Strategic Management Project: Analyzing Diversification for Value

This project delves into strategic management, specifically focusing on how managers utilize diversification to create value for their firms and shareholders. It explores various methods of diversification, including mergers, acquisitions, strategic alliances, and joint ventures, while also discussing the potential pitfalls that can lead to failure. The project analyzes the benefits of both related and unrelated diversification, highlighting key concepts such as leveraging core competencies and market power. It examines the means firms use to diversify, weighing the pros and cons of each approach, and concludes by discussing actions managers may take that erode shareholder value. The project references several academic sources to support its analysis.

STRATEGIC
MANAGEMENT PROJECT

TABLE OF CONTENTS
Question 1: Discuss how managers can create value for their firm through diversification
efforts...........................................................................................................................................1
Question 2: What are some of the reasons that many diversification efforts fail to achieve
desired outcomes?........................................................................................................................1
Question 3: How can companies benefit from related diversification? Unrelated
diversification? What are some of the key concepts that can explain such success?..................1
Question 4: Discuss some of the various means that firms can use to diversify. What are the
pros and cons associated with each of these?..............................................................................2
Question 5: Discuss some of the actions that managers may engage in to erode shareholder
value.............................................................................................................................................2
REFERENCES................................................................................................................................3

Question 1: Discuss how managers can create value for their firm through diversification efforts.
Managers of a firm can create a value not only for the company but for all the
shareholders as well. These value can be created through various ways such as: mergers,
acquisitions, joint ventures, strategic alliances etc. managers can also create values through
internal development within the organizations. This will help in sharing all the activities within
the organization, helps in restructuring, leveraging all the core competencies of the organization.
Other than this managers can create value for their firm for vertical integration, portfolio
management etc. But they cannot create value for market power as they have limited power for
diversification for using their market powers. Other than this they can create value for their firm
through diversification efforts.
Question 2: What are some of the reasons that many diversification efforts fail to achieve desired
outcomes?
There are various reasons which many diversification efforts fail to achieve desired
outcomes such as: If the diversification efforts are not achieved properly then it can lead the
organization to fail to effectively and efficiently integrate their acquisitions (Teece, Pisano and
Shuen, 2018). It can also decrease the firms effectively to understand the way their acquired firm
assets will be fitting with their own business. Sometime all the shareholders involved also
becomes one of the reasons due to which diversification might fail as sometimes all the involved
stakeholders only invest within an organization for their own selfish investment which becomes
a reason for failure of diversification efforts. Amount which is pad by the company to acquire
target stocks is also important to be noted as if additional or too high premium amount is pad
then also it can become a reason for failure of diversification efforts as the organization can fail
to achieve desired outcomes.
Question 3: How can companies benefit from related diversification? Unrelated diversification?
What are some of the key concepts that can explain such success?
Related diversification provide benefits to the organization for horizontal relationships.
Organizations can get benefited from related diversification in various ways such as by
leveraging core competencies, market power building, activity sharing etc. All these things helps
the company to get benefited across different businesses from horizontal relations. Unrelated
diversification can help the companies to enter into a completely new business with less
horizontal interaction with other organizations in the other business. There are various concepts
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which can help in understanding such concepts such as: customer values can be increased by
enhancing core competencies. This will help them to gain competitive advantage as well.
Leveraging core competencies can also help the firm to increase their economies of scope. Sales
growth can also increased if both the merged firms can attain higher level of sales which will
help them to attain higher revenue.
Question 4: Discuss some of the various means that firms can use to diversify. What are the pros
and cons associated with each of these?
Various ways through which a firm can diversify are:
Mergers and Acquisitions: When two or more businesses combines into a single organization
then it is named as merger and when one larger firm incorporates another firm within themselves
is called acquisition (Pearce, Robinson and Subramanian, 2019). Advantage of merger and
acquisition is that it opens up new market both the organizations so that they can expand. Bit it
also has an disadvantage i.e. it creates stress among employees of all the involved organizations.
Strategic Alliance: Cooperative relationship between tow or more than two firms is called
strategic alliance. One of the biggest advantage of this is that it helps in increasing the customer
base. However it also has a disadvantage i.e. both the organizations might have problems with
each other in terms of sharing profits with each other.
Joint venture: When two or more than two organizations contribute their equity in order to form
a new equity is called joint venture. One of the biggest advantage of this is that it helps the
companies to enter into a new market. While it also has a disadvantage i.e. many times it fails to
meet their customers expectations.
Question 5: Discuss some of the actions that managers may engage in to erode shareholder value.
Managers are always involved in diversification efforts which many times do not increase
shareholder values because most of the times they place their own efforts before their
stakeholders efforts (Freeman, 2018). Most of the actions of managers are in the form of anti
takeover tactics, egotism etc. Due to this engagement of managers shareholder values is eroded.
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REFERENCES
Books and Journals
Freeman, R.E., 2018. Strategic management: A stakeholder approach. Cambridge university
press.
Pearce, J.A., Robinson, R.B. and Subramanian, R., 2019. Strategic management: Formulation,
implementation, and control. Columbus, OH: Irwin/McGraw-Hill.
Teece, D.J., Pisano, G. and Shuen, A., 2018. Dynamic capabilities and strategic
management. Strategic management journal. 18(7). pp.509-533.
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