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Answer to what performance related risk does textron face while using the unrelated diversification

The Strategic Management Process — A logical approach for responding to 21st century competitive challenges. Provides an outline of the content of the textbook by each chapter.

Some suggest that few corporate-level strategies actually create value. In what product markets and businesses should the firm compete and how should corporate headquarters manage those businesses?

Textron Influence Different Decisions

Defining the business arenas — critical starting point for strategic planning and management Commonly used growth vehicles — internal development, joint ventures, licensing, franchising, and acquisitions Differentiators — help a firm determine how it is expected to win customers in the marketplace Staging — the timing of strategy and the sequence of moves the firm will take to carry it out increasingly important because of the speed of change in the competitive environment Economic logic — pulls together all of the above elements and focuses on achieving above-average financial returns 5 Product Diversification Primary form of corporate-level strategy Concerns scope of industries and markets Defines approach to buying, creating, and selling businesses Intends to reduce variability in profitability Comes with development and monitoring costs Product Diversification — the primary form of corporate-level strategy Discussion points: It is concerned with the scope of the industries and markets in which the firm competes.

By generating earnings from several different business units, it is expected to reduce variability in the firm's profitability. There is a cost to developing and monitoring a diversification strategy, which must be balanced with the benefits of establishing an ideal portfolio of businesses. CEOs and their top management team are ultimately responsible for determining the ideal portfolio of businesses for the firm.

Levels and Types of Diversification — Diversified firms vary according to their level of diversification and the degree of connections between and among their businesses. A firm is related through its diversification when there are several links between its business units. The more links among businesses, the more constrained is the relatedness of diversification. Unrelatedness refers to the absence of direct links between businesses.

Firms using each type of diversification strategy constantly adjust the mix in their portfolio of businesses as well as decisions about how to manage their businesses. In what ways might the firm share related links between business units?

  • At the beginning of this chapter, we noted that companies using multiproduct strategies deal with two core issues;
  • Defining the business arenas — critical starting point for strategic planning and management Commonly used growth vehicles — internal development, joint ventures, licensing, franchising, and acquisitions Differentiators — help a firm determine how it is expected to win customers in the marketplace Staging — the timing of strategy and the sequence of moves the firm will take to carry it out increasingly important because of the speed of change in the competitive environment Economic logic — pulls together all of the above elements and focuses on achieving above-average financial returns 5 Product Diversification Primary form of corporate-level strategy Concerns scope of industries and markets Defines approach to buying, creating, and selling businesses Intends to reduce variability in profitability Comes with development and monitoring costs Product Diversification — the primary form of corporate-level strategy Discussion points:

Example of single business strategy: Medifast Example of dominant business diversification strategy: A related constrained firm shares a number of resources and activities among its businesses. A diversified company that has a portfolio of businesses with only a few links between them is combining related and unrelated approaches and is using the related linked diversification strategy.

These types of firms are also known as conglomerates. Curvilinear Relationship between Diversification and Performance — Research evidence suggests a curvilinear relationship exists between diversification levels and firm performance.

Lower performance is expected for dominant business and unrelated business strategies. This chapter covers why a diversification strategy that involves a portfolio of closely related firms is likely to be higher performing than other types of diversification strategies. It is important to note two caveats to this pattern of diversification and performance. Some firms are successful with each type of diversification strategy.

Some research suggests that all diversification leads to trade-offs and a certain level of suboptimization. Reasons for Diversification — Table 8. Related strategies seek to gain economies or market power. Unrelated strategies seek financial benefits. Value-neutral diversification In this case, the strategy does not necessarily guide the firm toward any particular type of value-creation. The prevailing logic of diversification suggests that the firm should diversify into additional markets when it has excess resources, capabilities, and core competencies with multiple uses.

Although these factors might push a firm toward diversification, hopefully managers will actually pursue a type of diversification that will add value to the firm. Reduced employment risk, increased compensation, and empire building see Slide 50 What are some value-neutral reasons for diversifying?

  1. CEOs and their top management team are ultimately responsible for determining the ideal portfolio of businesses for the firm. Some firms are successful with each type of diversification strategy.
  2. These types of firms are also known as conglomerates. Research has revealed that firms with more related units have lower levels of risk.
  3. We are using ge's asset performance management application to help them lower unplanned downtime i have asked them to answer three essential questions.
  4. What performance-related risks does Textron face while using the unrelated diversification multiproduct strategy? Production competencies, marketing competencies, and channel dominance Interdivisional sharing of competencies helps the firm create economies of scope.
  5. Answer to what performance related risk does textron face while using the unrelated diversification Case assignment anonymous label business finance timer asked.

Government-induced stimuli such as antitrust regulation and tax laws Concerns about low performance, uncertainty of future cash flows, or other types of business risk To take advantage of tangible or intangible resources the firm possesses that would facilitate diversification 12 Value-Creating Strategies of Diversification Figure 8.

Value-Creating Strategies of Diversification — two ways diversification strategies can create value: The study of these independent relatedness dimensions highlights the importance of resources and key competencies in strategic decisions. The vertical dimension of Figure 8. The horizontal dimension depicts corporate capabilities for transferring knowledge corporate relatedness.

Firms with a strong capability in managing operational synergy, especially in sharing assets between its businesses, fall in the upper left quadrant. This quadrant also represents vertical sharing of assets through vertical integration.

The lower right quadrant represents a highly developed corporate capability for transferring a skill or skills across businesses. This capability is located primarily in the corporate office. The use of either operational relatedness or corporate relatedness is based on a knowledge asset that the firm can either share or transfer. Unrelated diversification is also shown in Figure 8. The unrelated diversification strategy creates value through financial economies rather than through either operational relatedness or corporate relatedness among business units.

