When you reply to two your classmates' posts, respectfully agree/disagree to the post and explain why, while offering an opinion with an example to support it and references. Be sure to do one or more of the following:

• Agree and explain why you agree.
• Respectfully disagree and explain why you disagree.
• Offer an opinion with an example to support it.
• Propose an idea or a suggestion.
• Tell a related personal story.
• Respond to the classmates' or the instructor's questions.
• Pose a question and be sure to include your own answer as an example.
• Explain how the discussion question connects to real-life experiences.

Classmate 1:

Managers can create value for their companies by carrying out the diversification processes of expanding into new markets, products, or services, thereby reducing the chances of failure and increasing profits. Diversification helps companies to take advantage of the existing assets, core capabilities, and competencies to seize growth opportunities in somewhat different business lines or industries. Mackey et al. (2016) see corporate diversification as an opportunity to boost firm value by combining synergies and economies of scope, thereby improving the competitive advantage. By dividing the portfolio, managers can gain from new trends, technical development, and purchaser preferences, guaranteeing long-term growth and sustainability.

Nevertheless, several diversification projects still need to achieve the desired results for different reasons. An instance of poor strategic fit between a new business and the existing portfolio is one of the frequent problems that may point to poor performance and a value shoot down. In another instance, the focus extension may energize management and cause ineffective resource allocation and poor performance across the business units. If cultural and organizational integration is resisted, synergy realization can be incompatible with the strategic objectives. In addition, ignoring synergy, underestimating rivalry, and misidentifying market patterns might result in incorrect strategy and failure of value creation. Consequently, the process of diversification necessitates thorough strategic planning, strict evaluation, successful execution, and continual supervision to make sure it is in line with the firms overall objectives and its sustainability as a value creator.

Reference:

Mackey, T. B., Barney, J. B., & Dotson, J. P. (2016). Corporate diversification and the value of individual firms: A Bayesian approach. Strategic Management Journal, 38(2), 322-341. https://doi.org/10.1002/smj.2480Links to an external site.

Classmate 2:

Diversification adds another level of value to firms. Managers can create value through diversification efforts in many ways. One Strategy (2021) notes, "Diversification creates value when top managers operate the company's different business units so effectively that they perform better than they would if they were separate and independent companies". Managers can create value internally among business units and sharing activities which can increase costsavings as well as increasing revenue. Managers can also increase diversification through market power. Market power allows the firm to create pooled negotiating power through suppliers or through vertical integration where a firm can become its own supplier. Both of these methods increase value for a firm. There are pitfalls with these strategies that managers should be aware of to avoid failure ofdiversification. Dess et al. (2020) share of market power, "Managers do, however, have limits on their ability to use market power for diversification, because government regulations can sometimes restrict the ability of a business to gain very large shares of a particular market" (p. 145). In addition sharing activities can cause issues in a firm. Managers must ensure that sharing activities within the business units of the firm does not damage the reputation of the business unit or take away from a business units productivity and resources. Dess et al (2020) explain, "For example, when Ford owned Jaguar, customers had lower perceived value of Jaguar automobiles when they learned that the entry-level Jaguar shared its basic design with and was manufactured in the same production plant as the Ford Mondeo, a European midsize car. Perhaps it is not too surprising that Jaguar was divested by Ford in 2008" (p. 145). Managers should strive to achieve diversification to create value for their firm however should attempt to avoid the pitfalls of these methods to avoid diversification failure.

References:

Dess, G., McNamara, G., Eisner, A., & Lee, S. (2020). Strategic Management: Text and Cases (10th ed.). McGraw-Hill Higher Education (US).

Value in Diversification Strategies. 2021, September 5. One Strategy. https://onestrategy.org/value-in-diversification-strategies/#Links to an external site.