Strengths And Weaknesses Of Diversification †MyAssignmenthelp.com

Question: Discuss about the Strengths And Weaknesses Of Diversification. Answer: Introduction Diversification is a strategy which is used for the purpose of expansion of business in the existing marketplace or in the other fields of market. Primary aim of implementation of this strategy is to enter into a new market with a new product or service or launching the existing product by adding unique and attractive features for the purpose of re-launching in the existing market. This strategy sometimes acts as the part of defensive and offensive set of strategies. It is one of growth strategies described under Ansoff Matrix model. The statement Diversification is a perfectly logical development, ensuring the rationale and efficient use of resources defines that diversification is implemented in the workplace with the objective of ensuring success and growth (Aspara, et. al., 2011). When a business enters into a new market, lot pf challenges and opportunities comes which needs to be faced in an effective manner so that desired goals could be acquired. For the same purpose, diversif ication strategy is implemented in the workplace. In this essay, several aspects of the diversification, its correlation with the other aspects of Ansoff Matrix framework will be covered. Along with this, strengths and weaknesses of diversification strategy will be covered. Further, tools which describe relation between external business environment and diversification will also be discussed. Concept of diversification and types of diversification Concept of Diversification Diversification is a risky section of Ansoff Matrix as business organizations does not have much experience in the new market, thus, the chances of products succession are very less. Ansoff Matrix has defined four growth strategies i.e. market penetration, product development, market development and diversification. As per Ansoff, diversification strategy is unique and distinct from other three growth strategies because the risk level is pretty high in diversification. The first three strategies are applied in the workplace with the help of existing technical, financial and merchandising resources which company already using for its existing product line. But in case of diversification, organization requires to adopt new set of strategies along with new technological and facilities. Acquisition of new skills and knowledge is also required in adaptation of diversification strategy with the objective of successful expansion of business in new markets with new products (Kumar, Gaur Pat tnaik, 2012). Before implementing diversification strategy in the workplace, organization is required to conduct market research and related strategies so that the target customers needs, market environment, competitors involved in the industry, strategies used by them, etc. elements needs to be considered. This helps the organization to introduce and promote new products in new marketplaces with the objective to gain success and growth. Product diversification is a concept under which new products and existing products are being manufactured and promoted in new marketing conditions so that business could be expanded. Various companies have also adopted the method of expansion of existing product line under which a new product is being launched related to the existing product (Villarreal, Cusimano Renner, 2015). For example, tooth paste manufacturing firm launches tooth brushes and tooth powers under the same brand name. Companies also use product extension and brand extension in order to uplift sale volumes and the number of customers with the objective of increase market share in the target or in new market (Whittington, 2014). Types of diversification In order to establish a sustainable competitive advantage in the target market along with implementing the differentiation strategy, it is required to make a clear understanding regarding differentiation strategy. The rationales on which differentiation strategy is implemented in the workplace are customer needs, quality of product and services and competitors. Product differentiation has various approaches and this is carried out at workplace with the core business objective of gaining competitive advantage through adding unique features in their existing products or by launching totally different product for making a separate image from its competitors. There are various means through which product differentiation could be carried out in a business such as product differentiation, image differences, service differentiation and many more (Martin, et. al., 2012). Through adaptation and implementation of differentiation strategy within workplace, organization could gain success and gr owth by using the existing brand value which will help them to successfully launch the product in the new market along with avoiding the direct confrontation with the competitors. Therefore, it could be said that differentiation is an effective strategy through which companies could earn sufficient amount of profits by utilising the available industrial resources (Zhou, 2011). Following are certain types of diversification: Horizontal Diversification: Approaching to the different target market through launching unique products and services which are unrelated with the existing product line of the organization is known as horizontal diversification (Park Jang, 2013). For instance, PepsiCo diversify its products through launching an energy drink. This type of diversification is also known as related diversification because companies diversify their offerings related to their existing product lines. Vertical Diversification: Under this