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Diversification Strategy


            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.


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