entry” test
The firm must be more valuable than it wwas before the diversification, and that value must not be fully capitalized by the cost of the diversification move
Define Transferring competencies
Implanting a distinctive competency (developed by a business in one industry) in a business unit operating in another industry
Define Commonality
Shared skills or attribute allow them to operate more effectively and create more value for customers
Define Leveraging competencies
Using a distinctive competency (developed by a business unit in one industry) to create a new business unit in a different industry
Define Economies of scope
Synergies that arise when one or more of a diversified company’s business units are able to lower costs or increase differentiations
Define General organizational competencies
Help business units within a company perform at a higher level than it could if it operated as a separate or independent company
What are the three types of general organizational competencies?
i) entrepreneurial capabilities
ii) organizational design capabilities
iii) strategic management capabilities
Define Organizational design capabilities
Ability of the managers to create a structure, culture, and control systems that motivate and coordinate employees to perform at a high level
Define Turnaround strategy
Managers of a diversified company identify inefficient, poorly managers companies in other industries, they acquire, and they restructure them to improve their performance
Define Strategic management capabilities
Require to manage different business units to perform better than they would if there were independent companies
Ability to diagnose the underlying source of the problems of a poorly performing business unit
Define Related diversification
Establishing a business unit in a new industry related to a company’s existing business units
Define unrelated diversification
Increase the overall performance of business units across many diverse industries through an internal capital market, the use of general organizational competencies, or both
Define Internal capital market
The firm’s headquarters assess the performance of business units and allocates money across them
