BUS 508: Contemporary Business
Dr. Micky Mouse
Assignment2: Diversification Strategies
Research two corporations that have had different outcomes (one successful and one unsuccessful) with their diversification strategies. Compare and contrast each corporation’s diversification strategy and evaluate the reasons for each one’s success or failure in the venture.
Compare and contrast the two businesses—core business, their size, financials, global presence, use of e-business (marketing, sales, etc.).
A great example of companies that utilized completely ...view middle of the document...
This diversification strategy doesn’t always work because companies sometimes overvalue the companies they are acquiring or they allow them to operate as standalone enterprises. Many times, the acquiring firm doesn’t take any steps to improve the performance of the acquired business resulting in failure for both.
Kmart also spent millions of dollars on marketing and built their stores on expensive real estate. Wal-Mart on the other hand built their stores on pastures outside of small towns and invested less of their money on the appearance of their stores and marketing. Wal-Mart also invested their money into the operations aspect of their own stores. While Kmart was investing in acquiring additional companies, Wal-Mart invested their money in information technology and computer systems that linked cash registers to headquarters. This enabled Wal-Mart to have better control over their inventory than Kmart.
Kmart has been unsuccessful in making a profit and has shown uncertainty in its financial ability resulting in an inability to reclaim the market shares lost to Wal-Mart. Kmart’s financial standpoint is unpredictable as they offer their products at higher prices than Wal-Mart. Kmart filed for Chapter 11 bankruptcy in January 2002 and has closed hundreds of stores since then. Kmart is now a wholly owned subsidiary of Sears Holdings Corporation and has been on a fast track of reorganization since they emerged from Chapter 11 Bankruptcy in 2003.
Analyze the three primary reasons for the different outcomes.
Of the two retailers’ diversification strategies, Kmart was the least successful because their focus was more on the specialty stores they acquired than the operations of Kmart. While Wal-Mart was focused on sophisticated methods of distribution, inventory and scanner systems for their stores, Kmart failed in those areas resulting in depleted store inventory and issues with prices being different on the shelves from what was rung up on the cash registers.
The use of technology is another primary reason for the difference in outcomes of the two companies. Wal-Mart’s use of technology to form a centralized information system where all of the stores link to headquarters located in Arkansas by voice data and video, has allowed them to improve inventory controls as well as cut costs. This system tracks the sale of every single item in the store as well as acquisition and product distribution. It also tracks supply and demand data and allows suppliers access to Wal-Mart’s computers. Kmart failed to implement this level of utilization of technology and has come up short.
Wal-Mart was one of the first retailers in the country to require the products sold in their stores to have barcodes. They were the first in the country to install barcode scanners in all of their checkout stands. These systems assisted Wal-Mart in the management of their inventory because they were connected to the centralized computer system....