DIVERSIFICATION

STRATEGY
 Corporate Expansion

Intensification Strategy

DIVERSIFICATION
STRATEGY
ANSOFF MATRIX
 New Market

 New Product
Diversification
 Advantages:

 Advantages achieved through:

 Shared resources
 Experience
 Competencies
 Technologies and
 Other value creating factors
Disadvantage:

 Risky when compared to other intensification

strategies.
 Why and When?

 Become matured in current business/industry –

Searching for new business.
 For survival – going for NPD.
 Reducing risk – being in the particular industry –
Spreading risk.
 Capitalizing the competitive advantage –
Concentric.
 Why and When?

 Better asset management – well diversified.

 To seize the new opportunity – starting new
business.
 Better capacity utilization
 Adding value to the investor.
 Seeking Growth in the bottom line.
Types of Diversification:

 Related (or) Concentric

 Unrelated (or) Conglomerate

 Related (or) Concentric:

 Firm is in strong competitive position but industry

attractiveness is low.
 To achieve greater value creation (Profitability /
stock value)
 Expansion in related industry.
 Suitable for firms having distinctive competencies.
 Manufacturing new product / service from different
industry for the same technology/ marketing/
customer and
 Employing similar technology to product new
products.
 Related (or) Concentric:

Special advantage from factors like

 Technology
 Customers
 Distribution
 Location
 Product or Manufacturing similarities
 Related (or) Concentric:

 Two types:

 Constrained (or) Controlled Diversification

 Linked Diversification
 Constrained Related Diversification:
 To diversify into products which are all closely
related to the main product line as well as to each
other.
 The new businesses are closely related to the core
business by common technology or markets.

1 2

Base New Core

business

3 4
 Linked Related Diversification:
 The company’s different product lines are not
related to the core business, rather each product or
business is linked to other product line as in a chain.
 The linkages between different business are in
general weak and only based on a business
relationship.
1

2
Base
business
3
 Unrelated (or) Conglomerate:

 Industry attractiveness is low & firm lacks in capabilities.

 Expansion in unrelated industry.
 New product / new market with different technology
 Conglomerates diversity their businesses ride through
profit gained by profit centers in various lines of
business.
 Seizing the early business opportunities.
 More risk than concentric.
 Harmonize the spread over life cycles.
 RATIONALE FOR DIVERSIFICATION:

 Economies of scale & scope (Synergy)

 Widen market base & enhance market power (HP, TATA,
IBM & Ranbaxy) thru collaboration & acquisition.
 Profit Stability
 Improved financial performance
 Growth
 Counter competitive threats (By merger)
 Access to latest technology (For R&D)
 Regulatory factors.
 Alternate routes for Diversification:

1. Mergers and Acquisitions

2. Strategic Partnering

 Joint ventures
 Long term Contracts

 Strategic Alliances

 Take over
 Diversification Synergies:

 Production Synergy – Higher capacity utilization

 Marketing Synergy – Ad, Sales and distribution

 Financial Synergy – Better asset management

 Organizational Synergy – Man power utilization

Options open to Management:
(Planned Diversification)

 Stand still
 Sail with the wind

 Go on moving in the same direction

 Moving in the new direction