Step 3: Identifying Candidates

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Do curso por University of London

Corporate Strategy

102 classificações

University of London

Corporate Strategy

102 classificações

Corporate strategy is the strategy a firm uses to compete across multiple businesses. Many small firms want to grow by entering new businesses. Many large firms already are in multiple businesses, e.g. a photo camera producer selling also sunglasses. We developed this course to help you make good corporate strategy decisions. Of the many decisions a firm has to make, corporate strategy decisions are among the most consequential. We will look at these key corporate strategy decisions: - Diversification: How and which businesses should your firm enter? - Divestiture: How and from which businesses should your firm exit? - Corporate HQ: How should we organize corporate headquarters to create value across the different businesses?

Na lição

Diversification

Welcome to week 2! A key decision in corporate strategy is determining which businesses a firm should be active in. This week we look at the diversification decision: entering a new business. If you get stuck on the quiz or assignment, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

A Five-step Approach to the Diversification Decision2:19

Step 1: Finding Synergies6:46

Step 2: Identifying Resource Gaps4:22

Step 3: Identifying Candidates3:38

Step 4: Evaluating Ally or Acquire7:24

Step 5: Evaluating Organic or Inorganic Growth6:06

Concluding the Five-step Approach to the Diversification Decision1:56

Conheça os instrutores

Bart Vanneste
Associate Professor
UCL School of Management

We're deciding whether to enter a new business.

In the previous step,

we identified resource gaps.

These gaps need to be filled,

either through organic growth or inorganic growth.

It turns out that it's easier to consider

the inorganic growth option first. That's what we are going to do.

Here are the five steps again.

We did step one synergies.

We did step two resource gaps.

Resource gaps can be done at the level of the generic value chain.

Now it's time to be more specific and identify potential candidates.

The reason is that,

optimal inorganic growth choices might vary by partner.

So let's move to step three, identifying candidates.

Broadly speaking, there are three types of

potential candidates: The first is insider generalist.

These are companies that are already active in

the new business and occupy all steps in the value chain.

The second category is also insiders,

but this time specialists,

so they are active in the new business but only do a subset of the value chain segment.

So only a few steps of the value chain.

And then the last category is outsiders.

So these are companies that might help you to enter

new business but are not active in that business themselves.

Now, if your resource gap is very large,

then a useful starting point might be to begin

with insiders and particularly an insider generalist.

Because you would require a lot of resources and almost by definition,

an insider generalist has those resources.

Let's revisit our earlier example of sports car diversifying into theme parks.

Now, we've just said that if your resource gap is large,

it might be useful to start with an insider and perhaps an insider generalist.

It turns out that the theme park's value chain really

consists of two different stages or two big chunks.

In the first step,

R&D is really about designing the theme parks,

building it, setting it up.

The remaining steps are really about

running the place once it has been designed and built.

Thus what we could do,

we could try and find insiders that are active in the first part of the value chain,

companies with experience in designing and building theme parks.

And we could find companies that are experienced in the second stage of that value chain.

Really running the place once it has been built.

Because this business is new to you,

you may have an idea of what type of candidates you're looking for.

But you may not know their identities.

So if it's important that you seek help here,

maybe talk to investment bankers,

maybe talk to industry experts,

or maybe ask your market intelligence department to do some market research.

Importantly, here you need to get specific,

if you can identify no candidates,

you have no choice but to do organic growth.

However, if you can identify some candidates,

you could consider inorganic growth.

That's what we're going to look at next.

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