BA 4302 Chapter 8

Builds shareholder value

The attractiveness test, the cost-of-entry test, and the better-off test

When the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms.

There is ample time to launch the new business from the ground up.

Their value chains possess competitively valuable cross-business relationships.

Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another.

Diversify into new industries that present opportunities to combine value chain activities of two or more businesses to lower costs.

Anywhere along the respective value chains of related business - no one place is best.

Anywhere along the respective value chains of related businesses.

Are costs reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation.

Has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value.

Their value chains possess competitively valuable cross-business fit relationships.

Discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns of investment.

There is an absence of competitively valuable strategic fits between their respective value chains.

Any company that can be acquired on good financial terms and that has satisfactory earnings potential represents a good acquisition and a good business opportunity.

Demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides.

The difficulties of competently managing a set of fundamentally different business and having a very limited competitive advantage potential that cross-business strategic fit provides.

Pick business-unit heads having prerequisite combination of managerial skills and know-how to motivate people.

Dominant business enterprise.

Scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into.

The frequency with which strategic alliances and collaborative partnerships are used in each industry, the extent to which firms in the industry utilize outsourcing, and whether the industries a company has diversified into have common key success factors.

Ensure the appropriate weights are assigned each measure and that the preparer has sufficient knowledge to rate the industry on each attractiveness scores.

Relative market share, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and ability to benefit from strategic fits with sister businesses.

To have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries.

Provide quantitative measure of the overall market strength and competitive standing for each business unit.

That corporate resources should be concentrated on those business enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture.

Valuable opportunities exists to transfer skills, technology, or intellectual capital from one business to another, combine the performance or related activities, or share the use of a well-respected brand name across multiple products or service categories.

The extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, or transfer skills or technology or intellectual capital from one business to another.

The target industry presents good long-term profit opportunities.

The costs of entering the target industry do not erode its long-term profit potential.

The firm's businesses will perform better together than as a stand-alone firm, producing a synergistic 1 + 1 = 3 effect on shareholder value.

Acquisition, internal development, and joint venture

Generates operating cash flows over and above its internal requirements.

Generates operating cash flows that are too small to fully fund its operations and growth; must receive cash infusions from outside sources to cover its capital and investment requirements.

A business unit that has a large market share in a fast growing industry. If successful, a star will become a cash cow when the industry matures.

A business unit that has a small market share in a high growth market.

A business unit that has a small market share in a mature industry.

An organized structure in which the firm is separated into several semi-autonomous units; Choice for firms with moderate to high levels of product diversification

1) Cooperative form. (Unrelated diversification) 2) Strategic Business Unit (SBU) form. (Corporate relations) 3) Competitive form. (Cooperating)

Multidivisional (M-form) structure