• Types of diversification strategy with examples

    Types of diversification strategy with examples

    Types of Growth Strategies

    Corporate strategy is the strategy a firm uses to compete across multiple businesses. Many small firms want to grow by entering new businesses. Many large firms already are in multiple businesses, e. We developed this course to help you make good corporate strategy decisions.

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    Of the many decisions a firm has to make, corporate strategy decisions are among the most consequential. We will look at these key corporate strategy decisions: - Diversification: How and which businesses should your firm enter?

    What is Diversification Strategy? (Definition and Examples)

    Great course, very clear explanations. Would highly recommend! The textbook is also very informative and anyone taking a strategy course would benefit from reading it.

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    Excellent and simple module to understand how multi-business firms should strategise. Highly recommendedespecially to understand latest methods of decision making. Welcome to week 2!

    A key decision in corporate strategy is determining which businesses a firm should be active in. This week we look at the diversification decision: entering a new business. If you get stuck on the quiz or assignment, you should post on the Discussions to ask for help.

    And if you finish early, I hope you'll go there to help your fellow classmates as well. Loupe Copy. Corporate Strategy. Enroll for Free. From the lesson. Examples of Diversification Taught By.Diversification strategy probably takes place, when company or business organizations introduce a new product in the market. These strategies are known as diversification strategies. There are three types of diversification strategies.

    Diversification strategy actually minimizes the risk of loss in a business by splitting different categories of products in different markets geographically. But with the passage of time it became difficult to manage much diversified activities of business organization.

    Even in recent years it is quite hard for any business organization to operate in diversification mode because there are a lot of different requirements that must be taken into account by the business organization.

    The introduction of new but related products in the new markets is considered as concentric diversification strategy. Guidelines for Concentric Diversification:. There are certain conditions that are favorable for the application of concentric diversification strategy. For this purpose following are some of the guidelines that specify the effectiveness of the concentric diversification strategy.

    Diversification strategies include conglomerate diversification in which new products are added in the pool of the business organization that are not related to the existing ones. Guidelines for Conglomerate Diversification:. In certain situations the conglomerate diversification strategy becomes effective enough to be pursued by the organization.

    Following are some of the guidelines which are feasible for this strategy.

    The guide to diversification

    Horizontal diversification strategy is less risky than conglomerate diversification because of the fact that the current customers of the organization are already exposed. Guidelines for Horizontal Diversification :. There are certain situations where the horizontal diversification strategy is much effective by the organization. Following are some of the guidelines in this regard. Like this: Like LoadingWhile there are many ways to grow business, a common way that companies achieve growth that you may want to consider is diversification.

    Diversification is a strategy for growth through branching out into a new market segmentallowing your business to expand its presence and occupy a totally new space. This is achieved through expanding or diversifying your product or service offering to target new customers and grow profits. There are six established types of diversification strategies:. Some well-known examples of horizontal diversification include:. Vertical diversification also referred to as vertical integration, entails a growth strategy where the company expands its product line through a forward or backward integration of products within its existing supply chain.

    Both of the above examples illustrate backward integration. An example of forward integration would be a toy manufacturer acquiring or opening a toy store.

    Vertical diversification has a number of benefits, including:.

    types of diversification strategy with examples

    Therefore, you are expanding your market share within the market your company already operates in. Concentric diversification allows you to leverage your existing brand recognition, customer base, and loyalty, resources, and distribution channels. This type of diversification aims at generating additional revenue from your existing customers, while also attracting new customers who may have been interested in your other products but are more swayed by your newer products.

    An example of concentric diversification would be if a smartphone company began selling smartwatches i. The benefits of conglomerate diversification are high ROI and high growth due to the addition of an entirely new revenue stream in a totally separate market.

    An example of conglomerate diversification would be a clothing company branching out into toys.

    Diversification Strategies: Related and Unrelated Diversification

    Defensive and offensive diversification are terms that have more to do with why a company wants to diversify, rather than how. Offensive diversification, on the other hand, occurs when a company is aggressively seeking to grow its profits and market share through diversifying its product or service line in order to enter new markets and capture more customers.

    While defensive diversification is a means to stay in business, offensive diversification is a means for a successful, thriving company to grow even further. Diversification has been used by some of the most successful companies around the globe, including Apple, Google, Starbucks, and more.

    Diversification is just one of many different ways to create growth for your business. If well thought out and done right, it can pay off substantially for a company and cement a position as a highly competitive market player. So, make sure you analyze both the potential risks and benefits, as well as determine which type of diversification would be best for your business before you consider implementing this strategy.As a result, you never hate your portfolio.

    But how does one build a diversified portfolio? There is more than one way to diversify after all. Source: Longboard Asset Management. Just like getting a mix of individual companies is an important way to diversify your portfolio, having a balance across the multiple different industries in the economy is important too.

