184 Part 2: Strategic Actions: Strategy Formulation
as Ford and General Motors, as they developed independent supplier networks.^59
Flextronics, an electronics contract manufacturer, is a large contract manufacturer
that helps to support this approach to supply-chain management.^60 Such firms often
manage their customers’ entire product lines and offer services ranging from inven-
tory management to delivery and after-sales service. Interestingly, however, some firms
are beginning to reintegrate in order to gain better control over the quality and timing
of their supplies.^61 Samsung has maintained control of its operations through a verti-
cal integration strategy, while being a manufacturer for competitors such as Apple in
consumer electronics.6-3d Simultaneous Operational Relatedness and Corporate Relatedness
As Figure 6.2 suggests, some firms simultaneously seek operational and corporate relat-
edness to create economies of scope.^62 The ability to simultaneously create economies of
scope by sharing activities (operational relatedness) and transferring core competencies
(corporate relatedness) is difficult for competitors to understand and learn how to imitate.
However, if the cost of realizing both types of relatedness is not offset by the benefits cre-
ated, the result is diseconomies because the cost of organization and incentive structure
is very expensive.^63
As noted in the Opening Case, The Walt Disney Company uses a related diversifica-
tion strategy to simultaneously create economies of scope through operational and cor-
porate relatedness. Disney has five separate but related businesses: media networks, parks
and resorts, studio entertainment, consumer products, and interactive media. Within the
firm’s Studio Entertainment business, for example, Disney can gain economies of scope by
sharing activities among its different movie distribution companies, such as Touchstone
Pictures, Hollywood Pictures, and Dimension Films. Broad and deep knowledge about its
customers is a capability on which Disney relies to develop corporate-level core compe-
tencies in terms of advertising and marketing. With these competencies, Disney is able to
create economies of scope through corporate relatedness as it cross-sells products that are
highlighted in its movies through the distribution channels that are part of its parks and
resorts and consumer products businesses. Thus, characters created in movies become
figures that are marketed through Disney’s
retail stores (which are part of the consumer
products business). In addition, themes estab-
lished in movies become the source of new
rides in the firm’s theme parks, which are part
of the parks and resorts business, and provide
themes for clothing and other retail business
products.^64
Although The Walt Disney Company has
been able to successfully use related diversi-
fication as a corporate-level strategy through
which it creates economies of scope by shar-
ing some activities and by transferring core
competencies, it can be difficult for investors
to identify the value created by a firm (e.g.,
The Walt Disney Company) as it shares activ-
ities and transfers core competencies. For this
reason, the value of the assets of a firm using a
diversification strategy to create economies of
scope often is discounted by investors.^65RICHARD B. LEVINE/Newscom
Disney sells many products related to its movies in its own stores as
well as more broadly through other retail outlets.