Diversification x Multibusiness = Corporate Strategy

ASSALAMMUALAIKUM....

¡hola!!!my dear friends..we meet again in the new post...here i want to share about corporate strategy on how the business diversification can enhance shareholder value and improving company performance. Before we go further we must have the strategic diversification option and when the business would become consideration.For complete that there have several test can be use which is the attractiveness test, the cost of entry test, and the better-off test and this all three test will be use for testing whether diversification adds value for shareholders. We know by creating added value for shareholders via diversification require building a multibusiness company where he whole is greater than the sum of its parts means as a synergy. What is synergy???It is a formula for evaluating the potential for synergy through diversification.

For the example :- 1+1=2 ( No synergy) / 1+1=3 (Have synergy). 

By using business lineup such as acquisition of an existing business, internal new venture and joint venture will be use for approaches to diversification. We also must define which diversification path to pursue either related businesses ( have competitively cross-business value chain and resource match-ups) or unrelated businesses (similar with value chain but no competitively cross-business) or both related and unrelated businesses.

Strategic fit are one or more activities constituting the value chain of different business as to present opportunities for cross business sharing. For make it complete we must identify the cross-business strategic fits along the value chain which is potential cross-business fits that consists:-

1. Supply chain activity
2. Manufacturing related activity
3. Distribution related activity
4. Customer service activity
5. Sales and marketing activity
6. R&D technology activities

Strategic fits also can be convert into competitive advantage whereas by combining related value chain activities to achieve lower cost. The diversified corporation plays in nurturing its component business through the provision of the top management expertise, disciplined control, financial resource and other types generalized resource will act as role that refers to the corporate parenting. For moves into new strategic we must improve overall the corporate performance such as broaden diversification base with new acquisitions, restructure through divestitures and acquisitions and stick with the existing business lineup.

To be an independent company we must created a corporate parent divest a business by distributing to its stockholders a new shares in this business or known as spin off. For put a whole new face on the company business lineup we must involve in making major changes in diversified company by divesting some business or named it as company wide restructuring. All these can be use for diversification strategy and improving company performance on the main corporate strategy.

OK..hope these input can be such a notes for those who want to make corporate strategy. We will meet in the next post with new topic... :)

Adius Amigos