Diversification
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Related Diversification
organization involve in activities that are somehow related to the dominant or core business
lead to synergy (one company should be able to operate two related businesses more
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efficiently than can two company each producing one of the products or services on its own)
Tangible relatedness
occurs when organization use the same physical resources for multiple purposes
lead to synergy through resource sharing (economies of scope)
example: using the same marketing or distribution channels for multiple related services, buying similar supplies for related services through a centralized purchasing office to gain purchasing economies, provide corporate training programs to employees from different divisions that are all engaged in the same type of work
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Intangible relatedness
occurs when capabilities developed in one area cam be applied to another area
result in managerial synergy
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example: use of goodwill, brand name or management skills and knowledge to develop
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and create competitive advantage for new business
Unrelated Diversification
Large, unrelated diversified firms are often called
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conglomerates
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Cash-flow management and risk reduction
Very difficult for manager to understand each of the core business, therefore effectiveness of management may be reduced
Not a high-performing nor high profit sharing
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strategy
Mergers and Acquisitions
Mergers and Acquisitions
Mergers: when two organizations combine into one
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Acquisition: one organization buys a controlling interest in the stock of another
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organization or buys it outright from its owners.
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Managers often seeks acquisition targets that are faster growing, more profitable
Diversification•Related Diversificationorganization involve in activities that are somehow related to the dominant or core businesslead to synergy (one company should be able to operate two related businesses more•efficiently than can two company each producing one of the products or services on its own)Tangible relatednessoccurs when organization use the same physical resources for multiple purposeslead to synergy through resource sharing (economies of scope)example: using the same marketing or distribution channels for multiple related services, buying similar supplies for related services through a centralized purchasing office to gain purchasing economies, provide corporate training programs to employees from different divisions that are all engaged in the same type of work••••••Intangible relatednessoccurs when capabilities developed in one area cam be applied to another arearesult in managerial synergy•example: use of goodwill, brand name or management skills and knowledge to develop•and create competitive advantage for new businessUnrelated DiversificationLarge, unrelated diversified firms are often called•conglomerates••Cash-flow management and risk reductionVery difficult for manager to understand each of the core business, therefore effectiveness of management may be reducedNot a high-performing nor high profit sharing•strategyMergers and AcquisitionsMergers and AcquisitionsMergers: when two organizations combine into one•Acquisition: one organization buys a controlling interest in the stock of another•organization or buys it outright from its owners.•••Managers often seeks acquisition targets that are faster growing, more profitable
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