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    Alternative Methods For Carrying Out Diversification

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    shekhar_shashi4
    Managers should consider acquisitions as both opportunities and risks, and have promotion and development strategies in place for integration. When acquiring another business, companies should consider: 1) What value they can add through management, technology, or distribution, 2) Ensuring a common core between the businesses, 3) Understanding the acquired business, 4) Quickly installing a quality management team, and 5) Retaining the best managers from both companies. Diversification can provide efficiency gains, market power, and risk spreading, but may also slow core business growth, increase costs and complexity, and result in business unit subsidies or negative synergies.

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    Alternative Methods For Carrying Out Diversification

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    shekhar_shashi4
    144 views3 pages
    Managers should consider acquisitions as both opportunities and risks, and have promotion and development strategies in place for integration. When acquiring another business, companies should consider: 1) What value they can add through management, technology, or distribution, 2) Ensuring a common core between the businesses, 3) Understanding the acquired business, 4) Quickly installing a quality management team, and 5) Retaining the best managers from both companies. Diversification can provide efficiency gains, market power, and risk spreading, but may also slow core business growth, increase costs and complexity, and result in business unit subsidies or negative synergies.

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    Managers should consider acquisitions as both opportunities and risks, and have promotion and development strategies in place for integration. When acquiring another business, companies should consider: 1) What value they can add through management, technology, or distribution, 2) Ensuring a common core between the businesses, 3) Understanding the acquired business, 4) Quickly installing a quality management team, and 5) Retaining the best managers from both companies. Diversification can provide efficiency gains, market power, and risk spreading, but may also slow core business growth, increase costs and complexity, and result in business unit subsidies or negative synergies.

    Copyright:

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    Download as docx, pdf, or txt
    144 views3 pages

    Alternative Methods For Carrying Out Diversification

    Uploaded by

    shekhar_shashi4
    Managers should consider acquisitions as both opportunities and risks, and have promotion and development strategies in place for integration. When acquiring another business, companies should consider: 1) What value they can add through management, technology, or distribution, 2) Ensuring a common core between the businesses, 3) Understanding the acquired business, 4) Quickly installing a quality management team, and 5) Retaining the best managers from both companies. Diversification can provide efficiency gains, market power, and risk spreading, but may also slow core business growth, increase costs and complexity, and result in business unit subsidies or negative synergies.

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    2.

    Alternative methods for carrying out diversification



    Internal development

    External, through acquisition or strategic alliances
    Managers should bear in mind that the acquisition alternative should be seen as both a risk and
    an opportunity, therefore a clear promotion and management development strategy must be in
    place at the time of the takeover.
    In order to test the effectiveness of acquisition as an alternative strategy the following
    five simple rules may be used as suggested by Drucker:

    The acquiring company must consider what value it can add to the acquired
    business. This may include management, technology and distribution.

    A common core of unity must exit between the businesses in terms of markets,
    Products and technology etc

    The acquiring company’s management must understand the business being
    acquired

    The acquiring company must put a quality management team quickly into the
    Acquired business

    The acquiring business must retain the best management from both businesses.
    3.Reasons for diversification

    Efficiency gains, where an organization has underutilized resources and competences that it
    cannot effectively close or sell then it makes business sense to use the resources and
    competences by diversifying into a new activity.

    Increasing market power, an organization can afford to cross-subsidize one business from the
    surpluses earned by another in a way that competitors may notbe able to.

    Stretching corporate parenting capabilities into markets and products.
    2

    Responding to market decline

    Spreading risk
    4.Advantages and disadvantages of diversification in relation to the case study
    Advantages

    Control of inputs,leading to continuity and improved quality. For instance 1984and 1985 News
    Corp acquired Twentieth Century Fox and six television stations of the Metromedia
    Broadcasting Group in the US. These acquisition provided the company with a wider platform
    for consolidation of its related activities through access to studios for making films and television
    Programmes.

    Control markets by guaranteeing sales and distribution. This can arise through a combination of
    linkages in the value chain. For example where production and distribution channels are
    combined, or where a company uses its well-established brand names or corporate identity to
    gain benefits in new markets

    Take advantage of existing expertise, knowledge and resources in the company when expanding
    into new activities. This may result in transfer of skills, such a search and development
    knowledge and sharing of resources.

    Provide better risk control through no longer being reliant on a single market

    Provide movement away from declining activities

    Spread risk by avoiding having all eggs in one basket
    Disadvantages

    May result in slowing growth in its core business
    3

    Adding management costs.

    Adding bureaucratic complexity. In addition to direct financial costs, there may additional
    bureaucratic complexities necessitated by the need to coordinate and control core activities with
    additional activities.

    Losses may be incurred during market consolidation process resulting in some business units
    being subsidized by other profit making units. This was experienced by News Corp the
    performance of Sky Television resulted financial losses of nearly ₤10 million per month were
    incurred despite all the stringent cost reduction measures being put in place in line with the
    overall strategic vision of News Corp.

    May result in negative synergies

    Diversification through acquisition across national boundaries may result in the organization
    having to deal with varying intricacies of the political and legal requirements of the different
    countries in which the organization has controlling interests. For example Rupert Murdock was
    not allowed as a non US citizen to have more than 25 % of any company with a broadcasting
    licence. As a result he was compelled to become a US citizen in 1985.

    Diversification through acquisition May result in failure where there is a mismatch between core
    competencies or experiences of the acquirer and acquired businesses.

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