chapter 8: corporate strategy: diversification and the multi business company

"Make winners out of every business in your company.don't carry loser."

(jack welch-former CEO, General Electric)

let start chapter 8:  corporate strategy: diversification and the multi business company

Today i would like to share another topic that i already learned in my strategic management class last tuesday. Every corporate entities or business have a different strategy. The objective of diversification is to increase and  build shareholder value. Enter into any new businesses can take any of three forms: acquisition, internal start up, or joint venture. Every best choice depends on the firm's resources  and capability, the industry entry barrier, the important of speed, and the relative costs.
There a two fundamental approaches to diversification which related and unrelated diversification.

Related diversification: strong foundation or base for creating shareholder value.
Unrelated diversification : since the specialized resources and capabilities that a leveraged in related diversification to be more valuable competitive assets than the generalized resources and capabilities underlying unrelated, which in most cases are relatively common and easier to imitate.

Business diversification becomes a consideration when :

• Spot opportunities for expanding into industries whose technologies and product complement it's present business.
• It can leverage its collection of resources and capabilities by expanding into business where these resources and capabilities are valuable competitive assets.
• Diversifying into additional businesses opens new avenues for reducing costs.
• Has a powerful and well-known brand name that can be transferred to the product of other business .

In Malaysia, we have many examples of the companies that has been diversified their business into many other sub business unit. We have Sime Darby, Tabung Haji and Khazanah Nasional Berhad. For Sime Darby, they have Sime Darby Property, Sime Darby Plantation, Sime Darby Industrial, Sime Darby Motors and Sime Darby Energy and Utilities. This is how this company diversify their business either in the related business or in unrelated business.

Any firms that wish to have diversification in their business should consider this factors:

• It can expand into business where the technologies and product complement its current product 
• It have enough resources and capabilities to be use 
• Cost can be reduced by cross-business sharing or transfer of resources and capabilities 
• Transferring a strong brand name to the product of other businesses

Good company strategies is consist of 6 step.

• Evaluate the long term attractiveness of the industries into which the company has diversified.
• Evaluate the relative competitive strength of each of the company's business units.
• Check for cross-business fit.
• Check whether the firm's resources fit the resources requirement of it's present business line up.
• Rank the performance prospects of the businesses from best to worst, and determined what the corporate parent's priority should be in allocating resources to its various business.
• Crafting new business strategic moves to improve overall corporate performance.                

see u in the next chapter...<3<3<3