type of diversification, company starts from the initial stage of its existing product line in order to make improvise existing products and services (Chioda, et. al., 2011). For example, a reconstruction company starts selling paints. Concentric Diversification: Available technologies and marketing system of an organization are fully utilised with the motive of enlarging the production portfolio (Liu, et. al., 2014). For instance, cosmetic products manufacturing company starts producing shampoo. Unrelated diversification: When a company diversify its offerings unrelated to its existing product lines is known as unrelated diversification. For example: Coca-Cola starts rendering consultancy services. For example: In last 80 years, Volvo Group which is a Swedish multinational company engaged in production of trucks, cars, buses, etc. Its technical team is constantly working on exploring security technologies for improving the credibility of their products in the international market. In this regard, three-point belt invention is their landmark invention. Company granted this invention free to all other companies of the same field which has now become a basic configuration for all automotive. Although, there is not much complications in this invention and it is too simple but it has saved many lives and it has also helped the Volvo to gain effective image in terms of safety technology in the global automotive market (Althoff, Segraves Johnson, 2014). Benefits and diversification Diversification generates various ways for an organization to grow, prosper and expand in the target market. With the help of diversification, organization could gain several financial advantages. For instance, when a company acquires another enterprise or comes into a joint venture with other business enterprise, it leads to increase in the revenues of the organization which also impacts organizational profitability (Kim Reinschmidt, 2014). For instance, before launching of a new drink in the target market, PepsiCo executes market research strategy with the objective of ascertaining the risk and opportunities factors. Successful implementation of diversification strategy will lead the organization to increase its market share in marketplace. Introduction of new and effective products and approaching to the appropriate group of customers is an essential aspect of diversification which helps organization to increase its customer base. For instance, if product launched by the company will meet customers requirements, chances for success increase while if the product fail to meet customers requirements, chances of success decreases for the organization as well as for the newly launched product. Diversification strategy increases growth opportunities for an organization because it helps the organization to enters into a new market with a new product without any experience. Risk factor plays crucial role in the success and growth of an organization. Diversification strategy leads to introduction of new product in the new market, thus, high level of risk is involved. With the help of diversification, it decreases the impact of risk over business because there is various range of product and if one of them will fail, it will not much affect enterprises performance (Vik McElwee, 2011). Dangers of Diversification In order to gain financial advantage, various companies enter into a joint venture or acquire other enterprises and miscalculate the profitability from that venture against the cost incurred to form that venture. For example, PepsiCo enters into a joint venture with a construction company but PepsiCo does not have sufficient information related to construction business, thus, it may originate negative outcomes. Increasing market share by introducing new products in new markets leads to increase in the competition level. For example, PepsiCo is planning to launch an energy bar chocolate with the view to diversify its product ranges to other fields. But due to aggressive competition in the chocolate industry and due to lack of experience of that particular field, desired goals and objectives may not acquire. On one side, diversification increase growth opportunities for an organization while on the other hand, it also generates various chances of failures due to non-acceptance of product by target customers, etc. (Wan, et. al., 2011). Critical comments on Whittingtons statement According to Vaara Whittington (2012), diversification is a perfectly logical development, ensuring rationale and efficient use of resources. This is true because every business enterprise needs to face decline stage once in a lifetime and in that period of time, organization may get success otherwise it will fail. Authors have described that Strategy-as-Practice plays crucial role in strategic management concept and it helps the organization to manage the activities in an effective manner. Strategy-as-Practice has two meanings: practice signals both an attempt to be close to the world of practitioners and other meaning is sociological theories of practice. Main aims of these studies are that the strategy processes are relies upon the organizational functions and on other functions that affect the performance of the strategies and their outcomes. SAP research has provided an alternative method to the organizations in relation with performing decision making process in an effective m anner. Strategy-as-Practice has common characteristics with the approaches of strategy process and the new micro-foundations approaches of strategy. The primary focus of SAP approach is to find out the most appropriate way so that distinct method could be originated with regards to strategic management. Apart from the utilisation of SAP approach to determine alternatives for decision making processes, it is also used in the research for analysis of social practices (Tixier, Bataill Jagla, 2010). In relation with diversification, it is required for an organization to perform market research activity in an appropriate manner so that the desired outcomes could be acquired. Diversification is being implemented within the workplace with the objective of expansion and for expanding business into new fields of market, it is required to adopt certain unique and advanced level strategies such as SAP approach. This approach has the capability to strengthen the process of making strategies and it is also essential in the procedure of executing all functions of the organization in an appropriate manner. As per my opinion, the statement given by Whittington (2012) is true because diversification is the only activity through which organization could expand its business in the domestic or in international marketplace. This is the strategy which promotes the organization to enter into a new industry with a new product and that too without any experience, talent or knowledge for that market. This strategy helps the organization to identify its capability as well as various challenges occur for an organization which could be moulded into opportunities using unique strategies of organization. If organization will not be able to make their separate image in the new marketplace then it could be observed that the chances for surviving in the dynamic business environment for a long run are quite less (Vaara Whittington,, 2012). Diversification is a strategy which is essential for the growth of an enterprise. It helps the organization to mitigate risks factors involved in the market as well as it also expand the network of the organization so that desired outcomes could be attained. Apart from this, the statements second part says that efficient and rationale utilisation of resources is necessary in order to implement diversification and related strategies effectively. Resource management is another crucial task for an organization which should be executed in an appropriate manner with the objective of attaining higher results with minimum wastage of resources (Calms Thoret, 2011). Resource management technique includes management of technical resources, production, man power, etc. All these resources should be combined together in such a way so that the task could be accomplished in the most appropriate manner. This will help the organization to gain its desired goals and objectives along with this, organization will be able to develop its separate image from competitors. Diversification is implemented with the purpose of expansion and this could be done in the existing product line or in the different product line. Thus, combination of resource management and diversification strategies should be executed in an appropriate manner so that organization will be able to create opportunities for itself for achieving desired outcomes. Under resource management technique, one of the crucial tasks is allocation of duties to the employees (Lamin, 2012). While allocating the tasks to the employees, it is required for the organization to ascertain its employees capabilit ies, skills and knowledge so that right task could be allocated to the right person. This is also known as the golden role for business enterprises in relation with gaining success and gaining competitive advantage in the marketplace. It has been observed that every product and service has a limited life and if an organization will focus over single product or service, then the life for that organization will be dependent upon that particular product only (Delcoure, 2010). But while setting up business, primary objective is to survive in the dynamic business environment for a long run and this is the reason organization focus over various products and services of the same product line as well as over different products and services from different fields. Diversification helps the organization to make its network broad and wide and while diversifying the business, organization should determine every aspect of the new filed so that the chances of failure could be mitigated. Apart from this, it has also been observed that the authors have said that the resources usage should be rationale as per their requirements (Belousova Dorfleitner, 2012). For instance, Disneyland has developed their position as performing company in terms of providing its customers qualitative entertainment services. Through this, organization has attained highest value visitor satisfaction and a huge number of tourists along with pleasure and happiness. In this manner, employees plays crucial role in attainment of desired goals and objectives of the organization. Conclusion From the aforesaid information, it can be concluded that strategic management plays crucial role in success and growth of an organization. In this essay, various aspects of strategic management and diversification have been discussed. Diversification helps the organization to gain its desired goals and objectives along with ascertaining the opportunities for acquiring success and growth related objectives. The fact cannot be denied that diversification consist of high risk factor but there are various benefits which could be attained through application of this strategy such as expansion, growth, etc. In this essay, strategy-as-practice approach has also been discussed which is essential in acquiring success and developing strategies for attaining competitive advantage and growth as per the managements expectations (Chambers Zdanowicz, 2014). 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