    The chart shows in those living in the West tend to overweight Technology, as many are familiar with the tech companies based here or are directly working in the industry.

    Different assets Stocks, Bonds, Cash, Real Estate, Commodities are going to perform differently in various economic environments. For example, during an economic recovery stocks will likely perform well while in a recession bonds provide protection.

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    Commodities, TIPS or cash, can protect against the forces of inflation while during a deflationary environment long-term bonds are often the best investment. Within asset classes there are different strategies to get the exposure—many of these different strategies also called factors, risk factors, smart beta, etc. However, the research also shows a benefit to diversifying internationally. As author Jonathan Clements wrote last month :. What if the U. It strikes me as improbable.

    But it will reduce risk—and potentially save you from financial disaster. Just like with asset classes or strategies no one economic region is going to consistently outperform.

    Best to have a mix. So, there you have it—six ways to diversify your portfolio. What do you think? Is your portfolio fully diversified? Click here for disclosures regarding information contained in blog postings. Cordant, Inc.

    types of diversification strategy with examples

    Average rating 3. Vote count: No votes so far! Be the first to rate this post. At Cordant Wealth Partners, we specialize in comprehensive wealth management for individuals, busy professionals and business owners with the goal of helping every client live their best life.

    Our team approach means you benefit from skilled financial advisors who manage wealth holistically and personally.Understand the differences between related diversification and unrelated diversification before you invest.

    To diversify in your business, your markets, or your products can be costly; therefore, invest in an efficient diversification strategy. A diversification analysis needs to demonstrate, and support, that the business will achieve a return on the investment that more than compensates for the risk and the cost. It is when a business adds or expands its existing product lines or markets. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification.

    With a related diversification strategy you have the advantage of understanding the business and of knowing what the industry opportunities and threats are; yet a number of related acquisitions fail to provide the benefits or returns originally predicted. It is usually because the diversification analysis under-estimates the cost of some of the softer issues: change management, integrating two cultures, handling employees.

    And on the other side, the diversification analysis might over-estimate the benefits to be gained in synergies. It is when a business adds new, or unrelated, product lines or markets.

    types of diversification strategy with examples

    For example, the same phone company might decide to go into the television business or into the radio business. This is unrelated diversification: there is no direct fit with the existing business. Why would a company want to engage in unrelated diversification? Because there may be cost efficiencies.

    types of diversification strategy with examples

    Or the acquisition might provide an offsetting cash flow during a seasonal lull. The driver for this acquisition decision is profit; it needs to be a low risk investment, with high potential for return. New markets and new products or services are usually good diversification opportunities; but consider these opportunities in the context of integrating benefits into a much stronger overall unique value proposition.

    For example, if you are a commercial printer and you add basic graphic design services and packaging services to your product line, you will have a leveraged diversification opportunity. You will have saved your client time and money by enabling the client to 'shop' in one-stop providing you can excel at delivering those services.

    If you are prepared and able to invest in your business during either good or challenging times, make sure that you develop business performance measures to track the costs and the benefits expected?

    You need to ensure that the advantages of diversification and the expected benefits from investment are met as you planned. Ensure that you build those business measures, set up reporting even if it's a manual processand make sure that someone is accountable for the planned results. Understanding the advantages and disadvantages of unrelated or related diversification strategies is important to the growth of your business. Review the criteria required to build a Value Chain Analysis for your business.

    Understand the importance of Small Business Strategy and the relationship of Vertical Mergers to growing your business. Because it enables you to more clearly understand what you need to do to more your operation in the direction you need, and want, to go. Doing a thorough analysis and review will enable you to implement more effective strategies, tactics and techniques. The type of tactical planning you complete as you strategize is important because it forces you to make difficult choices and difficult decisions.

    Make sure you understand the definition business model - the practices, and focus, of the business on delivering the value proposition - to engage in a strong and successful strategic planning process.

    Also write down your choices and decisions to plan the actions necessary to move forward use samples to provide you with a model for your own action plan.

    Once you begin this planning process you will need to ensure that the plan you develop is do-able; make sure you include effectiveness measures in your plan. And remember that your plan for strategy in business needs to be reviewed on a regular basis and be adapted as market and economic conditions change. The end goal is not the plan but rather the results therefore make sure you have measurements in place to track results. Add aspirations and results to the SWOT some do SOAR strengths, opportunities, aspirations, and results as a separate activity to ensure that your vision for your business is incorporated in your goals and objectives.

    You can reach us through our contact page or request a quote for services here. Business Networking Techniques that Work. Order Now. Related Diversification or Unrelated Diversification:. More-For-Small-Business Newsletter: For more timely and regular monthly information on managing your small business, please subscribe here. Email Name Then Don't worry -- your e-mail address is totally secure.

