Corporate Strategy Diversification - Prof. Dr. Bernd Venohr
Corporate Strategy Diversification - Prof. Dr. Bernd Venohr
Corporate Strategy Diversification - Prof. Dr. Bernd Venohr
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Unrelated <strong>Diversification</strong>: diversifying into businesses<br />
with no meaningful value chain relationships or demand<br />
side synergies<br />
� Conglomerates/Holding Companies: to venture into “any business in which we think we<br />
can make a profit”<br />
� Assumptions<br />
– Managers have superior information vs. outside investors<br />
– Top management can more precisely allocate resources to businesses than external<br />
market<br />
� Key characteristics of unrelated diversification<br />
– Often pursued through acquisitions: sound companies in attractive markets<br />
– Acquired businesses will stay autonomous<br />
– <strong>Corporate</strong> headquarter acts as portfolio manager<br />
© 2006 <strong>Dr</strong>. <strong>Bernd</strong> <strong>Venohr</strong><br />
• Supplies needed capital to each business<br />
• Transfers resources from “cash cows” to businesses with high growth potential<br />
– Add professional management and strict financial controls<br />
– Unit managers compensated on unit results<br />
Source: Corey Phelps; Mgmt 430<br />
25
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