Diversification Strategy

Presentation on “ Diversification Strategies ”

DIVERSIFICATION   Diversification is a set of strategies. these strategies involve all

the dimensions of strategic involvement. it may involve internal pr external, related or unrelated, horizontal or vertical ,and active or passive dimensions either singly or collectively.

  Diversification involves a substantial change in the business

definition singly or jointly in terms of customer functions, customer groups, or alternative technologies of one or more of a firm’s businesses.

 DIFFERENT TYPES OF DIVERSIFICATION

STRATEGIES

  Concentric diversification…

CONCENTRIC DIVERSIFICATION  When an organization takes up an activity in such a manner

that it is related to the existing business definition of one or more of a firm’s businesses, either in terms of customer groups, customers functions or alternative technologies, it is called concentric diversification.

 Concentric diversification is of three types:

 MARKETING RELATED DIVERSIFICATION.

 TECHNOLOGY RELATED DIVERSIFICATION.

 MARKETING AND TECHNOLOGY RELATED

DIVERSIFICATION.

Marketing related concentric 

diversification: When a similar type of product is offered with the help of unrelated technology…



Technology related concentric 

diversification: When a new type of product or service is provided with the help of related technology…



Marketing and technology related 

concentric diversification: when a similar type of product or service

Reasons for concentric Diversification Realizing financial synergies in terms of transaction

cost savings and tax savings.

 Realizing informational synergies by using common sources of information, databases and information networks.  Realizing operational synergies through economies of scale.  Realizing personnel synergies through utilizing human resource with common skills and competencies for another business. 

CONGLOMERATE DIVERSIFICATION When an organization adopts a strategy which requires

taking up those activities which are unrelated to the existing business definition of one or more of its business either in terms of their respective customer groups , customer functions or alternative technologies it is called conglomerate diversification.

 Example – The Aditya Birla Group is in a variety of unrelated business such as Aluminum, BPO, Cement ,Chemicals, Software , Telecom, Textiles etc.  Polar Group (Fans , Marble and Granite)  ITC Groups is in Agri bus. FMCG, hotels, IT, Packaging.

REASONS FOR CONGLOMERATE/UNRELATED DIVERSIFICATION Spreading

business risks by investing in different industries.

 Maximizing returns by investing in profitable business

and selling out unprofitable ones.

 Taking advantage of emerging opportunities afforded by

an expanding economy and encouraging gov. policies.

 Migrating

from Environment.

bus.

Under

threat

from

the

bus.

 Stabilizing returns by avoiding economic upswings and

downswings industries.

through

having

stakes

in

different

ADVANTAGES/DISADVANTAGES OF CONCENTRIC DIVERSIFICATION (Advantages) Enable a firm to attain synergy by exchange of resources and skills. To avail economies of scale and tax benefits. 



(Disadvantage) Increase in risk and commitment Reduction in Flexibility 



ADVANTAGES/DISADVANTAGES OF CONGLOMERATE DIVERSIFICATION  (Advantages) Better management and allocation of cash flows. Realizing a high return on investment. Reduction of risk by spreading investment in different business and industries.   (Disadvantages) Diversion of resources and attention to other areas leading to a lack of concentration. Facing the risks of managing entirely new business. 

Why Diversification strategies adopted?  Diversification strategies are adopted to minimize risk

by spreading it over several businesses. E.g. Seasonal products.

 Diversification may be used to capitalize on its

capabilities and business model so as to maximize organizational strengths or minimize weaknesses. E.g. co. having Core competency in the area of Aftersales services.

 Diversification may be only out if growth in exiting

business in blocked due to environmental and regulatory factors. E.g. cigarette making co.

 

Product Expansion strategy of leading brand Mercedes. Mercedes Benz is a global car company.

 It apply diversification strategy by introducing new Actros tipper to get niche applications. 

The truck will address the need of Indian mining

sector.

 Diversification is apply considering the demand for heavy duty tippers by mining sector and huge power plan of India. 

Continue….. Another sector for diversification is dimension

cargo movement application which can carry load of 240 tones.  Other applications are like for fighting systems

which in fact considers the Mumbai Fire Brigade.

 They diversified themselves in some of

commercial vehicles which are light, medium, heavy vehicles.

Examples…… Essar Group:- shipping, marine construction, oil

support services, and iron ,steel.  Shriram Fibers Ltd.:- nylon industrial yarn,

synthetic industrial fabrics, nylon tyre cords, fluorochemicals, fluorocarbon refrigerant gases, ball and needle bearings, auto electrical, hire- purchase and leasing and financial services.  Reliance ‘ADAG’ Group.

Thank You .