CHAPTER 6

Group 10
Diversification

• Traditional definition- Diversification as presence of an organisation in different products or

markets

• Standard industry Classification (SIC), The no of industries in which an organisation was present
was captured using SIC code and understood as diversification

• New definition: Diversification depends on 3 dimensions 1. the no of businesses in which

organisation is present, 2. the revenue of these businesses to overall organizational revenues
and 3. the degree of relatedness to these businesses
Types of diversified organisations

• Single Business– organisation present in multiple businesses but a sizeable revenue is

contributed by single business

• Dominant Vertical- substantial proportion of revenue(> than 70% ) is contributed by business

that uses same raw materials

• Unrelated Business- substantial proportion of revenue(less than 70% ) is not contributed by

group of business that are even somewhat related

• Related Business- development and success of those businesses is based on an organisation’s

common pool of skills and resources
Success through diversification- Checklist

 Institutional dynamics- industry institutional framework should support the move

 Value addition in new business- internal assessment of strengths compared to competitors

 Gap in benchmarked capabilities- assess additional capabilities required to succeed

 Fulfilment of the capability gap- elimination of gaps can be time and money consuming. One
can change paradigms to eliminate the existence of gaps altogether

 Understanding capability sets- effectively redeploy the capabilities which lend competitive
advantage by coexistence

 Expected performance in new pursuit – have competitive position in new market. Use VRIN(
Valuable, Rare, Inimitable, non- substitutable) acid test to ensure success in new market
Emerging Market

Market – ease with which buyers and sellers reach out to each other

Emerging market have a few shortcomings in institutions that ensure fairness

Problems:
1. Lack of info transfer makes transactions inefficient

2. Industrial laws are guided more by political and populist considerations, this in turn reduces
organisational agility

3. Inefficient judicial / redressal system which makes contract enforcement with stakeholders
time consuming an tedious