StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Unrelated Diversification in UTC - Case Study Example

Cite this document
Summary
The paper "Unrelated Diversification in UTC" states that it is quite essential to state that the Growth of UTC companies can be attributed to shared management practices such as total quality management (TQM) and Achieving Competitive Agreements (ACE)…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.2% of users find it useful
Unrelated Diversification in UTC
Read Text Preview

Extract of sample "Unrelated Diversification in UTC"

Unrelated Diversification in UTC Unrelated Diversification in UTC Corporations implement various corporate level strategies to maintain their market and also to stimulate growth. Corporations pursue strategies based on evaluation of business growth or profitability that the strategies offer to the business (Hill, Jones & Schilling, 2014). One of the common strategies is diversification. Companies diversify their processes to take advantage of benefits in related or unrelated field. United Technologies Corporation uses unrelated diversification strategy where it engages in businesses that are not perfectly related to each other. The section discusses how the unrelated strategy of the UTC adds value to the company. Unrelated diversification is important in enabling companies reap benefits from a central management. UTC ensures that its business gain value by auditing their strengths and weaknesses through its elaborate Total Quality Management strategy. The parent corporation ensures that its businesses are operating optimally. For example, the case of elevator failures in Japan was effectively solved through TQM. A parent corporation is objective in identifying failures in its businesses and thus is efficient in finding solutions. Unrelated diversification also offers UTC strategic advantage of identifying the best practices for its companies to mitigate business risks. The situation implies that the corporation can use strategies that have succeeded in one of its business to run another business. Also, the corporation learns for the strategies that have failed in several businesses to avoid them in the future. The result is a more successful and valuable business. For example, UTC uses TQM as its main approach to avoid product failures. The strategy worked well or elevator problems in Japan; hence, the corporation documented it as one of its best practices. As noted above, UTCs best practices are transferred to all its companies. UTC has employed several process disciplines and an elaborate research and development. Also, the corporation benefits from diverse skills and competencies across different industries. These competencies enable UTC to internally manage the human resources, across all its companies. Top performers can be sent to failing companies to improve their prospects. Dangers and Disadvantages of Unrelated Diversification According to Duhaime, Stimpert & Chesley (2012), unrelated diversification allows corporations to invest in business that have little or no process technologies that can result in synergies. The reason or this is that businesses operate in different industries, and hence there are not similarities in technology. It thus becomes difficult for the conglomerates to streamline the businesses where some companies are more reliant on others for financial synergies. However, conglomerates can overcome this by an efficient distribution of capital. Another disadvantage of the unrelated diversification is the complexities of managing companies in different industries. Some of the industries may be too challenging and may stretch the management. Thus, achieving the desired results is difficult, and the management has to have excellent skills and problem detection techniques. Moreover, uniform application strategies may not work for all the companies. The situation means that some strategies work for certain industries and hence it is a gamble to try them on other industries. Managers require advanced skills to detect a profitable venture. Unrelated diversity requires managers to understand the industries they intend to venture in at an advanced level to understand the dynamics of the industry. According to Hill et al. (2014), organization may face problems in unrelated diversification when managers retire. New managers find it hard to adapt to the system and thus the success of diversification scales back. UTC Success in Pursuing a Diversification Strategy According to historical data on Yahoo! Finance, UTC dividends have been growing steadily for the last eight years. The historical data show that in November 2009, UTC had a quarterly dividend of 0.385, 0.425 in November 2010. The dividends increased to 0.59 in November 2014. The data show that the unrelated diversification strategy of the corporation has increased the value of individual companies. The increasing amount of dividends implies that the revenues from individual companies are increasing steadily. Shareholders of the corporation are now getting more earnings per share. The improvement in the economic and financial position of the Corporation has led to a sharp increase in share price of UTC. In 2010, for example, on January 4, the share price was 59.73. The share price rose to $72.71 in January 2012. The price rose further to $114.16 in January 2015. The growth can be attributed to the corporate strategies employed by UTC. Another indicator of the success of UTCs strategy is the increasing amount of revenues. Historical data on revenues indicate that the corporation was having steady growth over the last four years. In 2012, the revenues amounted to $57.7 billion, $62.6 billion in 2013 and $65.1 billion in 2014. The data indicate that the conglomerate is doing well financially and is attracting more market for its goods. The performance can be attributed to the strategy that the conglomerate employs in dealing with its companies. Reduction in UTC expenses and an increase in revenues led to a steady increase in profits. The profits rose from $5.13 billion in 2012 to $6.2 billion in 2014. The increases in profits indicate that the value of the firm is growing, and thus shareholders expect more returns on their investments. The streamlining of processes under a strict code of practice ensures that the companies maintain the desired profitability and financial position. The data also shows an increase of expenditure in research and development in 2013 and 2014. The same period recorded a decrease in administrative expenses. The expenses fell from $5.57 billion in 2013 to $5.2 billion in 2014. The fall in administrative expenses implies that the diversification strategy led to a smaller management team. Also, the reduction insinuates that the management is more efficient. The above discussion proves that diversification is an important strategy that can raise the performance of conglomerates. Individual companies benefit from the diversification through a central management and synergies. Growth of UTC companies can be attributed to shared management practices such as total quality management (TQM) and Achieving Competitive Agreements (ACE). The practices enhance discipline and streamline processes to ensure that the best practice is followed to enhance quality and to lower costs. References Duhaime, I. M., Stimpert, J. L., & Chesley, J. A. (2012). Strategic thinking: Todays business imperative. New York: Routledge. Hill, C., Jones, G., & Schilling, M. (2014). Strategic management: Theory: An integrated approach (11th ed.). Mason, OH: Cengage Learning. UTX Historical Prices | United Technologies Corporation Stock - Yahoo! Finance. (n.d.). Retrieved March 16, 2015, from http://finance.yahoo.com/q/hp?s=UTX+Historical+Prices Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Case Analysis Study Example | Topics and Well Written Essays - 1000 words - 7”, n.d.)
Case Analysis Study Example | Topics and Well Written Essays - 1000 words - 7. Retrieved from https://studentshare.org/management/1683429-case-analysis
(Case Analysis Study Example | Topics and Well Written Essays - 1000 Words - 7)
Case Analysis Study Example | Topics and Well Written Essays - 1000 Words - 7. https://studentshare.org/management/1683429-case-analysis.
“Case Analysis Study Example | Topics and Well Written Essays - 1000 Words - 7”, n.d. https://studentshare.org/management/1683429-case-analysis.
  • Cited: 0 times

