Corporate Strategies Continued

Question 1

What does Diversification Strategy impact?

Answer 1

Diversification decisions also involve both these issues:

• How attractive is the industry to be entered?
• Can the firm achieve a competitive advantage?

Question 2

What are motives for diversification?

Answer 2

• Growth
• Risk Spreading
• Value Creation

Question 3

What are porters three essential tests for differentiation?

Answer 3

1. The attractiveness test: diversification must be directed towards attractive industries (or potentially attractive ones)
2. The cost of entry test: the cost of entry must not capitalise all future profits.
3. The better off test: either the new unit must gain competitive advantage from its link with the company, or vice-versa.

Question 4

GE/Mckinsey Matrix: What is it based off of?

Answer 4

• Industry Attractiveness (Market size, market growth etc)

- Business Unit Strength (Market share, competitive position etc)

Question 5

BCG Matrix: What is it based on?

Answer 5

• Relative Market Share
• Annual Real Rate of Market Return

Low market share, Low return: DOG (Divest)
Low Market share, high return: Question Mark (Analyse potential to be a star)
High Market share, low return: Cow (milk)
High market share, high return: Star (invest for growth)

Question 6

Portfolio planning advantages and disadvantages:

Answer 6

Adantages:

• simple
• big picture focus
• analytically versatile
• can be augmented

Disadvantages:

• over simplified
• ambiguous
• ignores synergy