The upper right quadrant represents a rare capability of achieving both operational and corporate relatedness simultaneously, which can inadvertently create diseconomies of scope. Refer to Slide 33 for further discussion. Recall from Chapter 5. Each division in the corporation represents a distinct, self-contained business with its own business-level structure.

The M-form ties all of those divisions together. Diversification is a dominant corporate-level strategy in the global economy, so the M-form organizational structure is used extensively throughout the world.

  • While downloading consolidated performance of unrelated businesses tends to be no better than sum of combination related-unrelated diversification;
  • Even in the face of declining industry demand by using its risk while the dissimilarities and unrelated related diversification;
  • Falling demand for one product can reduce revenues that cover the fixed costs of operating a shared facility Organizational conflict between divisions can interfere with success.

Proper use of the M-form in a diversified firm can lead to value creation. It facilitated comparisons between divisions, which improved the resource allocation process. It stimulated managers of poorly performing divisions to look for ways of improving performance.

Original Benefits of the M-form — The M-form was an innovative response to coordination and control problems that surfaced during the 1920s in the functional structures then used by large firms such as DuPont and General Motors.

As initially designed, the M-form was thought to have these three major benefits. The M-form may be used to support implementation of both related and unrelated diversification strategies. This structure helps firms successfully manage the many demands of diversification, including those related to processing vast amounts of information.

Organizational controls Guide the use of strategy Firms rely on two types: The cooperative form of the multidivisional structure is used for related diversification strategies. The strategic business-unit SBU form of the multidivisional structure is used for related diversification strategies.

The competitive form of the multidivisional structure is used for unrelated diversification strategies. An option for firms operating in multiple industries or product markets, the objective is to develop and exploit economies of scope between business units.

Operational and corporate relatedness determine how resources are jointly used to create economies of scope. Refer to Slide 12 or Figure 8. Sharing Activities Positive Outcomes: Sharing Activities — Firms create operational relatedness by sharing either value chain activities or support functions see discussion in Chapter 4.

Competing for Advantage

Sharing activities is quite common, especially among related constrained firms. Several issues affect the degree to which activity sharing creates positive outcomes. Firms expect activity sharing among units to result in increased value creation and improved financial returns. Research has revealed that firms with more related units have lower levels of risk. Building appropriate coordination mechanisms can contribute to successful creation of economies of scope.

Information systems More attractive results are obtained through activity sharing when facilitated by a strong corporate office. Coordination challenges must be effectively managed. Activity sharing can be risky because business-unit ties create links between outcomes. Falling demand for one product can reduce revenues that cover the fixed costs of operating a shared facility Organizational conflict between divisions can interfere with success.

  1. As initially designed, the M-form was thought to have these three major benefits.
  2. Value-Creating Strategies of Diversification — two ways diversification strategies can create value.
  3. It facilitated comparisons between divisions, which improved the resource allocation process. The more links among businesses, the more constrained is the relatedness of diversification.
  4. The more links among businesses, the more constrained is the relatedness of diversification.

Managers may perceive and resent disproportionate sharing of gains Managing interdependencies between related businesses increases coordination costs. Synergy only improves performance if the benefits are greater than the costs. Despite additional costs, research shows that related diversification can create value.

Horizontal acquisitions in the banking industry 19 The Cooperative Form of the Multidivisional Structure Key Terms Cooperative form Organizational structure using horizontal integration to bring about interdivisional cooperation Using the Cooperative Form of the Multidivisional Structure to Implement the Related Constrained Strategy — involves the formation of divisions around products or markets 20 Cooperative Form of the Multidivisional Structure Figure 8.

Cooperative Form of the Multidivisional Structure for Implementation of a Related Constrained Strategy — This figure uses product divisions to represent the cooperative form of the M-form, although market divisions could also be used. All of the divisions share one or more corporate strengths. Production competencies, marketing competencies, and channel dominance Interdivisional sharing of competencies helps the firm create economies of scope.

Interdivisional sharing depends on cooperation. Increasingly, it is important that the links include both intangible resources such as knowledge and tangible resources such as facilities and equipment.

Resources are discussed in more detail in the notes for Slide 49.

  • Some suggest that few corporate-level strategies actually create value;
  • The competitive form of the multidivisional structure is used for unrelated diversification strategies.

Success is influenced by how well information is processed among divisions. Cooperation among divisions implies a loss of managerial autonomy, and division managers may not readily commit themselves to the type of integrative information-processing activities that this structure demands. Success relies on the use of strategic controls. Success can be impacted by the use of proper reward systems. Using reward systems that emphasize overall company performance, besides financial outcomes achieved by individual divisions, helps overcome problems associated with the cooperative form.

Success can be influenced by managerial commitment levels which can soften the response to some lost managerial autonomy.

Answer to what performance related risk does textron face while using the unrelated diversification

Coordination among divisions sometimes results in an unequal flow of positive outcomes to divisional managers. A high level of managerial commitment can overcome perceived imbalances in benefits from the sharing of corporate competencies. Transferring Core Competencies Key Terms Corporate-level core competencies Complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise Corporate Relatedness: Transferring of Core Competencies Discussion points: Related linked firms see Figure 8.

Because the expense of developing a competence has been incurred in one unit, transferring it to a second business unit eliminates the need for the second unit to allocate resources to develop the competence. Intangible resources are difficult for competitors to understand and imitate; therefore, the unit receiving a transferred competence often gains an immediate competitive advantage over its rivals.