Diversification = Strategic Directions .
is strategy development beyond current products and markets but within the value system or industry in which the company operates. .
Vertical Integration.
describes either backward or forward integration into adjacent activities in the value system.
Backward Integration:.
refers to development into activities which are concerned with the inputs into the company's current business, e.g. raw materials, machinery, labour, components manufacture.
Forward Integration:.
refers to development into activities which are concerned with a company's outputs, such as transport, distribution, repairs and servicing. .
Horizontal Integration:.
is development into activities which are competitive with, or complementary to, a company's present activities. .
Reasons for related diversification:.
Control of supplies.
- Quantity.
- Quality.
- Price.
Control of markets.
Access to information (Car manufactures own credit services, car hire firms to access information on customer preferences!.
Cost savings.
Building on:.
- Core competences.
- Technology.
.
Spreading risk (Avoids over-reliance on one product or market, but builds on related experience).
Resource utilisation (Manufactures acquiring company for compatible products to fill capacity).
Parenting (So the corporate parent can understand business units.
Unrelated diversification:.
Typically unrelated diversification is thought of as an organisation moving beyond its current value system or industry. So unrelatedness has tended to be defined in somewhat narrow terms: that is opportunities beyond the current product and market base of the organisation and outside the current industry (or value system). .
Reasons for unrelated diversification:.
Exploiting underutilised resources and competences. (Farmers use fields for camp sites).
Escape from present business (A company's product may be in decline and unrelated diversification presents the only possible escape.
