BUSSPP 0200 1st Edition Lecture 9 Outline of Last Lecture I Analyzing Industries Outline of Current Lecture Current Lecture I Diversification Corporate Office A Observation Some firms are in one business others more than one 1 Why 2 Many reasons a cyclicality b risk management i don t put all of your eggs in one basket ii More than one business less dependent on success of single business c Complementarities i being in one business may increase opportunities in another B Terminology 1 Focused firm that s in a single business 2 Diversified firm that s in more than one business a Related Yum KFC Pizza Hut Taco Bell i Similar kinds of customers ii Similar price points iii Similar products iv Knowledge of doing one contributes significantly to the other b Unrelated PPG paint glass i judgment call MAY have a connection but it s a stretch c Conglomerate HUGELY unrelated ITT 350 different businesses i very rare ii US GE iii Int Samsung These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute C Performance 1 Successes and Non successes in all categories a being focused diversified is NOT a predictor of success 2 Rationale a risk management b most risky focused c Least risky conglomerate 3 Spreading Resources how are you doing it D Structure 1 Focused a one CEO is an expert 2 Diversified a Multiple management systems i Those in charge have unique knowledge regarding each business ii Responsible for the business portfolio in which business should we grow etc iii Allocation of corporate resources Diversified Firm CEO GM1 Responsibility of GMs grow YOUR profit GM2 GM3 Profit Center compensation Salary Performance bonus Cost Center compensation Salary Investment Centers b How much power resource should each of these GMs receive i operations between these divisions can be vastly different c What functions should be centralized decentralized i IT HR centralized ii Purchasing strong argument for both iii No one best way to allocate this
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