Identify and explain the meaning and strategic significance of each of the following terms.a) Related diversificationb) Strategic fitc) Economies of scoped) Retrenchinge) Unrelated diversification
What will be an ideal response?
a. Related diversification: Businesses are "related" when their value chains possess competitively valuable cross-business relationships.
b. Strategic fit: Strategic fit occurs when value chains of different businesses present opportunities for cross-business combinations such as skills transfer, cost sharing, or brand sharing.
c. Economies of scope: Economies of scope stem directly from cost-saving strategic fit along the value chains of related businesses. Such economies are open only to a multibusiness enterprise and are the result of a related diversification strategy that allows sibling businesses to share technology, perform R&D together, use common manufacturing or distribution facilities, share a common sales force or distributor/dealer network, and/or share the same administrative infrastructure.
d. Retrenching: Evidence indicates that pruning businesses and thereby narrowing a firm's diversification base in a smaller number of core businesses improves corporate performance.
e. Unrelated diversification: An unrelated diversification strategy discounts the importance of pursuing cross-business strategic fit and, instead, focuses squarely on entering and operating businesses in diverse industries that allow the company as a whole to increase its earnings.
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