Diversification

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