Corporate Strategy And Diversification

Your well-written paper should meet the following requirements:

Be 7 pages in length, which does not include the title page or required reference page, which are never a part of the content minimum requirements.

Use APA style guidelines.

Support your submission with course material concepts, principles, and theories from the textbook and at least (FOUR ) scholarly, peer-reviewed journal articles unless the assignment calls for more.

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Corporate diversification strategies raise a wide range of strategic management issues. For this week’s critical thinking assignment, read the case study (Attached) (Case 19): Google Is Now Alphabet—But What’s the Corporate Strategy?

Remember, a case study is a puzzle to be solved, so before reading and answering the specific case and study questions, develop your proposed solution by following these five steps:

Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course area which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the course area issues. The case may have extraneous information not relevant to the current course area. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in some detail the actions that would address or correct the situation.
Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.

Case Study Questions:

WhatYour well-written paper should meet the following requirements:

Be 7 pages in length, which does not include the title page or required reference page, which are never a part of the content minimum requirements.

Use APA style guidelines.

Support your submission with course material concepts, principles, and theories from the textbook and at least (FOUR ) scholarly, peer-reviewed journal articles unless the assignment calls for more.

——————————————————————————————————————————–

Remember, a case study is a puzzle to be solved, so before reading and answering the specific case and study questions, develop your proposed solution by following these five steps:

Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course area which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the course area issues. The case may have extraneous information not relevant to the current course area. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in some detail the actions that would address or correct the situation.
Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.

Case Study Questions:

What is Google’s corporate strategy? Does Google have a clear vision of what it wants to become?
Use Porter’s Essentials Test (Chapter 12 ” Attached to have idea “) to determine if this strategy creates competitive advantage. If so, how? If not, why not?
Look beyond the conventional sources of synergy and consider complementarities, bargaining power, and rivals. What threats does Google face?

Does Google need to refocus? How should Google delineate its corporate boundaries and which businesses, or products would you recommend abandoning or divesting, if any?

CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 12

Diversification

Strategy

Introduction: The Basic Issues
Motives for Diversification
Competitive Advantage from Diversification
Diversification and Performance
The Meaning of Relatedness in Diversification

Diversification Strategy

OUTLINE

INDUSTRY

ATTRACTIVENESS

COMPETITIVE

ADVANTAGE

Superior profit derives from two sources:

Diversification decisions involve these same two issues:

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

Core Issues in Diversification Decisions

RETURN ON CAPITAL

> COST OF CAPITAL

INTRODUCTION: THE BASIC ISSUES

United States

United Kingdom

Diversification Strategies of US and UK Corporations during the 20th Century

INTRODUCTION: THE BASIC ISSUES

IMPLICATIONS

FOR

DIVERSIFICATION

STRATEGY

MANAGEMENT

GOALS

STRATEGY

TOOLS AND

CONCEPTS

Growth

Making diversification profitable

Creating shareholder value

1960 1970 1980 1990 2000 2018

Diversification by established firms
Emergence of conglomerates
Boom in M&A

Core business focus
Divestments, and spin-offs
Leveraged buyouts

Financial

analysis

M-form

structures

Corporate

planning

Economies of

scope

Portfolio

planning models

Modern

financial theory

Shareholder

value

Transaction cost

analysis

Core competence
Dominant logic

Corporate advantage

Product bundling and customer solutions
Alliances
Growth options

Parenting advantage
Real options
Demand-side economies of scope
Tech platforms

Emphasis on

diversification

Quest for

synergy

The Evolution of Diversification Strategies, 1960-2018

INTRODUCTION: THE BASIC ISSUES

The desire to escape stagnant or declining industries a powerful motives for diversification (e.g. tobacco, oil, newspapers).
But, growth in the interests of managers not shareholders
Growth-seeking diversification (esp. by acquisition) tends to destroy shareholder value

Diversification reduces the variance of profit flows
But, doesn’t create value for shareholders—they can

hold diversified portfolios of securities. [Capital Asset

Pricing Model shows that diversification only lowers

unsystematic risk not systematic risk]

For diversification to create shareholder value, then

bringing putting different businesses under common

ownership must increase their total profitability

Motives for Diversification

GROWTH

RISK SPREADING

VALUE CREATION

MOTIVES FOR DIVERSIFICATION

For diversification to create shareholder value, it must meet three tests:

1. The Attractiveness Test: diversification must be directed towards attractive industries (or those with e the potential to become attractive).

2. The Cost of Entry Test : the cost of entry must not capitalize 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. (i.e. some form of “synergy” must be present)

Diversification and Shareholder Value: Porter’s Three Essential Tests

MOTIVES FOR DIVERSIFICATION

Sources of Competitive

Advantage from Diversification

`COMPETITIVE ADVANTAGE FROM DIVERSIFICATION

ECONOMIES OF SCOPE	Sharing tangible resources (e.g. research labs, distribution systems) across multiple businesses
Sharing intangible resources (e.g. brands, technology) across multiple businesses
Transferring functional capabilities (e.g. marketing, product development) across businesses
Applying common general management capabilities to different businesses

ECONOMIES FROM INTERNALIZING TRANSACTIONS	Economies of scope not a sufficient basis for diversification—must be supported by transaction costs in markets for resources
Diversified firm can avoid external transactions by operating internal capital and labor markets
Diversified firm has better information on resource characteristics than external markets

The Findings of Empirical Research

DIVERSIFICATION AND PERFORMANCE

Do diversified firms outperform specialized firms?	No consistent relationship Evidence of a ∩-shaped relationship: dn. first increases profitability, then further dn. reduces profitability (increased complexity?) McKinsey & Co. identify benefits from moderate dn.—especially for firms that have run out of growth opportunities Question of direction of causation: does dn. drive profitability, or vice-versa?
What type of diversification is most profitable? —Related dn. vs. unrelated dn.	Most studies show related dn. outperforms unrelated dn. Related dn. offers greater synergies—but also imposes higher management costs But what is “related dn.”? Businesses can be related in many different ways (e.g. LMVH, GE, Virgin group)

Economies of scope in diversification derive from two types of relatedness:

Operational Relatedness—synergies from sharing resources across businesses (common distribution facilities, brands, joint R&D)
Strategic Relatedness—synergies at the corporate level deriving from the ability to apply common management capabilities to different businesses.

Types of Relatedness between Businesses

Problem of operational relatedness:

The benefits from economies of scope may be dwarfed by the administrative costs involved in their exploitation.

RELATEDNESS IN DIVERSIFICATION

The Sources of Strategic Relatedness

Between Businesses

RELATEDNESS IN DIVERSIFICATION

Corporate Manage-ment Tasks	Determinants of Strategic Similarity
Resource allocation	Similar sizes of capital investment projects Similar time spans of investment projects Similar sources of risk Similar general management skills required for business unit managers
Strategy formulation	Similar key success factors Similar stages of the industry life cycle Similar competitive positions occupied by each business within its industry
Performance management and control	Targets defined in terms of similar performance variables Similar time horizons for performance targets

1949

1964

1974

1950

1970

1993

Single business

Dominant business

Related business

Unrelated business

is Google’s corporate strategy? Does Google have a clear vision of what it wants to become?

Use Porter’s Essentials Test (Chapter 12 ” Attached to have idea “) to determine if this strategy creates competitive advantage. If so, how? If not, why not?
Look beyond the conventional sources of synergy and consider complementarities, bargaining power, and rivals. What threats does Google face?
Does Google need to refocus? How should Google delineate its corporate boundaries and which businesses, or products would you recommend abandoning or divesting, if any?

Corporate Strategy And Diversification

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