Strategic Management

Diversification

All Copyrights:
Professor Safal Batra
Strategic Management and Entrepreneurship
Indian Institute of Management Kashipur
Diversification
 Have you heard?
Penetration?

Expansion?

Diversification?

Are they the same or different?

 What is Diversification?
Mr Ghansham Das makes wooden almirahs in
Kashipur.

Now he makes steel almirahs in Kashipur.

Is this Diversification?
 What is Diversification?
Mr Ghansham Das makes wooden almirahs in
Kashipur.

Now he makes sofas in Kashipur.

Is this Diversification?
What is Diversification
• Is Diversification good?

• Is Diversification bad?

• Is Diversification necessary?

• Is Diversification viable?
Case Discussion
• IIM Indore's five year management programme,
a big draw
• IPM is a five years program.
• IPM consists of 15 terms spread over five years,
with each year having three terms of three
months each. The broad design of the
programme includes education in natural
sciences, liberal arts, and humanities and social
sciences setting.
• “This year, we received 12,000 applications for
120 seats. That is a 1:100 ratio almost that of
Common Admission Test,” said Rishikesha T
Krishnan, director, IIM-Indore.

•  The tuition fee for the first three years is Rs 3

lakh per annum and for the next two years it is
Rs 13 lakh — a total of Rs 22 lakh. 
 Question to Ponder
Is this a good expansion?

a. If yes, should IIM Kashipur puruse it?

b. If no, why is IIM Indore continuing it?

 Benefits of Diversification
• Risk reduction

• Multiple uses of resources

• Synergies

• Credibility and size

 Benefits of Diversification
• Bargaining power

• Overcome Cyclical nature of business

• Strategic goals can be clubbed

 Issues with Diversification
• Sub-optimal strategy

• Lack of a core competence

 Issues with Diversification
• Agency problems

• Example 1 – Barber Shop

• Example 2 – Narayana Murthy vs Vishal Sikka

• Example 3 – Ratan Tata vs Cyrus Mistry

 Types of Diversification
• Vertical
• Horizontal
• Conglomerate
 Quiz
Diversification Reading
By Constantinos C Markides
10 Marks
 Q1
A successful company must know when to hold
and when to __________.
 Q2
Why did Walt Disney and Sharp corporation
succeeded in their diversification?
 Q2
Why did Walt Disney and Sharp corporation
succeeded in their diversification?

Because they leverage their core strengths in

every business and found the right partners for
the missing skills.
 Q3
If an organization does not have the strategic
assets and want to diversify, it should
____________________
 Q3
If an organization does not have the strategic
assets and want to diversify, it should
____________________

Rewrite the rules of competition

 Q4
If organizations have good strategic assets, they
need to check if the assets are ____________
for the target industry.
 Q5
Managers need to ask: Will we be players or will
we be the ______________ in the new industry?
 Q6
Managers will plan
One move ahead
Two to three moves ahead
Thirty-seven moves ahead
 Q7
A final question that managers should ask before
diversifying is:
What will we __________ by diversification?
 Q7
A final question that managers should ask before
diversifying is:
What will we __________ by diversification?

Learn
 Q8
My learning from the reading is
__________________________
The process of Strategy Planning
 What is Strategic Planning?
• A process of
– Establishing organizational objectives
– Crafting a strategy to accomplish those objectives
– Aligning other organizational activities such as
operations to accomplish the objectives
– Assess and Adjust strategy and other activities to
reduce deviation
 The Process of Strategic Planning
External Analysis
Porter’s Five Forces
Buyers
Suppliers
Internal Rivalry
Potential Entrants
Substitutes
Internal Analysis
– Resources
– Capabilities
Vision and Mission
– Mission describes what an organization wants to
do now
– Vision outlines what a company would be in future
Crafting Strategies
– What to sell
– To whom to sell
– How to sell
Executing Strategies
– Human Resources
– Operations
– Information Technology
– Finances
– Marketing
 Benefits of Strategic Planning
• SP provides a clear direction to the organization
• It helps in fostering consensus among all
stakeholders
• It offers commitment to fair and rigorous
execution of the strategies
• It enables effective communication among
employees
• It helps coordination and control of activities
 Challenges of Strategic Planning
• SP is used to justify the decisions
• SP can be too ambitious
• SP is merely a to-do exercise, and does not
involve all crucial stakeholders
• Lack of support from the top management
• Partial commitment
• Leadership
 Strategic Persistence
The Monty Hall Problem:
Suppose you're on a game show, and you're
given the choice of three doors: Behind one door
is a car; behind the others, goats. You pick a
door, say No. 1, and the host, who knows what's
behind the doors, opens another door, say No. 3,
which has a goat. He then says to you, "Do you
want to pick door No. 2?" Is it to your advantage
to switch your choice?
• Persisting with Strategies is not always a very
good idea.
• Persisting with Strategies is not always a very
bad idea.
• Strategic Flexibility is crucial for organizations
to grow and innovate.
Thank You 