Mergers, Diversification, and Innovation in Business

These flashcards cover key terms and concepts related to mergers, diversification, and innovation in the business context, facilitating a thorough review for exam preparation.

Diversification

The act of an existing entity branching out into new business opportunities or market segments.

Mergers

An agreement in which two companies join together to form one single legal entity.

Horizontal Merger

Occurs when two companies operating in the same industry and at the same production stage combine.

Vertical Merger

Involves companies at different stages of the production process coming together to create a more efficient supply chain.

Conglomerate Merger

Occurs when companies from unrelated industries merge to mitigate risks associated with market fluctuations.

Innovation

The introduction of new ideas, methods, products, or processes that improve efficiency and create value.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, leading to lower per-unit costs.

Market Power

The ability of a firm to influence the price and output of goods and services in the market.

Synergy

The combined power of two entities working together is greater than their individual effects.

Coordination Costs

The costs associated with managing dependencies between different parts of an organization, especially during mergers.

Cultural Clashes

Conflicts arising from the integration of two companies with differing corporate cultures, particularly in terms of innovation.

Risk Reduction via Diversification

Operating across different markets and industries can stabilize revenue streams and reduce dependence on a single product.

Strategic Objectives of Diversification

Access to new knowledge, reduction of operational risks, and enhancement of competitive advantage.

Technological Innovation

Improvement of products or processes through the application of new technologies.

Cross-Divisional Collaboration

Encouraging teamwork and knowledge sharing across different divisions of a diversified company.

Disadvantages of Diversification

Challenges that may include loss of focus, lack of expertise, and increased coordination costs.

Tailored Integration Approaches

Strategies that adapt the integration of newly merged entities to balance creative freedom and resource synergies.