How can a diversified company build competitive advantage through its diversification strategy? In order for a diversified company to fully realize the competitive benefits of its diversification strategy, it must thoroughly understand its present corporate strategy by examining all aspects of the business as they relate to building a sustainable competitive advantage. As Figure 1 08D0C9EA79F9BACECAABA90BDF illustrates, the firm must ask itself several hard questions when defining its current corporate strategy.

Figure 1 Identify Current Corporate Strategy. Indeed, the firm must have a solid grasp of its current overall strategy before it can proceed to reap the full benefits of diversification. During this step, the firm evaluates the long-term attractiveness of each of the industries in which it has businesses.

A good approach is to identify those factors that make an industry attractive, assign weights to each factor, and then rate each industry on a scale from 1 to Once the weighted ratings are added together, the firm will have a fairly good idea of the general long-term attractiveness of each of the industries represented in its portfolio.

As shown in Figure 2 08D0C9EA79F9BACECAABA90BDFthe firm can use this information to assess both the absolute as well as the relative appeal of each of the industries included in its business portfolio. Figure 2 Assess Long-Term Industry Attractiveness. Once the firm has a solid understanding of the general long-term attractiveness of each of the industries in which it holds businesses, it is then ready to proceed to step 3. During this step, the firm evaluates each of its business units from a purely competitive perspective.

The aim is to determine how well each of the businesses is positioned relative to its rivals and decide whether the businesses are sufficiently competitive to attain market leadership. One approach is to identify those factors that make a business unit competitive, assign weights to each factor, and then rate each business on a scale from 1 to Once the weighted ratings are added together, the firm will have a fairly good idea of the general competitive strength of its different business units.

Figure 3 08D0C9EA79F9BACECAABA90BDF illustrates the abovementioned approach. Figure overnight interest rates forex Assess Competitive Strength of Business Units.

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Once the firm determines which of its businesses are or can become market leaders, it is ready to proceed to step 4. During this step, the firm determines which of its businesses units have competitively appealing value chain synergies that can gxs trading system the firm obtain cost reductions, transfer technological skills and intellectual capital, leverage a well-known brand name, or create valuable new competitive capabilities.

It should be noted that these very same competitively appealing value chain synergies are the true sources of sustainable competitive advantage!

Figure 4 08D0C9EA79F9BACECAABA90BDF visually illustrates application of the strategic fit test. Figure 4 Apply Strategic Fit Test to Business Units. It should be apparent that diversified firms are more likely to reap the competitive benefits of their diversification strategy if their business units mesh well in terms of technology, operations, distribution, and management.

Figure 5 08D0C9EA79F9BACECAABA90BDF illustrates some factors that a firm can consider when evaluating the financial performance of its business units.

Figure 5 Evaluate Financial Performance of Business Units. Once the firm identifies those factors that make business units financially attractive, it can assign weights strategy and competitive advantage in diversified agencies each factor, and then rate each business unit on a scale from 1 to Once the weighted ratings are added together, the firm will have a fairly good idea of the general financial strength of its lines of business.

By the time gta online earn money quickly reaches this step, the firm has evaluated the long-term industry attractiveness, competitive strength, strategic and resource fit, and financial performance of each of its business units and must now decide which of them merit additional resources.

Once the firm has ranked its business units on the basis of resource allocation priority, it can then maximize its strategic position by investing in the strengthening or expansion of current businesses, engaging in mergers or acquisitions to position itself in new industries, or funding long-term research and development initiatives.

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Similarly, the firm can utilize its financial resources to pay off existing debt, increase dividends, or repurchase its own stock. Regardless of the manner in which it prioritizes its resources, the firm must always keep in mind that the ultimate purpose is to create competitive advantage.

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The final step is for the firm to develop a new and modified corporate strategy that will serve as a solid platform for sustainable competitive advantage now and in the future.

Similarly, those business units that possess good long-term strategic attractiveness will have to be strengthened. In essence, the firm must be able to answer this final question to reap the full benefits of its diversification strategy: If the answer is no, then the company must determine whether additional resource commitments will close the gap.

If the answer is still no, the company can then employ any of several strategic options, including retrenchment, divestiture, restructuring, and turnarounds to improve its strategic position. In any case, by the time the firm completes step 8, it should certainly have a well-crafted strategy to maximize competitive advantage by capturing synergies among its related business units, establishing investment priorities, taking actions to enhance the performance of its businesses, and entering exiting well-performing underperforming businesses.

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