If you get stuck on the quiz or assignment, you should post on the Discussions to ask for help. The strategists must consider the realities of the situations for selecting the right … All the images and videos present on the Business Study Notes are not owned by us, if you found anything under copyrights, please, Investment Analysis and Portfolio Management, Guidelines for Concentric Diversification. Each strategy focuses on a specific method of diversification. When a firm finds a complete saturation in the market for the existing product. Business Study Notes is all about business studies or business education. When an organization finds a decline in its annual sales and profits. Horizontal strategies allow a firm to begin moving outside its comfort zone in terms of product manufacturing. Business can modify its products. Type of diversification strategy; Diversification strategy is the adoption of development processes and ways of a business in an organization. Even if profits rem… As cash flow is the result of all flows, its degradation is a symptom of a malfunction that needs … [Read More...], Change Management Model: A change is a change from a previous situation. Many organizations pursue one or more types of growth strategies. Now we will see them into more specifics. Types of … For example, a company that manufactures automotive repair parts may enter the toy production industry. Types, examples, guide and benefit from shared resources and skills. What Are Its Causes & Process? For example, a dairy company producing cheese adds a new variety of cheese to its product line. 2 comments; 46,470 views; The different types of diversification strategies include the modernization and development of new products, updating the market, new technology licensing, distribution of products by another company and even the alliance with the said company. Such as; Filed Under: Finance, Strategic Management Tagged With: define diversification strategy, diversification marketing strategy, diversification strategies, horizontal diversification, market diversification, types of diversification, Looking for business model innovation? Corporate level strategy addresses the entire strategic scope of the firm. The following are the types of diversification strategies: Horizontal Diversification. Some firms have acquired and some are trying to acquire financial collaborations. The company markets the products through the same supply channels to the existing clients. The best situation for a company is to compete in an industry where the growth is nil or very slow. When companies engage in conglomerate diversification strategies, they are often looking to enter a previously untapped market. Overall, such diversification should result in higher ROI, as revenues increase, and the companies are expected to achieve cost efficiency due to shared resources. Diversification is a strategic approach adopting different forms. Discuss some of the various means that firms can use to diversify. What Is Change Management Model? The upside to this diversification strategy comes from increasing flexibility and reaching new economic markets. Corporate Strategies or Grand Strategies: ADVERTISEMENTS: There can be four types of strategies a corporate management pay pursue: Growth, Stability, Retrenchment, and Combination. Uncategorized; Tags . Many researchers in the field of strategic management have dealt with the question of diversification and the pros and cons involved 5. The most common strategies include concentric, horizontal and conglomerate diversification. The company will tend to market products to current consumers by leveraging the brand loyalty associated with current products. Growth strategies involve a significant increase in performance objectives (usually sales or market share) beyond past levels of performance. Types, modes, and levels of diversification are the most complicated yet intertwined processes in the strategic management literature for optimization of firm performance. Competitive Strategy of Starbucks Location Placement July 8, 2019. Management had little clue about newspapers and the publication soon went belly-up. A key decision in corporate strategy is determining which businesses a firm should be active in. It may choose either related diversification approach or unrelated diversification approach or a combination of both, depending on circumstances. A concentric diversification strategy allows a company to add similar products to an already successful line of business. Diversification allows for more variety and options of products and services. Below are defined types of diversification … Five types of diversification … Depending on the applied criteria, there are different classifications. A diversification strategy achieves growth by developing new products for completely new markets. 7 – Qualities of an Auditor You Must Know, What is an Operational Audit? The three types of diversification strategies include the concentric, horizontal and conglomerate. Companies can also diversify within their own industry. Types of Diversification Strategies. Types of diversification strategies. Diversification mitigates risks in the event of an industry downturn. Horizontal diversification is typically the diversification strategy with the least amount of risk involved, as you’re working mostly within familiar customer and market segments. 1. XYZ Company had been dealing in telephone lines for years. In essence, diversification involves innovation and market disruption. This strategy allows the organizations to add a new product(s) that are not associated with the existing ones. A television manufacturer may begin producing white goods, such as refrigerators, freezers and washers or dryers. Types of Strategies: In the last chapter we have already mentioned about corporate, strategic Business Unit strategies, and functional Strategies. BBA & MBA Exam Study Online. Diversification strategies are used to extend the company’s product lines and operate in several different markets. There are six established types of diversification strategies: Horizontal diversification; Vertical diversification; Concentric diversification; Conglomerate diversification; Defensive diversification; Offensive diversification There are three types of diversification: “Diversification” – a lot of people throw that word around when it comes to the Stock Market. Published by on July 8, 2019. What Is Debt Ratios in Financial Analysis? The first strategy is used when a company wants to expand its product line to include similar products produced within