BSM 600 Chapter Notes - Chapter 7: Combination Bus, Vertical Integration, Virgin Group
7 Mar 2017
School
Department
Course
Professor
Document Summary
Strategic decisions encompass both: product scope: breadth of biz product range, vertical scope: extent of involvement in industry value chain. Scope of biz likely changes over time. Vertical integration previously seen as beneficial, better coordination, lessens risk. Pharma used to be v integrated, involved from research to manufacture to marketing, but lately began to outsource chem manufacture, trials, research. If for profit, assume scope change is meant to create value for shareholders by 1. Econ of scale = lower avg cost by increasing output of single product. Econ of scope = lower avg cost by increasing output of multiple products. Exist when use of a resource across multiple activities consumes less of it vs when activities are independently carried out. Potential for multi-biz firms to gain cost advantages over more specialized businesses. E. g. distribution networks, it systems, eliminate duplication. Higher fixed costs = higher econ of scope.
