Strategic Management

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Agenda

Diversification

Diversified Companies

DO NOT WRITE ANYTHING

HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
 Diversification

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversification

What business is a company in?

McDonald’s
“To be the world’s best quick-service restaurant chain”

Nestle
“To be a leader in nutrition, health, and wellness”

Amazon
• Amazon Store (ecommerce)
• Devices and Services (Alexa, Fire TV, …)
• Amazon Web Services (cloud)
• Amazon Entertainment (Prime Video, …)

DO NOT WRITE ANYTHING

HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversification

Competitive advantages from diversification into multiple industries

• Economies of scope
Shared tangible resources, e.g. IT systems, sales forces
Common intangible resources, e.g. technology, brand
Organizational capabilities, e.g. new product development
• Economies from transactions
Direct ownership, e.g. Disney owns theme parks
Licensing, e.g. Disney licenses rights to toys
• Parenting
Mahindra is parent to Mahindra Electric (‘Reva’ cars) and
Tech Mahindra (includes ‘Satyam’)
• Internal markets
Internal capital markets (e.g. Berkshire Hathaway)
Internal labor markets (e.g. chaebols in Korea) DO NOT WRITE ANYTHING
HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversified Companies

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversified Companies

Japan: horizontal keiretsu

Example:
Mitsubishi
MUFG Bank (financing central to horizontal keiretsu)
Mitsubishi Corporation (trading)
Mitsubishi Heavy Industries

Japan: vertical keiretsu

Example:
Toyota
Toyota Industries (including the original looms and spinners)
Toyota Motor
subsidiary companies (e.g. Aichi Steel, Toyofuji Shipping)
DO NOT WRITE ANYTHING
HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversified Companies

India: family businesses

Tata group
Mahindra group
Aditya Birla group
RPG group

India: diversified from core

ITC (diversified from tobacco)

Larsen and Toubro (diversified from wartime manufacturing)

DO NOT WRITE ANYTHING

HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Diversified Companies

Related and unrelated businesses

Example

General Electric (GE)

2006 businesses 2021 businesses

Infrastructure Power
Industrial Renewable Energy
Healthcare Aviation
Commercial Finance Healthcare
Consumer Finance
NBC Universal

DO NOT WRITE ANYTHING

HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Summary

• Companies diversify from a core business for a variety of reasons, but there are risks.

• Diversification of companies follows different paths in various parts of the world.

DO NOT WRITE ANYTHING

HERE. LEAVE THIS SPACE FOR
WEBCAM
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
 Thank You

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited