Chapter 8: Corporate Strategy – Diversification and the Multibusiness Company

Vocabulary flashcards covering corporate strategy, tests of corporate advantage, diversification modes, and multibusiness portfolio management from Chapter 8.

The Industry Attractiveness Test

A corporate advantage test evaluating whether an industry is attractive enough to yield good returns.

The Cost of Entry Test

A corporate advantage test evaluating whether the cost of entering a target industry is low enough to allow for profitability.

The Better-Off (Synergy) Test

A corporate advantage test evaluating whether a new business will perform better together with an existing business than it would on its own.

Acquisition

A diversification entry method involving purchasing an existing company, recognized as often the quickest way to enter a new industry.

Greenfield Entry

An internal startup approach to diversification that involves creating a new business strictly from scratch.

Corporate Venturing

The process of developing new businesses as an outgrowth of a company's established business operations, requiring entrepreneurial-like qualities (intrapreneurship) within the larger enterprise.

Joint Ventures / Strategic Alliances

A method of entering new industries by partnering with another company.

Related Diversification

A diversification strategy focused on businesses that possess competitively valuable cross-business value chain match-ups (strategic fit).

Economies of Scope

Cost reductions that flow specifically from operating in multiple related businesses, arising from sharing resources or transferring them between businesses at low cost.

Unrelated Diversification

A diversification strategy focused on businesses with dissimilar value chains and resource requirements, having no competitively important cross-business commonalities.

Umbrella Brand

A corporate brand name (such as GE or Virgin) that can be applied to a wide assortment of business types, functioning as a generalized resource leveraged in unrelated diversification.

Dominant Business Enterprise

A company classification in which one major core business accounts for $50\%$ to $80\%$ of total revenues, while small related or unrelated businesses account for the remainder.

Corporate Parenting

The role a diversified corporation plays in nurturing its component businesses through top management expertise, disciplined control, and financial resources.

Portfolio Restructuring

A management process involving adding or removing businesses to improve combined performance, which can include divesting poorly performing businesses.

Spin-off

An independent company created when a corporate parent divests a business by distributing shares in the new company to the parent company's shareholders.