What is related diversification?
Related diversification occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries (Figure 8.1). Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification.
Related linked diversification strategy. Is where the firm with a portfolio of businesses have only a few links between them. Share fewer resources and core competencies between them then related constrained firms.
Unrelated Diversification. Involves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firm's present business(es) Unrelated Diversification involves. No strategic fit. No meaningful value chain relationships.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.
Which of the following is the best example of related diversification? stem from cost-saving strategic fits along the value chains of related businesses.
Related diversification helps companies move into a market that closely connects to their existing operations. Through this strategy, companies can increase the potential to increase their benefits. If companies operate independently, they may not achieve the same results.
Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities).
- Concentric diversification. Concentric diversification involves adding similar products or services to the existing business. ...
- Horizontal diversification. ...
- Conglomerate diversification.
Unrelated diversification can create value through two types of financial economies: efficient internal capital market allocation and restricting a firm's assets.
What makes related diversification an attractive strategy? the opportunity to convert cross-business strategic fits into a competitive advantage over business rivals whose operations do not offer comparable strategic fit benefits. Economies of scope.
What does unrelated diversification provide?
The benefits of unrelated diversification are rooted in two conditions: (1) increased efficiency in cash management and in allocation of investment capital and (2) the capability to call on profitable, low-growth businesses to provide the cash flow for high-growth businesses that require significant infusions of cash.
Which of the following is the best example of unrelated diversification? A producer of mens apparel acquiring a maker of golf equipment.
The firms can create value by using related diversification strategy through operational relatedness and corporate relatedness. Under operational relatedness the firm share its activities; whereas, under corporate relatedness the firm relocate its core competencies.
A way in which a firm uses related diversification to create value for its customers by extending resources and capabilities across its businesses is called: economies of scope.
Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification? The company has superior strategic management and organizational design.
Related diversification occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries. Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification.
Answer and Explanation: 1) Which of the following is an example of diversification : The correct answer is e) Market expansion.
Which of the following is an important appeal of a related diversification strategy? Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another.
| Advantages | Disadvantages |
|---|---|
| 1. Risk management2. Align with your goals3. Growth opportunity | 1. Increases chances of mistakes2. Rules differ for each asset3. Tax implications & cost of investment4. Caps growth |
A company is likely to choose related diversification when it wants to benefit from transferring competences, leveraging competences, sharing resources and/or bundling resources.
What major disadvantage can a firm encounter with related diversification?
- Entities entirely involved in profit-making segments will enjoy profit maximization. ...
- Diversifying into a new market segment will demand new skill sets. ...
- A mismanaged diversification or excessive ambition can lead to a company over expanding into too many new directions simultaneously.
- Concentric diversification.
- Horizontal diversification.
- Conglomerate diversification (or lateral diversification)
The Walt Disney Company (Disney) utilizes a related diversification strategy. Related diversification “involves diversifying into businesses whose value chains possess competitively valuable 'strategic fits' with value chain(s) of [a] firm's present business(es)” (Geiger, 2004).
Regarding the type of diversification, our main results show that related diversification is more value-creating than non-related diversifica- tion is, and that non-related diversification is more likely to turn into a value-destroying strategy at lower levels than related diversification.
While vertical integration involves a firm moving into a new part of a value chain that it is already within, diversification requires moving into an entirely new value chain. Many firms accomplish this through a merger or an acquisition, while others expand into new industries without the involvement of another firm.
- Horizontal Diversification. ...
- Vertical Diversification. ...
- Concentric Diversification. ...
- Conglomerate Diversification. ...
- Defensive Diversification. ...
- Offensive Diversification.
There are four most often cited reasons for diversification: the internal capital market, agency problems, increased interest tax shield and growth opportunities.
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities. 15. An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.
The two biggest drawbacks or disadvantages of unrelated diversification are: A. the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense.
A company is diversified when it is in two or more lines of business. Companies pursue unrelated diversification strategy when they enter into a new activity that has no obvious similarities with any of the company's existing activities.
Which of the following most accurately defines related businesses?
Which of the following most accurately defines related businesses? The businesses use an overlapping marketing strategy targeting essentially the same customer groups. The businesses depend on the same set of suppliers for key materials and inputs.
Which of the following makes acquisition an attractive approach to diversifying into another industry? the presence of cross-business value chain relationships and strategic fits.
In terms of strategy making, what is the difference between a one-business company and a diversified company? A. The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy.
Understanding related diversification
While unrelated diversification involves going into markets that are not connected to the firm's prior activities, related diversification specifically tries to move to areas that the firm already has some strengths.
