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April 17, 2017

Entrepreneurs & the lean start up

Let me start with an analogy of the marshmallow challenge. For those of you that aren’t familiar with the challenge, it’s a team building exercise used in large organisations and schools alike.

The concept is simple. The participants are given 20 strands of uncooked spaghetti, some tape and some string. With this, they must build the tallest possible structure, on top of which, they must place a marshmallow.

Results show that recent business school graduates; lawyers and CEO’s perform poorly at this challenge. While engineers and kindergarten students excel.

Why do business students and CEO’s [...]

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April 17, 2017

Why do mergers & acquisitions fail so frequently?

Before we get down to the detail of this article, let’s think about Daimler’s merger with Chrysler for 36 billion dollars. Only a few years after the merger completed, Daimler had failed to realise the expected synergies with the Chrysler business unit so negotiated a deal to sell 80% of Chrysler for 7 billion dollars. However, this didn’t represent the true capital loss. You see, due to the pay down of debt amongst other expenses, Daimler actually paid around 600 million dollars to drop Chrysler from their portfolio, a catastrophic failure by anyone’s standards.

So, why did this 36.6 billion dollar loss happen in this instance and [...]

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April 17, 2017

Does vertical integration make sense in the 2017 business landscape?

Vertical integration is where a company launches into one product market, but competes along multiple pieces of the supply chain. They can do this through backward integration and forward integration.

Backward integration is where a company chooses to make its own components. For example, Dell may choose to create their own hard drives or disk drives, taking control of the component manufacture.

Forward integration is where a company chooses to own its own distribution and store networks –  Apple is an example of this.

Let’s look at Disney

Disney decided to forward integrate in the 1980’s and launch their own retail stores. Initially, [...]

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April 17, 2017

The concept of the diversification discount

In the previous post, we talked about Disney and their related diversification strategy. That is, moving into markets that have some relevance to your core business, enabling you to build synergy and economies of scope between your business units.

So, we know how related diversification works and how it can prove successful for the companies that adopt the strategy. However, it’s not very clear how unrelated diversification can benefit an organisation. After all, operating in very different markets leads to no apparent economies of scope or synergies.

Well, in fact, there isn’t a whole lot of sense to unrelated diversification [...]

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