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concentric or related diversification

strategic management-diversification strategy

concentric or related diversification

  1. 1. CONCENTRIC (or) RELATED DIVERSIFICATION “Make winners out of every business in your company. Don’t carry losers.”
  3. 3. STRATEGY  Strategy involves the action plan of a company for building competitive advantage and increasing its triple bottom line over the long-term. The action plan relates to achieving the economic, social, and environmental performance objectives; in essence, it helps bridge the gap between the long-term vision and short- term decisions.
  4. 4. Functional strategy Corporate strategy Business (Division level strategy) Hierarchy of Strategy
  5. 5. Corporate strategy —  This strategy seeks to determine what businesses a company should be in or wants to be in. Corporate strategy determines the direction that the organization is going and the roles that each business unit in the organization will plan in pursuing that direction.
  6. 6. DIVERSIFICATION The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This combination is determined in function of available opportunities and objectives and the resources of the company. There are two types of diversification: concentric and conglomerate.
  7. 7. Concentric diversification: When an organization takes up an activity in such a manner that is related to the existing business definition of one or more of firms businesses, either in terms of customer groups, customer’s functions or alternative technologies, it is called concentric diversification. Definition: According to Business ‘a company uses Concentric diversification as a means of entering new consumer markets and driving sales in those markets ;
  8. 8. Example of Concentric Diversification A sewing machine manufacturer starts manufacturing Kitchen appliances (Wider Industry situation – Women as concentrated target group, Kitchen appliances as concentrated product range etc)
  9. 9.  EXAMPLE: TV Company pursues a diversification strategy of producing DVD PLAYER (Brands: Onida,Philips,LG,Videocon, Sony,Samsung Etc..,) HI
  10. 10. EXAMPLE
  11. 11. i. When an organization competes in a no growth or a slow growth industry. ii. When adding new, but related, products would significantly enhance the sale of current products. iii. When new, but related products could be offered at highly competitive prices. iv. When new, but related products have seasonal sales levels that counter balance an organic cycle. v. When an organization ‘s products are currently in the declining stage of the product life cycle. vi. When an organization has a strong management team. Six guidelines when related diversification may be an effective strategy as follows
  12. 12. TYPES: Marketing-related concentric diversification Technology-related concentric diversification Marketing and Technology-related concentric diversification
  13. 13. Marketing-related concentric diversification When a similar type of product is offered with the help of unrelated technology. Example: Eureka Forbes which is noted for its innovative marketing practices, has diversified into related products. It has entered into strategic alliance with Morphy Richards, Kenwood and Nilfisk for electric iron and food processors. They were test marketed at Bangalore. It is an instance of Marketing-related concentric diversification
  14. 14. Technology-related concentric diversification When a new type of product or service is provided with the help of related technology. Example: The addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialties Ltd. is an example of Technology-related concentric diversification
  15. 15. Marketing &Technology-related concentric diversification When a similar type of product or service is provided with the help of related technology. Example Usha International has diversified into home appliances like juicer, mixer, geyser, vacuum cleaners and washing machines and exhaust fans and tries to exploit its distribution of network of over 3,500 dealers to sell its new products. . It is an instance of Marketing &Technology-related concentric diversification
  16. 16. Advantages or Benefits Opportunities to achieve economies of scale and scope through skill transfers, lower costs, common brand name, technology, etc. Opportunities to expand product or service offerings and preserve unity in businesses Increased Market Share Increase usage by present customers Attract competitor‘s customers
  17. 17. Disadvantages Complexity and difficulty of coordinating different, but related businesses (e.g. Philip Morris’ General Food and Kraft general foods) Increase in risk and commitment Reduction in Flexibility Increase rate of product obsolescence Difficulty in the supply of raw material
  18. 18. Conclusion Concentric diversification empowers a company to build competitive advantage over competitors. It increases market opportunity, thereby it increases turnover and profit of the concern.
  19. 19. REFERENCES WEB:  › ... › STRATEGY › STRATEGY 603   BOOK  Strategic Management-Fred R David  Strategic Management-L.M Prasad  Essentials of Strategic Management-Jones
  20. 20. TIME TO REFRESH  --------------------Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with value chain(s) of firm’s present business  --------------------Involves diversifying into businesses with no competitively valuable value chain match-ups or strategic fits with firm’s present business  -------------------------finance-driven approach  ------------------------- strategy-driven approach  Past business of Wipro is------------------------------whether it related or unrelated?
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strategic management-diversification strategy


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