What is the BCG matrix used for?
A tool for analyzing a company’s product portfolio
It helps in assessing the relative performance of different business units.
Define corporate strategy.
About the overall scope of the organization and how value is added to its businesses
It focuses on where a firm competes and the scope of its activities.
What are the two types of diversification?
- Related diversification
- Unrelated diversification
Related diversification involves expanding into products or services related to existing businesses.
What does divestment refer to?
Pulling out of one or more businesses
It often occurs with poorly performing SBUs or when a new CEO arrives.
What is dominant logic in corporate strategy?
The set of managerial capabilities applied across the portfolio of businesses
It refers to how corporate management capabilities are utilized across different business units.
What are economies of scope?
Cost savings achieved by sharing inputs and resources across different activities
They can include both tangible and intangible assets.
What is the parenting advantage?
The value-adding effect of head office to individual SBUs
It can provide a competitive advantage by effectively adding value.
What are synergies?
Benefits gained where activities or assets complement each other
The combined effect is greater than the sum of the parts (2+2=5).
Define vertical integration.
Entering activities where the organization is its own supplier or customer
It increases corporate scope and can be backward or forward integration.
What are the two types of vertical integration?
- Backward integration
- Forward integration
Backward integration involves moving into input activities, while forward integration involves output activities.
What is the main goal of outsourcing?
Subcontracting value chain activities to external suppliers
It aims to leverage unique capabilities of suppliers for lower costs.
What is a sell-off in the context of divestment?
Selling the SBU to another company
If financed through debt, it is termed a leveraged buy-out (LBO).
What is a spin-off?
Distributing shares of the SBU to parent organization shareholders
The business is then listed on the stock exchange.
What are the five main types of activities by which a corporate parent can potentially add value?
- Envisioning
- Facilitating synergies
- Coaching
- Providing central services
- Intervening
These activities help align business units and improve overall performance.
What is the attractiveness test in diversification?
Diversification must be directed towards attractive industries
This ensures that the new market has potential for profitability.
What is the cost of entry test?
The cost of entry must not capitalize all future profits
This ensures that the investment does not negate potential returns.
What is the better off test in diversification?
The new unit must gain competitive advantage from its link with the company
It ensures that synergies are present for value creation.
What are the motives for diversification?
- Growth
- Risk spreading
- Value creating
Growth-seeking diversification can often destroy shareholder value.
What is related diversification?
Expanding into products or services with relationships to the existing business
It leverages existing capabilities and resources.
What is unrelated diversification?
Expanding into markets, products, and services completely different from its own
It may involve pure growth desires or risk diversification.
What are the three potentially value-destroying diversification drivers?
- Responding to market decline
- Spreading risk across a range of markets
- Managerial ambition
These can lead to financial disaster if not managed properly.
What is product bundling?
Providing connected products to expand the range offered to customers
The goal is to offer lower prices and superior services.
True or false: Related diversification typically outperforms both specialized and unrelated diversification strategies.
TRUE
Familiarity with resources allows for greater agility and adaptability.
What are the two dangers with integration?
- Dilute shareholder returns
- Managing diverse resources and capabilities
These challenges can lead to pursuing vertical dis-integration.
