Identify and Discuss the Profitability Justifications for Pursuing a Multibusiness

Question

Examlex · Accepted Answer

The Answer is Diversification is the process of entering new industries, distinct from a company's core or distinct industry, using a multibusiness model based on finding ways to use the company's distinctive competencies to increase the value of products in those industries to customers, and thus a company's long-run profitability.
Diversification can increase profitability when managers transfer competencies between business units in different industries. This is usually done by companies that acquire others that share some sort of commonality.
Diversification can increase profitability when managers leverage competencies to create business units in new industries. This is based on the idea that a source of competitive advantage in one industry may be a source of competitive advantage in another industry.
Diversification can increase profitability when managers share resources between business units to realize synergies or economies of scope. Sharing resources allows a company to realize cost-saving or differentiation advantages.
Diversification can increase profitability when managers utilize product bundling. Product bundling allows a company to expand its product line and offer customers a package of related products.
Diversification can increase profitability when managers utilize general organizational competencies that increase the performance of all of a company's business units. These competencies are found in top management and transcend businesses; they may include factors such as entrepreneurial skills, capabilities in organizational design, and strategic capabilities.

Identify and Discuss the Profitability Justifications for Pursuing a Multibusiness

Definitions: