PRODUCT DIVERSIFICATION

The meaning of the word diversification is very simple. As soon as a manufacturer offers more than one product, it is described as product diversification.  Diversification implies that a company has moved from one product item to marketing more than one product. Generally, diversification is categorised into two types:

1. Related Diversification and

2. Unrelated Diversification.  

Where the new products introduced in the product mix are similar to the existing product, diversification is described as 'related'. When a company accepts new products which are very different from the existing products, the diversification is said to be ‘unrelated'.

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DIVERSIFICATION

WHAT IS DIVERSIFICATION ? TYPES OF DIVERSIFICATION AND WHY DIVERSIFICATION ? 

DIVERSIFICATION :

 

Diversification involves moving into new lines of business. When an industry consolidates and becomes mature, most of the firms in that industry would have reached the limits of growth using vertical and horizontal growth strategies. If they want to continue growing any further the only option available to them is diversification by expanding their operations into a different industry. Diversification strategies also apply to the more general case of spreading market risks: adding products to the existing lines of business can be viewed as analogous to an investor who invests in multiple stocks to “spread the risks”. Diversification into other lines of business can especially make sense when the firm faces uncertain conditions in its core product-market domain. 

While intensification limits the growth of the firm to the existing businesses of the firm, diversification takes it beyond the confines of the current product-market domain to uncharted and unfamiliar products- market territory. In other words, this strategy steers the organization away from both its present products and its present market simultaneously. Of the various routes to expansion, diversification is definitely the most complex and risky route. Diversification approach to expansion is complex since it seeks to enter new product lines, processes, services or markets which involve different skills, processes and knowledge from those required for the current business. It is risky since it involves deviating from familiar territory: familiar products and familiar markets. 

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EXPANSION STRATEGIES

EXPANSION STRATEGIES

 

Every enterprise seeks growth as its long-term goal to avoid annihilation in a relentless and ruthless competitive environment. Growth offers ample opportunities to everyone in the organization and is crucial for the survival of the enterprise. However, this is possible only when fundamental conditions of expansion have been met. Expansion strategies are designed to allow enterprises to maintain their competitive position in rapidly growing national and international markets. Hence to successfully compete, survive and flourish, an enterprise has to pursue an expansion strategy. Expansion strategy is an important strategic option, which enterprises follow to fulfil their long-term growth objectives. They pursue it to gain significant growth as opposed to incremental growth envisaged in stability strategy. Expansion strategy is adopted to accelerate the rate of growth of sales, profits and market share faster by entering new markets, acquiring new resources, developing new technologies and creating new managerial capabilities. 

 

Expansion strategy provides a blueprint for business enterprises to achieve their long term growth objectives. It allows them to maintain their competitive advantage even in the advanced stages of product and market evolution. Growth offers economies of scale and scope to an organization, which reduce operating costs and improve earnings. Apart from these advantages the organization gains a greater control over the immediate environment because of its size. This influence is crucial for survival in mature markets where competitors aggressively defend their market shares.
 

Conditions for Opting for Expansion Strategy 

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PROCESS OF STRATEGY

THE PROCESS OF STRATEGY

 

The process of strategy is cyclical in nature. The elements within it interact among themselves. Figure-1 present the process for single SBU firm. The process has to be adjusted for multiple SBU firms because there it is conducted at corporate level as well as SBU levels as these firms insert SBU strategy between corporate strategy and functional strategy. Initially, the process of strategy was discussed in terms of four phases which are:

 

1.   Identification phase

2.   Development phase

3.   Implementation phase

4.   Monitoring phase 

The process of strategy does not have the same steps as stated by different authors. 

According to C.K. Prahalad, the process comprises of five steps. They are: 

1.   Strategic Intent

2.   Environmental Analysis

3.   Evaluation of strategic alternatives and choice

4.   Strategy Implementation

5.   Strategy Evaluation and Control 

For our understanding, the process has been divided into the following steps: 

1.   Strategic Intent

2.   Environmental and Organizational Analysis

3.   Identification of Strategic Alternatives

4.   Choice of Strategy

5.   Implementation of Strategy

6.   Evaluation and Control

 

FIG-1 : STRATEGIC PROCESS 

 

 

 FIG-1 : Strategic Process in a Single SBU Firm

 

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