CHECK THESE SAMPLES OF Unrelated Diversification in UTC

Essentials of Corporate Financial Management

XXXX XXXX Subject: Accounting Consultancy Date: 19/10/11 Accounting Consultancy Client 1 In the first instance, the client is considering using net present value (NPV) as the basis for assessing the merits of the current project.... hellip; The literature (Arnold, 2007, Brealey et al, 2006) on finance and accounting would seem to indicate that the NPV methodology is one of the most comprehensive and reliable tools to use in a project appraisal....
9 Pages (2250 words) Coursework

Strategic Marketing: Objective Formulation and Implementation

Decisions are taken on whether there will be vertical diversification that is a new product should be made or not, horizontal diversification that is whether the company should make a new brand or merge with someone to make that product or they shall outsource the work to some organization....
13 Pages (3250 words) Term Paper

Nucor Corporation

Organizational Structure Issues That the Company Would Need To Address To Implement This Diversification Some of the organizational structure issues that Nucor Corporation needs to address to implement this diversification in poor leadership and lack of vision (Thompson & Strickland, 2010).... Fourthly, it will suggest if a related or unrelated diversification must be applied by the company.... Recommendations Whether a Related or unrelated diversification Should Be Used By the Nucor Corporation The Nucor Corporation should use related diversifications to tackle their HRM issues and trends arising in the steel industry....
3 Pages (750 words) Case Study

NEWS CORPORATION CASE STUDY

News Corporation attempted first diversification strategy with major shift to US and bought Film Company Twentieth century Fox in year 1984.... The matrix with former variable on horizontal axis and latter one vertical axis provided four strategies which are: product development, market development, market penetration and diversification (Cravens and Piercy, 2008)....
9 Pages (2250 words) Essay

Organization Diversification

The diversification factors that we shall discuss in this essay is related to the ongoing and booming construction business that is going on world wide and specifically in the United Arab Emirate.... Running Head: Organization diversification Organization diversification Introduction The diversification factors that we shall discuss in this essay is related to the ongoing and booming construction business that is going on world wide and specifically in the United Arab Emirate....
2 Pages (500 words) Case Study

Fiat Auto: The Italian Giant in Trouble

The importance given to innovations resulted in diversification and process continued through decades.... diversification is the process by which firms diversify their products or operation, administrative structure or managerial process or even their location for the purpose of growth and survival (Pearce, 1993).... Under such circumstances, firms tend to diversify their products and diversification has been identified as a tool to tide over such situations towards the latter half of 20th century (Whittington and Mayer, 2000)....
9 Pages (2250 words) Essay

The Success and Failures of Diversification Strategies

This essay presents diversification which is a business strategy that was born of necessity when corporations in the first half of the 20th century maxed out their growth in their founding purpose and discovered that branching into other ventures provided increased returns.... hellip; According to the paper diversification is a standard in business operations, creating a sound base for increased profits and as a buffer against problems that might arise in one area of interest....
16 Pages (4000 words) Essay

Diversification and Synergy of the Companies

In the case of unrelated diversification, the economic benefits are said to accrue due to superior internal governance mechanisms.... While the downside for related diversification is limited, unrelated diversification may have its share of risks due to unfamiliarity both with the internal and external situations.... This "diversification and Synergy" considers the various aspects of business expansion, evidence for and against synergistic expansion, and concludes that searching for synergies in business units is an appropriate perspective, in view of the potential for improved performance....
9 Pages (2250 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us