    Diversification strategy with Example - Urdu / Hindi

    I promise to use it only to send you More Business Resources.Everything you need to know about the types of growth strategies. A growth strategy is one that an enterprise pursues when it increases its level of objectives upward, much higher than an exploration of its past achievement level. The most frequent increase indicating a growth strategy is to raise the market share and or sales objectives upward significantly.

    Growth Strategy is pursued to reduce the cost of production per unit. Growth strategies involve a significant increase in performance objectives. These strategies are adopted when firms remarkably broaden the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other. Growth strategy can be adopted in the form of expansion, vertical integration, diversification, merger, acquisition and joint venture.

    The basic objective in all these cases is growth but the basic problem in each case is significantly different which needs more elaborate discussion. Internal Growth Strategy 2. External Growth Strategy 3. Internationalization Expansion Strategy.

    Intensive Growth Strategy 9. Integrative Growth Strategy Diversification Growth Strategy. The internal growth of an organization is possible by expanding operations through diversification, increase of existing capacity, market growth strategies etc.

    Intensive Growth Strategies :. The basic classification of intensive growth strategies:. A firm pursuing market penetration strategy directs its resources to the profitable growth of a existing products in current markets. It is the most common form of intensive growth strategy. The firm try to increase market share for present products in current markets through increase of marketing efforts like increase of sales promotion and advertising expenditure, appointment of skilled sales force, proper customer support and after sales service etc.

    This strategy involves introducing present products or services into new geographic areas. The marketing efforts are made on existing products, to customers in related market areas, by adding different channels of distribution or by changing the current content of the advertising and promotional efforts.

    The market development can be achieved in any of the following ways:. In market development strategy, a firm seeks to increase the sales by taking its product into new markets. This strategy involves the growth of market through substantial modification of existing products or creation of new but related products that can be marketed to current customers through established channels.

    A company can increase its current business by product improvement or introduction of products with new features. Integrative Growth Strategies :. The integrative growth strategies are designed to achieve increase in sales, assets and profits.

    There are basically two variants in integrative growth strategy which involves:. When two or more firms dealing in similar lines of activity combine together then horizontal integration takes place. Many companies expand by creating other firms in their same line of business. When the combination of two or more business units existing and created results in greater effectiveness and efficiency than the total yielded by those businesses, when they were operated separately, the synergy has been attained.

    The reasons for horizontal integration are as follows:.When a company reaches a certain point in its evolution, founders, investors, and executives often think about planning and implementing a growth strategy, such as diversification.

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    Diversification strategy is one of the four main strategies for growth identified by Igor Ansoff inwhich enables companies to look at other markets they could tap into, or new products they could launch to increase their reach and revenue.

    Ansoff proposed that there were only four basic growth alternatives available to a business. He claimed that as a corporate strategy, a business can grow through increased market penetrationmarket developmentproduct development, or diversification. The Ansoff matrix is a widely used strategic planning tool that provides a simple, yet effective framework to help companies plan and implement an effective growth strategy.

    As the image above clearly shows, diversification strategy is defined by adding new products in new markets. But, what is diversification strategy really and what specifically makes it an ideal business growth strategy? We take a look at the different examples of this particular strategy, identify when and why it may be an ideal growth strategy to implement, and show the potential impact it can have on a business.

    Diversification strategy, as we already know, is a business growth strategy identified by a company developing new products in new markets. First and foremost, companies diversify to achieve greater profitability. This is achieved by adding new products, services, or features that will appeal to the customers in these new markets.

    By expanding their reach and appeal, businesses are able to explore new avenues for sales, and in turn, have the potential to vastly increase their profits. In addition to achieving higher profitability, companies choose to diversify for a variety of other reasons.

    For instance, diversification can also allow a company to minimize the risk of an industry downturn, it can boost brand image, and it can also be used as a defense mechanism to protect a company from strong competition. On the other hand, diversification strategy is not without its downsides.

    Out of the four growth strategies proposed by Ansoff, diversification is not only the riskiest but also the most complex.

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    When a company chooses to diversify, they knowingly put themselves in a position of great uncertainty. Additionally, diversification often requires significant expansion of human and financial resources, which can sometimes have a detrimental effect on the allocation of resources in the core industries.

    For these reasons, it is recommended that a company should only pursue a diversification strategy when the current product or current market no longer offers opportunities for further growth. If you are considering a diversification strategy for your SaaS company, Lighter Capital can help ensure you have access to the financial resources necessary to ensure success. To learn more about our financing options, take a look at our side by side product comparison or simply apply now to get in touch with one of our financing specialists to help you determine which option is best for your company.

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