Many companies avoid unrelated diversification as a general business rule because of the lack of synergy that exists. When you have related diversity, you can more easily integrate your company brand, philosophies, resources and partnerships to take full advantage.
The rationale behind most conglomerate diversifications is that expanding into unrelated areas has great potential. Typically, corporate strategists look for organizations that meet certain characteristics, such as: Whether or not the organization will be able to reach its profit and return on investment targets.
Related diversification occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries (Figure 8.1). Because films and television are both aspects of entertainment, Disney's purchase of ABC is an example of related diversification.
One of the key advantages of related diversification is the ability to share key resources across different areas. Key resources and capabilities of the firm can be utilized in a new area – potentially giving the firm a competitive advantage relative to other firms that may not pose comparable resources.
Which of the following is the best example of related diversification? A producer of snow skis and ski boots acquiring a maker of ski apparel and accessories (outerwear, goggles, gloves and mittens, helmets and toboggans). stem from cost-saving strategic fits along the value chains of related businesses.
Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities).
What key factors need to be considered when a firm is considering diversification?
- Financial sense. Many people believe in taking more significant risks to achieve higher returns and hence step into diversification. ...
- Core competencies of the firm. ...
- Evaluating the assets. ...
- The right expertise and resources.
Diversification is a risk-reduction strategy used by businesses to help expand into new markets and industries and achieve greater profitability. This can be attained by diversifying new products and services in new markets, targeting new customers and increasing profitability.
It aims to minimize losses by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.
Why would an organization seeking to expand through diversification succeed more often by entering similar businesses? It is seen as posing fewer risks, because it involves comparatively similar businesses of which the leaders would have relevant knowledge.
Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.
The firms can create value by using related diversification strategy through operational relatedness and corporate relatedness. Under operational relatedness the firm share its activities; whereas, under corporate relatedness the firm relocate its core competencies.
3. Conglomerate diversification. Conglomerate diversification involves adding new products or services that are significantly unrelated and with no technological or commercial similarities. For example, if a computer company decides to produce notebooks, the company is pursuing a conglomerate diversification strategy.
Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities).
- Concentric diversification.
- Horizontal diversification.
- Conglomerate diversification (or lateral diversification)
Concentric diversification refers to the development of new products and services that are similar to the ones you already sell. For example, an orange juice brand releases a new “smooth” orange juice drink alongside it's hero product, the orange juice “with bits”.
What are the different types of diversification?
- Concentric diversification. Concentric diversification involves adding similar products or services to the existing business. ...
- Horizontal diversification. ...
- Conglomerate diversification.
A company is likely to choose related diversification when it wants to benefit from transferring competences, leveraging competences, sharing resources and/or bundling resources.
Diversification is risky. It entails decision risk (choice and means of diversification may be wrong), implementation risk (structure, processes, systems, leadership, talent may be inadequate) and financial risk (the return to stockholders may be considerably reduced.)
Which of the following is the best example of unrelated diversification? A producer of mens apparel acquiring a maker of golf equipment.
Most unrelated diversification efforts, however, do not have happy endings. Harley-Davidson, for example, once tried to sell Harley-branded bottled water. Starbucks tried to diversify into offering Starbucks-branded furniture. Both efforts were disasters.
The firms can create value by using related diversification strategy through operational relatedness and corporate relatedness. Under operational relatedness the firm share its activities; whereas, under corporate relatedness the firm relocate its core competencies.
- Horizontal Diversification. ...
- Vertical Diversification. ...
- Concentric Diversification. ...
- Conglomerate Diversification. ...
- Defensive Diversification. ...
- Offensive Diversification.
Answer and Explanation: 1) Which of the following is an example of diversification : The correct answer is e) Market expansion.
Diversification is a risk-reduction strategy used by businesses to help expand into new markets and industries and achieve greater profitability. This can be attained by diversifying new products and services in new markets, targeting new customers and increasing profitability.
The Walt Disney Company (Disney) utilizes a related diversification strategy. Related diversification “involves diversifying into businesses whose value chains possess competitively valuable 'strategic fits' with value chain(s) of [a] firm's present business(es)” (Geiger, 2004).
Which type of strategy is diversification strategy?
A diversification strategy is a method of expansion or growth followed by businesses. It involves launching a new product or product line, usually in a new market. It helps businesses to identify new opportunities, boost profits, increase sales revenue and expand market share.
Diversification is a strategy used to expand market share or enter new markets by launching or acquiring new products (perhaps through licensing, merger, or acquisition). It allows a company to grow by expanding market share in an existing market or by developing a market presence.
Diversification aims to maximize returns by investing in different areas that would each react differently to the same event.
