CEO of a Small, Single-Business Company that Publishes an Annual Guide to Hong Kong: Strategy Management Assignment, NUS, Singapore

Question: The Chief Executive Officer (CEO) of a small, single-business company that publishes an annual guide to Hong Kong restaurants wants to develop a growth strategy. After reviewing the options, the CEO is proposing to diversify into the packaged holiday business in Singapore.

The senior management team disliked the option arguing this was an unrelated diversification. The team preferred to concentrate on its core business which is publishing critical review guides. The Board is now considering its diversification alternatives.

You have been asked by the Board to prepare a discussion paper on the benefits and potential pitfalls of diversification and advise them on how you think it should proceed.

This relates to Lecture 5 on diversification growth strategies (Johnson et al, chapter 7) and requires you to:

• demonstrate knowledge and understanding of related and unrelated diversification strategies
• assess the benefits and potential drawbacks of diversification strategies
• analyze a brief business scenario and reach conclusions.

In scenario questions, it is useful at the outset to highlight the key facts and consider how it relates to the topic. In this scenario, there are 3 key facts and central is the different views of the CEO and his senior management team on how to grow the business by diversification:

• the core business is publishing annual guides of Singapore restaurants
• the CEO wants to grow by diversifying into packaged holidays – you will need to argue in your answer why this is an unrelated diversification
• the senior management team prefers to grow in publishing critical reviews via related diversification.

Good answers will introduce growth strategies (Ansoff’s matrix) and define diversification. The structure of your paper to the Board (note, you are not asked for a formal report) should fall into three broad sections:

• Assessment of the reasons for diversification linked to the benefits e.g. increased market power, efficiency gains, transfer of core competencies, spreading risks. Distinguish between different types of diversification related (vertical, forward, horizontal integration) and unrelated and how they are linked to the benefits discussed above. Discuss how related diversification gives operational and corporate relatedness and unrelated financial synergy.
• Appraisal of why it is so difficult to achieve the synergy benefits of diversification due to the potential to destroy value and failure to achieve the synergistic benefits of operating multiple businesses.

Application of the above discussion to the context of this company. Argue why packaged holidays may be unrelated – the limited potential for operational and corporate relatedness and the potential risks to the core business. Consider less risky options, for example, where the company can transfer core competencies e.g. in publishing, in product development using internet channels, or market development (other regions/cities). Reflect on how you can add to the recommendations. Finally, arrive at a conclusion on how you think the company should proceed.