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BL6 Corporate Strategy:
Diversification and the Multi-
business Company
Created @June 8, 2025 11:11 AM
Class OBS 310
Files & media Block 6 notes.pdf
💡 Learning Objectives
When and how business diversification can enhance shareholder
value
How related diversification strategies can produce cross-business
strategic fit capable of delivering competitive advantage
The merits and risks of unrelated diversification strategies
The analytic tools for evaluating a company’s diversification strategy
What four main corporate strategy options a diversified company
can employ for solidifying its strategy and improving company
performance
CORPORATE STRATEGY
BL6 Corporate Strategy: Diversification and the Multi-business Company 1
, A diversified company operates across multiple industries, making strategy more
complex than in a single-business firm. Each business unit requires its own
strategy, and top executives must also develop a corporate strategy to enhance
overall performance across the entire portfolio.
1. When and how Business diversification can enhance
shareholder value
Top-level corporate executives have the task of crafting a diversified company’s
overall corporate strategy.
What does crafting a diversification strategy entail?:
1. picking new industries to enter and deciding on the means of entry.
Management needs to decide which new industries to enter and then whether
to enter by:
starting a new business from the ground up
acquiring a company already in the industry
forming a joint venture or strategic alliance with another company.
2. pursuing opportunities to leverage cross-business value chain relationships,
where there is strategic fit, into competitive advantage – Management need to
determine whether there are opportunities to strengthen a diversified
company’s businesses by:
transferring competitively valuable resources and capabilities from one
business to another
combining the related value chain activities of different businesses to achieve
lower costs
sharing the use of a powerful and well-respected brand name across multiple
businesses
BL6 Corporate Strategy: Diversification and the Multi-business Company 2
, encouraging knowledge sharing and collaborative activity among the
businesses.
3. initiating actions to boost the combined performance of the corporation’s
collection of businesses – Strategic options for improving the corporation’s
overall performance include:
sticking closely with the existing business line-up and pursuing opportunities
presented by these businesses
broadening the scope of diversification by entering additional industries
retrenching to a narrower scope of diversification by divesting either poorly
performing businesses or those that no longer fit into management’s long-
range plans
broadly restructuring the entire company by divesting some businesses,
acquiring others, and reorganising, to put a whole new face on the company’s
business line-up
A firm should consider diversifying when:
growth opportunities are limited as its principal markets have reached their
maturity and buyer demand is either stagnating or set to decline
there are changing industry conditions which are undermining the firm’s
competitive position such as new technologies, inroads being made by
substitute products, fast shifting buyer preferences, or intensifying
competition
Deciding how wide-ranging diversification should be:
1. Diversify into closely related businesses or into totally unrelated businesses?
2. Diversify present revenue and earnings base to a small or major extent?
3. Move into one or two large new businesses or a greater number of small
ones?
BL6 Corporate Strategy: Diversification and the Multi-business Company 3
BL6 Corporate Strategy:
Diversification and the Multi-
business Company
Created @June 8, 2025 11:11 AM
Class OBS 310
Files & media Block 6 notes.pdf
💡 Learning Objectives
When and how business diversification can enhance shareholder
value
How related diversification strategies can produce cross-business
strategic fit capable of delivering competitive advantage
The merits and risks of unrelated diversification strategies
The analytic tools for evaluating a company’s diversification strategy
What four main corporate strategy options a diversified company
can employ for solidifying its strategy and improving company
performance
CORPORATE STRATEGY
BL6 Corporate Strategy: Diversification and the Multi-business Company 1
, A diversified company operates across multiple industries, making strategy more
complex than in a single-business firm. Each business unit requires its own
strategy, and top executives must also develop a corporate strategy to enhance
overall performance across the entire portfolio.
1. When and how Business diversification can enhance
shareholder value
Top-level corporate executives have the task of crafting a diversified company’s
overall corporate strategy.
What does crafting a diversification strategy entail?:
1. picking new industries to enter and deciding on the means of entry.
Management needs to decide which new industries to enter and then whether
to enter by:
starting a new business from the ground up
acquiring a company already in the industry
forming a joint venture or strategic alliance with another company.
2. pursuing opportunities to leverage cross-business value chain relationships,
where there is strategic fit, into competitive advantage – Management need to
determine whether there are opportunities to strengthen a diversified
company’s businesses by:
transferring competitively valuable resources and capabilities from one
business to another
combining the related value chain activities of different businesses to achieve
lower costs
sharing the use of a powerful and well-respected brand name across multiple
businesses
BL6 Corporate Strategy: Diversification and the Multi-business Company 2
, encouraging knowledge sharing and collaborative activity among the
businesses.
3. initiating actions to boost the combined performance of the corporation’s
collection of businesses – Strategic options for improving the corporation’s
overall performance include:
sticking closely with the existing business line-up and pursuing opportunities
presented by these businesses
broadening the scope of diversification by entering additional industries
retrenching to a narrower scope of diversification by divesting either poorly
performing businesses or those that no longer fit into management’s long-
range plans
broadly restructuring the entire company by divesting some businesses,
acquiring others, and reorganising, to put a whole new face on the company’s
business line-up
A firm should consider diversifying when:
growth opportunities are limited as its principal markets have reached their
maturity and buyer demand is either stagnating or set to decline
there are changing industry conditions which are undermining the firm’s
competitive position such as new technologies, inroads being made by
substitute products, fast shifting buyer preferences, or intensifying
competition
Deciding how wide-ranging diversification should be:
1. Diversify into closely related businesses or into totally unrelated businesses?
2. Diversify present revenue and earnings base to a small or major extent?
3. Move into one or two large new businesses or a greater number of small
ones?
BL6 Corporate Strategy: Diversification and the Multi-business Company 3
