Diversification ( Business Policy )

DIVERSIFICATION

‘DI-WORSE-IFICATION’

“Companies should not Diversify as that eats away Resources and can destroy Shareholder’s value. Therefore, Companies should have a Core focus”

THE KEYWORDS • Eats Away Resources • Destroys Shareholder’s Value • Core Focus

“Diversification is only required when investors do not understand what they are doing.” - WARREN BUFFETT

always lead a business to build on success. All too often it converts a highly successful business into a mediocre large business.” - RICHARD BRANSON

“The corporate strategies of diversification of most companies have dissipated instead of created shareholder value.” - MICHAEL PORTER

DIVERSIFICATION • "to give variety to, or to vary." • "to extend business activities into disparate fields"

• "to distribute investments in order to average the risk of loss."

* NO TALK ABOUT SHAREHOLDERS*

ANSOFF MATRIX

What Ansoff Says…. • The first three strategies are usually

pursued with the same technical, financial, and merchandising resources used for the original product line • Diversification usually requires a company to acquire new skills, new techniques and new facilities. • Diversification is meant to be the riskiest of the four strategies to pursue for a firm.

DISADVANTAGES • Slowing growth in Core business. • Addition to management costs. • Bureaucratic complexities. • Losses during market consolidation process • Negative Synergies • Political and Legal intricacies.

COMPETITIVE STRENGTHS OF SINGLE-BUSINESS STRATEGY • Less Ambiguity about  ‘Who we are’  ‘What we do’  ‘Where we are headed’

OPTIMUM UTILIZATION OF RESOURCES Improving Competitiveness Expansion in new geographic markets Responding to changing market conditions Responding to evolving customer preferences

EROSION OF SHAREHOLDER’S WEALTH • COCA-COLA ACQUIRING TAYLOR WINES: 18.99%

• PACIFIC SOUTHWEST AIRLINES

DIVERSIFYING INTO CAR RENTALS & HOTELS: 21%

• UB GROUP DIVERSIFYING INTO FORMULA 1: 12.50%

FOCUS ON CORE FUNCTIONALITIES • Greatness comes from focus. • Connective Tissues that hold together a portfolio of seemingly diverse businesses

• Funnels people’s skills and efforts to make a greater effect.

• Have one main core competency, or a closely

related cluster of core competencies that support each other.

• WE DON’T PREACH THAT A COMPANY SHOULD NOT DIVERSIFY AT ALL.

• WE ARE AGAINST MINDLESS AND RECKLESS DIVERSIFICATION.

• DIVERSIFICATION IS RATIONALIZED WHEN CORE COMPETENCIES ARE KEPT INTACT

CORRECT TIMING IS CRITICAL.

WHAT THE EXPERTS SAY • THE ATTRACTIVENESS TEST • THE COST OF ENTRY TEST • THE BETTER OFF TEST

RIGHT TIMING PAYS • GOOGLE • CATERPILLAR • VIRGIN GROUP

SUCCESSFUL SINGLE BUSINESSES • INTEL: Focus on Computer Chips • WAL-MART: Focus on Lower Costs teaming up with Quality Service

• MARUTI UDYOG LTD: Focus on Quality Cars

FAILED DIVERSIFICATIONS • TATA – JAGUAR • KINGFISHER AIRLINES & FORCE INDIA F1 TEAM BY UB GROUP

• HINDUSTAN UNILEVER

IN BUSINESS, AS IN ART, WHAT DISTINGUISHES LEADERS FROM LAGGARDS, AND GREATNESS FROM MEDIOCRITY, IS THE ABILITY TO UNIQUELY IMAGINE WHAT COULD BE AND HAVE AN ORIGINAL AND DISTINCTIVE STYLE OF FOCUS. -C.K. PRAHALAD GARY HAMEL (COMPETING FOR THE FUTURE)

THANK YOU  WE ARE NOW OPEN TO QUERIES

TEAM MEMBERS • GAURAV MOHINDRU • SUMIT CHAUDHRY • PUNIT HARSH • JATIN RANA • RAZA KHAN • SONIKA CHOPRA • MAYANK SOOD • RUCHIKA DAHIYA