Flashcards in The content of strategy - corporate level and international Deck (78)
An organisation can increase its scope through:
2. Vertical integration
Diversification involves...served by an organisation.
...increasing the range of products or markets...
Related diversification involves expanding into products or services...
...with relationships to the existing business.
The two related diversification strategies
1. Developing new products or services for existing markets
2. Bringing existing products or services into new markets
Ansoff's matrix has two axis:... which are cross classified by being 'existing' or 'new'.
The matrix can be further developed by considering these in terms of...
Ansoff's (1958) basic growth alternatives:
1. Market penetration
2. New products and services
3. Market development
4. Conglomerate diversification
Market penetration refers to an effort to increase company sales without..., either by...
departing from an original product-market strategy, ...increasing volume of sales to present customer or by finding new customers for present products.
1. Builds on established strategic capabilities
2. Scope remains the same
Two constraints of market penetration:
1. Retaliation from competitors - may intimate price war
2. Legal constraints - regulators restrain powerful companies or prevent M&As
Product development...develops products that have new and different...
...retains the mission and...characteristics that will improve the performance of the mission.
Product development can be expensive and high risk:
1. Require new strategic capabilities
2. Project management risk - due to project complexity and changing project specification over time
Market development requires an adaptation of...
...present product line to new missions.
Two basic forms of market development:
1. New users
2. New geographies i.e. internationalisation
Risks of market development:
1. May lack the right marketing skills and brand
2. Difficulty of coordinating between different users and geographies - might have different needs
Conglomerate diversification involves...to existing businesses.
...diversifying into products or services with no relationships...
Diversification requires new...,...,..., and will almost invariably lead to physical and organisational changes in...
skill, techniques and facilities,... the structure of the business.
Vertical diversification involves...
...branching out into production of components, parts and materials.
Horizontal diversification involved the...
...introduction of new products.
Lateral diversification moves beyond...
...the confines of the industry, beyond present market structure.
Value-creating diversification drivers:
1. Exploiting economies of scope - applying existing resources of competences that are under-utilised to new markets or services
2. Stretching corporate management competences - across businesses that may not be sharing resources at the operating-unit level
3. Increase market share - increase bargaining power
4. Enhance industry attractiveness - defer entry
5. Maintain growth/survival
Where diversification creates value it is described as...
...'synergistic' - the combined effects of activities is greater than the sum of its parts.
Value-destroying diversification drivers create negative synergies (non-strategic):
1. Responding to market decline
2. Spreading risk - while is wise to diversify risk across a number of distinct activities, an organisation should not have a stake in dozens of different companies
3. Managerial ambition - can drive inappropriate diversification i.e. short-terms gains for manager but log-term destruction
The the diversification inverted U-shape maps performance against:
2. Related limited diversification
3. Unrelated extensively diversified
Vertical integration is similar to diversification in that it... but different in that it...
...increases corporate scope... brings together activities up and down the same value network.
The vertical integration directions:
1. Backward - development into activities with the inputs into the company's current business, further back in the value network
2. Forward - development into activities concerned with the output of a company's current business, further forward in the value network
Dangers of vertical integration:
1. Involves investment - which can affect the performance of the organisation if it is in less profitable activities than the original core business
2. Involves different strategic capabilities
Outsource is the process by which...
...activities previously carried out internally are subcontracted to external suppliers. (who might have superior capabilities for that activity)
Outsourcing creates a risk of...
...opportunism by external subcontractors.