Question

The purpose of diversification is to build shareholder value. Diversification builds shareholder value when a diversified group of businesses can perform better under the auspices of a single corporate parent than they would as independent, stand-alone businesses. The goal is to achieve not just a 1 + 1 = 2 result, but rather to realize important 1 + 1 = 3 performance benefits. Whether getting into a new business has the potential to enhance shareholder value hinges on whether a company's entry into that business can pass the attractiveness test, the cost-of-entry test, and the better-off test. Entry into new businesses can take any of three forms: acquisition, internal start-up, or joint venture. The choice of which is best depends on: the firm's resources and capabilities, the industry's entry barriers, the importance of speed, and the relative costs. There are two fundamental approaches to diversification: into related businesses and into unrelated businesses. The rationale for related diversification is to benefit from strategic fit: Diversify into businesses with matchups along their respective value chains, and then capitalize on the strategic fit by sharing or transferring the resources and capabilities across matching value chain activities to gain competitive advantage. Unrelated diversification strategies surrender the competitive advantage potential of strategic fit at the value chain level in return for the potential that can be realized from superior corporate parenting or the sharing and transfer of generalized resources and capabilities. An outstanding corporate parent can benefit its businesses through (1) providing high-level oversight and making available other corporate resources, (2) allocating financial resources across the business portfolio, and (3) restructuring underperforming acquisitions.

Case:

See if you can identify the value chain relationships that make the businesses of the following companies related in competitively relevant ways. You should consider whether there are cross-business opportunities for (1) transferring skills and technology, (2) combining related value chain activities to achieve economies of scope, or (3) averaging the use of a well-respected brand name or other resources that enhance differentiation.

Bloomin' Brands

• Outback Steakhouse
• Carrabba's Italian Grill
• Bonefish Grill (market-fresh fine seafood)
• Fleming's Prime Steakhouse & Wine Bar

L'Oréal

• Maybelline, Lancôme, Helena Rubinstein, essie, Kiehl's, and Shu Uemura cosmetics
• L'Oréal and SoftSheen-Carson hair care products
• Redken, Matrix, L'Oréal Professional, and Kérastase Paris professional hair care and skin care products
• Ralph Lauren and Giorgio Armani fragrances
• La Roche-Posay, Vichy Laboratories dermo-cosmetics

Johnson & Johnson

• Baby products (powder, shampoo, oil, lotion)
• Band-Aids and other first-aid products
• Women's health and personal care products (Stayfree, Carefree, Sure & Natural)
• Neutrogena and Aveeno skin care products
• Nonprescription drugs (Tylenol, Motrin, Pepcid AC, Mylanta, Monistat)
• Prescription drugs
• Prosthetic and other medical devices
• Surgical and hospital products
• Acuvue contact lenses

1)List and describe the cross-business opportunities for transferring skills or technology that exist with Bloomin' Brands.

Answer 1

The strategy adopted by Bloomin Brands is to take such steps which make the restaurants different from the competitors. The purpose is to establish a unique brand identity so that customers prefer Bloomin Brands over its competitors. They provide high quality food to the customers and that too at an affordable price. In this way they are able to capture large market share and also build brand loyalty among customers. They also provide healthy and positive environment to the customers in their restaurants.This is an example of two strategic fit opportunities. This they achieve by transferring skills and combining the related value chain activities to provide cheap products to the customers. The result is satisfied customers, huge profits and brand identity in the minds of customers.