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Process of entering new industries, distinct from a company's core or original industry, to make new kinds of product that can be sold profitably to customers in these new industries
Diversification
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One that makes and sells products in two or more different or distinct industries (industries not in adjacent stages of an industry value chain as in vertical integration)
Diversified company
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Cash in excess of that required to fund investments in the company's existing industry and to meet any debt commitments
Free cash flow
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Involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry
Transferring competencies
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Involves taking a distinctive competency developed by a business unit in one industry and using it to create a new business unit or division in a different industry
Leveraging competencies
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Arise when one or more of a diversified company's business units are able to realize cost-saving or differentiation advantages because they can more effectively pool, share, and utilize expensive resources or capabilities
Economies of scope
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A company's ability to create a structure, culture, and control systems that motivate and coordinate employees to perform at a high level
Organizational design
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Corporate-level strategy that is based on the goal of establishing a business unit (division) in a new industry that is related to a company's existing business units by some form of commonality or linkage between the value-chain functions of the existing and new business units
Related diversification
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Corporate-level strategy based on a multibusiness model whose goal is to increase profitability through the use of general organizational competencies to increase the performance of all the company's business units
Unrelated diversification
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Business organizations that operate in many diverse industries
Conglomerates
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Costs associated with solving the transaction difficulties that arise between a company's business units, and between business units and corporate headquarters, as the company attempts to obtain the benefits from transferring, sharing, and leveraging competencies
Bureaucratic costs
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Process of transferring resources to and creating a new business unit or division in a new industry
Internal new venturing
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The stock of highly diversified companies is valued lower, relative to their earnings, than the stock of less diversified companies
Diversification discount
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