Discuss shared activities as a potential source of economies of scope for diversified firms and identify the potential benefits and limits of activity sharing

What will be an ideal response?

When the companies in a diversified firm share a variety of activities throughout their value chains, these activities can serve as the basis for operational economies of scope. Potential shared activities can be found throughout a firm's value chain from input activities through dealer support and service. Activity sharing can have the effect of reducing a diversified firm's costs, and failure to exploit share activities across business can lead to out-of-control costs. Shared activities can also increase the revenues in a diversified firm's businesses through shared product development and sales activities as well as by enhancing business revenues by exploiting strong, positive reputations of some of a firm's businesses in other of its businesses. There are three important limits to activity sharing. First, substantial organizational issues can be associated with a diversified firm's learning how to manage cross-business relationships. Second, sharing activities may limit the ability of a particular business to meet its specific customer's needs. Finally, if one business in a diversified firm has a poor reputation, sharing activities with that business can reduce the quality of the reputation of other businesses in the firm.