Diversification Strategy

In most diversified companies, corporate-level executives delegate considerable strategy-making authority to the heads of each business, usually giving them the latitude to craft a business strategy suited to their particular industry and competitive circumstances and holding them accountable for producing good results. But the task of crafting a diversified companys overall corporate strategy falls squarely in the lap of top-level executives and involves four distinct facets:

Picking new industries to enter and deciding on the means of entry. The decision to pursue business diversification requires that management decide what new industries offer the best growth prospects and whether to enter by starting a new business from the ground up, acquiring a company already in the target industry, or forming a joint venture or strategic alliance with another company.

Pursuing opportunities to leverage cross-business value chain relationships into competitive advantage. Companies that diversify into businesses with strategic fit across the value chains of their business units have a much better chance of gaining a 1 + 1 = 3 effect than do multibusiness companies lacking strategic fit.

Establishing investment priorities and steering corporate resources into the most attractive business units. A diversified companys business units are usually not equally attractive, and it is incumbent on corporate management to channel resources into areas where earnings potentials are higher.

Initiating actions to boost the combined performance of the corporations collection of businesses. Corporate strategists must craft moves to improve the overall performance of the corporations business lineup and sustain increases in shareholder value. Strategic options for diversified corporations include (a) sticking closely with the existing business lineup and pursuing opportunities presented by these businesses, (b) broadening the scope of diversification by entering additional industries, (c) retrenching to a narrower scope of diversification by divesting poorly performing businesses, and (d) broadly restructuring the business lineup with multiple divestitures and/or acquisitions.

Assignment Instructions

Choose a company and identify how they were able to diversify their corporate strategy. Please be sure to supply examples that support your response.