the same firm, the second is used when the company wants to produce unrelated products that appeal to a similar market, the last is used when a company expands to operate in two or more unrelated industries. Sometimes when you observe that current products are declining, it would be the best option to introduce new but related products in the market. Moreover, both companies have totally different target market and competitive advantages as well as objectives. Diversification strategies can help mitigate the risk of a company operating in only one industry. Some of the guidelines are mentioned below. I agree with the statement "Moving into a totally unrelated industry is often highly dangerous, as the company’s current management is unfamiliar with the new industry." Types of Diversification Strategies. PDF | On Nov 9, 2012, Kannan Paulraj and others published Diversification-strategies for managing a business | Find, read and cite all the research you need on ResearchGate A diversification strategy is that kind of strategy which is adopted by an organization for its business development. Forward vertical diversification attempts to find advantages closer to the integration when a company is at the end of the supply chain. Three forms of diversification strategies are commonly distinguished: focused, relational and conglomerate diversification 4. But do you really know how to use it strategically? One of the primary reasons is the view held by many investors and executives that \"bigger is better.\" Growth in sales is often used as a measure of performance. It allows a company to grow by expanding market share in an existing market or by developing a market presence. The principal difference between the two is that related diversification emphasizes some commonality in markets, products, and technology, whereas unrelated diversification is based mainly on profit considerations. The company is considered to be more viable which has low limits and revenues. Conglomerate diversification takes place when a firm diversifies with another company that manufactures totally unrelated goods or services. PLEASE NOTE THAT THIS IS NOT THE FINAL ANSWER. Nowadays, it has become extremely difficult for an organization to perform in diversification mode because the scenario and market conditions have changed a lot. Concentric diversification strategies also exist in other industries, such as the food production industry. In addition to achieving higher profitability, there are several reasons for a company to diversify. Visit us to find here free business notes of all the subjects of B.com, M.com, BBA & MBA online. When an organization has ample administrative staff and capital endowment in order to strive in the new industry or business efficaciously. The diversification strategy enhanced by General Motors in the production of the Ventec Life Systems V+Pro under the contact of the US Department of Health and Human Services is the concentric diversification. This wasn’t always the case. This strategy guides us as to how we can introduce new and correlated products in the new market we are entering. The first strategy is used when a company wants to expand its product line to include similar products … Discuss some of the various means that firms can use to diversify. There are mainly three types of diversifications strategies: Concentric diversification strategy; Conglomerate diversification strategy; Horizontal diversification strategy Each strategy focuses on a specific method of diversification. Vertical Diversification. What are the pros and cons associated with each of these? For any project that respects itself, the business model, or Business Models, is a crucial point that should not be … [Read More...], The Dividend Policy in Business:- The dividend decision is one of three major corporate finance decisions, such as investment selection - choice of … [Read More...], Cash analysis is an essential part of financial analysis. Types of Diversification Strategies. Generally, the final strategy involves a combination of these options. Backward vertical diversification … THE FOLLOWING IS A SAMPLE OF HOW YOU CAN APPROACH THIS QUESTION. Types of Corporate Level Strategy – Top 2 Types: Growth Strategy and Diversification Strategy . When a company introduces a new product in the market then the revenue of the existing products upsurges considerably. For example, a computer manufacturer that produces personal computers using towers begins to produce laptop computers. Categories . The application of concentric diversification requires certain favorable conditions. For example: 1. In earlier times, there was rapid growth in the diversification of business. He laid the foundation of classic … [Read More...], Lionel Robbins turned the tables by proposing a whole new perspective of economic. If an industry experiences issues or slows down, being in other industries can help soften the impact. This is how they jointly work with ABC Company to provide cable internet access to the customers of ABC. I once took a job at a newspaper that was owned by a company that operated call centers. IF YOU WANT THE FINAL ANSWER, KINDLY PLACE AN ORDER NOW! 2. Diversification strategies allow a firm to expand its product lines and operate in several different economic markets. Discuss Cash Analysis in Business. A conglomerate diversification strategy can be effective to be followed by any organization in some situations, such as: This strategy takes place when an organization introduces a new and distinct product to the existing customers. The strategy in which an organization plans as to how to enter into a new market which the organization is not in, while at the same time creating a new product for the new market. What Is Business Model Innovation? Each company in these industries allow for a wider range of customers and the ability to diversify income opportunities when one industry's sales falter and the other does not. Wikibuy Review: A Free Tool That Saves You Time and Money, 15 Creative Ways to Save Money That Actually Work. This is dangerous if the new products do not garner the same favor as the company’s older products. Diversification strategies help companies increase their flexibility and maintain profit during sluggish economic periods. The different types of diversification strategies The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Guidelines for Horizontal Diversification. Depending on the direction of company diversification, the different types are: Horizontal Diversification. B.Com, M.Com. The percentage of risk in horizontal diversification strategy is less as compared to the conglomerate diversification strategy because the organization already knows about its existing customers. Say you’re the CEO of the Dunder Mifflin Paper Company — it might make complete sense to … He was strongly against Marshall’s definition of human welfare and … [Read More...]