Professional Documents
Culture Documents
s Pepsis challenges
x Spun-off restaurants x Acquired Tropicana x Pepsi Bottling IPO
s AT&T
x Spin-off or sell Consumer Long Distance
unit
s Maxtor acquires Quantum HDD unit
Corporate Strategy
Q: What businesses are we in? How did we get there?
Single Business Product Line Expansion
10
Why Diversify??
Division Sales ($)
Q1
Q2 1994
Q3
Q4
1993
1994
1995
1996
1997
1998
Benefits of Diversification
s Reduce earnings volatility s Minimize risk s Move firm into attractive industries s Prolong life of firm s Improve long-term performance s Capture synergies and strategic fit
Types of Diversification
s Vertical s Horizontal
x Related x Unrelated
s Global
strategy
x extent and type of
diversification x geographic scope x new acquisitions x recent divestitures x mode of new business entry
Hi
Lo
< 1.0
1.0
> 1.0
Diversified Inc.
HQ
Bus. 1
Growth Size Remote Env.
Bus. 2
Growth Size Remote Env.
Bus. 3
Growth Size Remote Env.
x If
s HOW?
x Acquisition x Internal start-up x Joint ventures
Justifications
s Attractiveness test
x Industry factors x Core competencies x Strategic position
market
s Increased Size
x Lower cost of capital x Increased market power
s Capital Allocation
x Democratic process x Cross-subsidization (e.g., AT&T)
s Misaligned Incentives
x Too short-term
International Diversification
s WHY?
x slow domestic growth (earnings risk?) x intense domestic rivalry x no overseas competition x intense overseas competition
s HOW?
x Exporting x Franchising x Joint ventures x Wholly-owned subsidiaries
Portfolio Managers
s Turnaround
x restore
(Gillette) s Capability leverager (Nike) s Valuator (Berkshire Hathaway) s Inventor (H-P, J&J) s Synergy capturer (Kraft-Genl. Foods) s Cost squeezer (Sunbeam)
TV Sh ow
o Fo
ch er M
i se nd a
dI s tem
Corp. Transformation
s Choosing new businesses s Planned Surprises
x Change business portfolio (Monsanto) x Change global portfolio (CitiBank) x Capability bundling (Disney) x Industry consolidation (Chrysler)
MTC
S&P
Chemicals (18%)
1994
Transformation
s Nokia
x 1989: Diversified electrical
1993
Sudden Redefinition
s Competitive/performance
industries