Diversification
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CORPORATE DIVERSIFICATION
What is Diversification?
Ansoff (1965): Diversification represents the entry of the firm into new markets with new products.
Kamien & Schwartz (1975): Diversification is the extent to which firms classified in one industry produce goods classified in another.
Ramanujam & Varadarajan (1989): Diversification is defined as the entry of a firm or business unit into new lines of activity, either by processes of internal business development or acquisition
Diversification and Corporate Strategy
A company is diversified when it is in two or more lines of business that operate in diverse market environments
Strategy-making in a diversified company is a bigger picture exercise than crafting a strategy for a single line-of-business
A diversified company needs a multi-industry,
multi-business strategy
A strategic action plan must be developed
for several different businesses competing
in diverse industry environments
Four Main Tasks in Crafting Corporate Strategy
Pick new industries to enter
and decide on means of entry
Initiate actions to boost combined
performance of businesses
Pursue opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage
Establish investment priorities, steering resources into most attractive business units
So What? Why diversify?
There could be proactive or defensive reasons:
(1) The decision may be shaped by the general environment (e.g. legal, political, economic, technological, social)
(2) The industryЎЇs competitive environment may cause it.
(3) Specific characteristics of the firm