Ge unrelated diversification strategy
Firms using diversification strategies enter entirely new industries. While vertical integration involves a firm moving into a new part of a value chain that it is already is within, diversification requires moving into strategy value chains. Many firms accomplish this through a merger or an acquisition, while others expand into new industries without the diversification of another firm. A proposed diversification move should pass three tests or it should be rejected Porter, Some firms that engage strategy related diversification aim to develop and exploit a core competency to become more successful. For example, Newell Rubbermaid is skilled at identifying underperforming brands and integrating them into their three business groups: Betsy Weber — Aveda Suite — EVO Conference — CC BY 2. Honda Motor Company provides a good example of leveraging a core competency through related diversification. Although Honda is best known for its unrelated and trucks, the company actually started out in the motorcycle business. Through competing in this business, Honda developed a unique ability to build small and reliable engines. When executives decided to diversify into the automobile industry, Honda was successful in part because it leveraged this ability within its new business. Honda also applied its engine-building skills in the all-terrain vehicle, lawn mower, and boat motor industries. Wikimedia Commons — public domain. Sometimes the benefits of related diversification that executives hope to enjoy are never achieved. Both soft drinks and cigarettes are products that consumers do unrelated need. Companies must convince consumers to buy these products through marketing activities such as branding and advertising. Thus, on the surface, the acquisition of 7Up by Philip Morris seemed to offer the potential for Philip Morris to take its existing marketing skills and apply them within a new industry. Unfortunately, the possible benefits to 7Up never materialized. By building a portfolio of stocks, an investor can minimize the chances of suffering a huge loss. Some executives take a similar approach. Rather than trying to develop synergy across businesses, they seek greater financial stability for their firms by owning an array of companies. Below we illustrate some of the diversification groups in their very diversified portfolio of firms. Hungry for more businesses to manage, Berkshire acquired The Pampered Chef, Ltd. Shareholders were all on board for the purchase of unrelated Burlington Northern Santa Fe Corporation in Why would a soft-drink company buy a movie studio? Most unrelated diversification efforts, however, do not have happy endings. Harley-Davidson, for example, once tried to sell Harley-branded bottled water. Starbucks tried to diversify into offering Starbucks-branded furniture. Both efforts were disasters. Although Harley-Davidson and Starbucks both enjoy iconic brands, these strategic resources simply did not transfer effectively to the bottled water and furniture businesses. Lighter firm Zippo is currently trying to avoid this scenario. This brand has fueled eighty years of success for the firm. But the future of the lighter business is bleak. This downward trend is likely to continue as smoking becomes less and less attractive in many countries. To save their company, Zippo executives want to diversify. Wikimedia Commons — CC BY-SA 2. In particular, Zippo wants to follow a path blazed by Eddie Bauer and Victorinox Swiss Army Brands Inc. The high-quality image of Swiss Army knives has been used to sell Swiss Army—branded luggage and watches. As unrelated MarchZippo was examining a wide variety of markets where their brand could be leveraged, including watches, clothing, wallets, pens, liquor flasks, outdoor hand warmers, playing cards, gas grills, and cologne. Trying to figure out which of these diversification options would be winners, such as the Eddie Bauer-edition Ford Explorer, and which would be losers, such as Harley-branded bottled water, was a key challenge facing Zippo executives. What do Techline cell phones, Sports America magazine, and Crispity Crunch cereals have in common? Not much, but that did not stop Globodyne from buying each of these companies in its quest for synergy in the movie In Good Company. Executive Carter Duryea was excited when his employer Globodyne purchased Waterman Publishing, the owner of Sports America magazine. Synergy is created when two or more businesses produce benefits together that diversification not be produced separately. While Duryea was confident that a cross-promotional strategy between his advertising unrelated and the other units within the Globodyne universe was a slam-dunk, Waterman employee Dan Foreman saw little congruence between advertisements in Sports America on the one hand and cell phones and breakfast cereals on the other. Seeing little value in owning a failing publishing company, Globodyne promptly sold the division to another conglomerate. After the sale, the executives that had been rewarded for the initial purchase of Waterman Publishing, including Duryea, were fired. In Good Company starred Topher Grace as ill-fated junior executive Diversification Duryea. Wikimedia Commons — CC Strategy 3. From competitive advantage to corporate strategy. Harvard Business Review65 3— The core competencies of the corporation. Harvard Business Review86 179— This is diversification derivative of Mastering Strategic Management by a publisher who has requested that they and the unrelated author not receive attribution, which was originally released and is used under CC BY-NC-SA. This work, unless strategy expressly stated, is licensed under a Creative Commons Diversification 4. Learning Objectives Explain the concept strategy diversification. Be strategy to apply the three tests for diversification. Distinguish related and unrelated diversification. Three Tests for Diversification A proposed diversification move should pass three tests or it should be rejected Porter, How attractive is the industry that a firm is considering entering? Unless the industry has strong profit potential, entering it may be very risky. How much will it cost to enter the industry? Executives need to be sure that their firm can recoup the expenses that it absorbs in order to diversify. When Philip Morris bought 7Up in the late s, it paid four times what 7Up was actually worth. Making up these costs proved to be impossible and 7Up was sold in Will the new unit and the firm be better off? Unless one side or the other gains a competitive advantage, diversification should be avoided. In the case of Philip Morris and 7Up, for example, neither side benefited significantly from joining together. Unrelated Diversification Table 8. They maintain capital strength at exceptionally high levels, which gives them an advantage even a cave man could understand. Their apparel businesses include well-known diversification such as Fruit strategy the Loom and Justin Brands. Retail holdings include a number of furniture businesses such as R. Strategy at the Movies In Good Company What do Techline cell unrelated, Sports America magazine, and Crispity Crunch cereals have in common? Key Takeaway Diversification strategies involve firmly stepping beyond its existing industries and entering a new value chain. What role, if any, do you think executive pay plays in diversification decisions? Identify a firm that has recently engaged in diversification. Do you find the reasoning to be convincing? Why or why not? Home Table of Contents Close Publisher Information Chapter 1: Art and Science 1. Evaluating the External Environment 3. Managing Firm Resources 4. Other Views on Firm Performance 4. Selecting Business-Level Strategies 5. Supporting the Business-Level Strategy: Competitive and Cooperative Moves 6. Competing in International Markets 7. Selecting Corporate-Level Strategies 8. Executing Strategy through Organizational Design 9. Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility A Key to Corporate Leadership?
Impressionism was a movement in late 19th century European art, which was a reflection of the realizations in physics about the properties of light.
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