. Type of diversification strategy; Diversification strategy is the adoption of development processes and ways of a business in an organization. As such, it is inherently more risky than product development because by definition the organization has little or no experience of the new market. Brand loyalty may also be reduced if new management does not maintain current product quality. The technical knowledge necessary to accomplish the new task comes from its current field of skilled employees. Moving into a totally unrelated industry is often highly dangerous, as the company’s current management is unfamiliar with the new industry. A company needs to choose a path or approach to diversify its business. The three main types of diversification strategies are. More recently, research by Longboard Asset Management revealed that over the period from … Solution Summary. The different types of diversification strategies include the modernization and development of new products, updating the market, new technology licensing, distribution of products by another company and even the alliance with the said company. A ketchup manufacturer may decide to produce salsa, using its current — and very similar — production facilities for the task. This strategy of diversification refers to an entity offering new services or developing new products that appeal to the firm’s current customer base. Diversification is a strategy used to expand market share or enter new markets by launching or acquiring new products (perhaps through licensing, merger, or acquisition). To achieve this, they should not devote all their resources solely to earn more and … [Read More...], Adam Smith is termed as the father of modern economics. One of the most important aspects of this strategy that the management team of the company must be strong enough to bear the loss if any. Types of Diversification. This change can come from different causes (involuntary or voluntary) and can have … [Read More...], Any company that wishes to implement a Food Safety, Quality Management System, among others; it must go through periodic evaluation processes or internal … [Read More...], The path that companies have to travel to reach success is not easy. What are the pros and cons associated with each of these? Moreover, once you offer new but related products, the price must be reasonable as compared to competitive products in the market. But it became difficult to manage expanded activities of any organization. This week we look at the diversification decision: entering a new business. The following article throws light upon the types of corporate strategy. 7.1.1 Types of Diversification. Give Examples. Vertical Diversification – Vertical diversification is when the business finds opportunity for expansion by moving forward or backward along the production cycle. New version of the product will be capable of attracting different groups of customers other than the existing data base of buyers. The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. For example, a company named XYZ adopted a concentric diversification strategy and introduced cable lines for fast internet across the country. Diversification can clearly help a business stay afloat in tough times and grow during prosperous times. Companies can do this by purchasing or merging with another company in the desired industry. Types of Diversification Strategies; McDonalds VS Starbucks July 8, 2019. Types of Diversification Horizontal Diversification: It is a strategy in which a firms long term strategy is based on growth through acquisition of one or more similar firms operating at the same stage of the production-marketing chain. The organizations use this strategy in order to earn more profit in a way that they procure other business or firm and earn profit by breaking and selling it infractions. Types of Diversification Vertically Integrated Diversification: The form of diversification in which the firm intends to enter in the business which is associated with the firm’s present business. The types are:- 1. An example could be an iron mining company seeking to purchase the steel factories. There is nothing in common between the two companies that have not merged nor do the two have any strategy in common. It is a “big picture” view of the organisation and includes deciding in which, product or service markets to compete and in which, geographic regions to operate. The diversification strategy enhanced by General Motors in the production of the Ventec Life Systems V+Pro under the contact of the US Department of Health and Human Services is the concentric diversification. A downside to horizontal diversification strategies can be the company’s dependence on one group of consumers. Once we introduce new but related products in the market, the sale will be enhanced automatically. Its Objectives, Advantages & Disadvantages. Companies will tap into their current market share of loyal customers with products that have little or no relation to products currently sold. Generally, the final strategy involves a combination of these options. Each strategy focuses on a specific method of diversification. Guidelines for Conglomerate Diversification. This form of diversification takes place when a … Diversification strategies allow a firm to expand its product lines and operate in several different economic markets. Later they spent huge amounts and acquired cable television. He was the man behind all the basic laws of Modern Economics. Examples of related diversification include horizontal and concentric diversification strategies. Expansion/growth strategies 2. The general strategies include concentric, horizontal and conglomerate diversification. It’s easier now than ever before to get a diversified allocation to stocks through a bevy of different index funds. Diversification is one of the four alternative growth strategies in the Ansoff Matrix. If done correctly, But you need to be careful not to stray too far out of your "comfort zone" of what you know how to do well. There are certain sales patterns designed to encounter the production processes of the new products as well as the current products already available in the market. 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