Wrigley Case Study Solution

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1. Introduction 1.1. Problem Indication The research on diversification-performance linkage has not stopped since the initialling research on motivations for diversification and diversified firms’ general characteristics(Chandler&Alfred, 1962; Ansoff&Igor, 1965).On the basis of Philip G. Berger and Eli Ofek’s study, product diversification may be benefit to the company by higher operation efficiency, higher probability of taking positive NPV investment plans, better debt capacity and higher tax shield, while it may also harm the firm because of over-investment in value-decreasing activities and resource lacking in well-performed segments, and Porter and Michael indicated that a firm’s ability to attain competitive advantage can be effected…show more content…
Dominant product diversification: the firm’s largest single business contributes between 70% to 95% of total revenue. Dominant-vertical diversification: The dominant diversified firm’s business is vertically integrated. Dominant-constrained diversification: On the basis of some particular capabilities, the firm’s non-vertically dominant diversified businesses are strongly related. Dominant-linked diversification: On the basis of some different capabilities, the firm’s non-vertically dominant diversified businesses are linked to its dominant business Dominant-unrelated diversification: The non-vertically dominant diversified firm’s diversified businesses are not linked to its dominant business. Related product diversification: the non-vertically integrated diversified firm’s largest single business contributes to less than 70% of total revenue while its largest group of related business contribute over 70% of total revenue. Related-constrained diversification: The firm’s all businesses are related to a central…show more content…
Because it has been assumed that businesses with same SIC would share common input requirements and similar operation functions, this method defines industry segments by using two-digit SIC codes and defines business segments by using four-digit SIC codes. Montgomery(1982) made an assessment on the two relatedness measurement methods, which shows that though Rumelt’s method may have problems on reliability and Jacquemin’s method may suffer from the problem of validity, these problems are not serious, and if all issues associated to variable selection and measurement, neither of them is clearly more superior for all purposes. Due to these factors, I assume that literatures using these two methods make no difference on the measurement of diversification relatedness. 2.2. Firm’s diversification relatedness-performance linkage in normal times Many researchers have made a lot of studies on the relatedness-performance linkage since Gort’s(1962) study
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