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Strategies of Diversification

The document discusses strategies for diversification. It outlines four basic growth alternatives for businesses: increased market penetration, market development, product development, and diversification. The reasons companies diversify include compensating for technological obsolescence, distributing risk, utilizing excess capacity, and re-investing earnings. There are three main types of diversification: vertical, horizontal, and lateral. A company considering diversification must evaluate opportunities using qualitative and quantitative criteria and determine how to integrate new ventures into their existing operations. Careful long-term planning is essential for developing an effective diversification strategy.

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54 views3 pages

Strategies of Diversification

The document discusses strategies for diversification. It outlines four basic growth alternatives for businesses: increased market penetration, market development, product development, and diversification. The reasons companies diversify include compensating for technological obsolescence, distributing risk, utilizing excess capacity, and re-investing earnings. There are three main types of diversification: vertical, horizontal, and lateral. A company considering diversification must evaluate opportunities using qualitative and quantitative criteria and determine how to integrate new ventures into their existing operations. Careful long-term planning is essential for developing an effective diversification strategy.

Uploaded by

sushant ahuja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Strategies For Diversification

By H.Igor Ansoff
- Submitted by Group 1: 190103155 Sushant Ahuja
190103177 Arpit Bapna
190103190 Sangh Vijay
190103183 Sahil Mittal
190103176 Anurag Kumar
190103192 Siddhant Kankrej
1 190103188 Pritish Chaddha

A study of diversification histories shows that a firm usually arrives at a decision to make a
particular move through a multistep process.This discussion has been devoted primarily to
selection of a diversification strategy. There are four basic growth alternatives open to a
business. It can grow through increased market penetration, through market development,
through product development, or through diversification.

One of the aims of this article was to relate diversification to the overall growth perspectives
of management, establish reasons which may lead a company to prefer diversification to
other growth alternatives, and trace a relationship between over-all growth objectives and
special diversification objectives

The term "diversification" is usually associated with a change in the characteristics of the
company's product line and/or market, in contrast to market penetration, market development,
and product development, which represent other types of change in product-market structure.

- Market penetration

- Market development

- Product development

- Diversification

Reasons for diversification


Companies diversify to compensate for technological obsolescence, to distribute risk, to
utilize excess productive capacity, to re- invest earnings, to obtain top management, and so
forth. In deciding whether to diversify, management should carefully analyse its future
growth prospects. It should think of market penetration, market development, and product
development as parts of its over-all product strategy
Factors For Diversification
1)Long-Term Trends

A standard method of analysing future company growth prospects is to use long-range sales
forecasts.

2)Contingencies

These are certain environmental conditions which, if they occur, will have a great effect on
sales. However, we cannot predict their occurrence with certainty.

Diversification Opportunities
1)Vertical diversification is also known as vertical integration. In this growth strategy, a
company expands its business in the forward or backward direction. Firms add new products
(or services) complementary to the existing products

2)Horizontal Diversification - I in this type ,the company adds new products or services that
are often technologically or commercially unrelated to current products but that may appeal
to current customers. This strategy tends to increase the firm's dependence on certain market
segments.

3)Lateral Diversification -The introduction of a new product not related to the current range
of market and existing customer groups (usually without any synergies).
Lateral diversification creates new chances and opportunities for development. The choice of
such a strategy results in a so-called mergers, linking of not related industries, which often
lead to the creation of conglomerates.

We used two criterions that management should apply for individual opportunities

Two steps should be taken:

(1) Apply the qualitative standards to narrow the field of diversification opportunities;

(2) Apply the numerical criteria to select the preferred strategy or strategies.

A company planning diversification must consider such questions as how the company
should organize to conduct the search for and evaluation of diversification opportunities;
what method of business expansion it should employ ,and how it should mesh its operations
with those of a subsidiary. These considerations give rise to a new set of criteria for the
lousiness fit of the prospective venture.
Only through further careful consideration of probable business success can a company
develop a long-range strategy that will enable it to "run twice as fast as that" (using the Red
Queen's words as stated in the reading) in the ever-changing world of today.

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