Diversification is a corporate strategy where a firm enters new markets or industries that are not currently part of its business by developing new products for those markets. Firms diversify for reasons such as having excess resources, diminishing growth in their current industry, cost savings opportunities, or spreading business risks. There are two main types of diversification: related diversification, where a firm leverages its technical expertise across industries, and unrelated diversification, where a firm enters industries with no strategic fit. Firms must evaluate the attractiveness and costs of new industries as well as whether diversification creates shareholder value.

1. Diversification
GROUP - 1

2. What is Diversification?
 Diversification is a corporate strategy to enter into a
new market or industry which the business is not
currently in, whilst also creating a new product for that
new market.
 Most risky section of Ansoff matrix

3. Why do Firms Diversify?
 When they have excess resources, capabilities, and core
competencies that have multiple uses
 Diminishing growth prospects in present industry
 Cost saving opportunities
 Capture strategic fits
 Capture financial economies
 Spread business risk
 Leverage brand name

4. Building Shareholder Value
 Ultimate justification for diversifying
 A diversification move must pass three tests
 The industry attractiveness test
 The cost-of-entry test
 The better-off test
Decision to Diversify Requires Two Additional Decisions:
 Level and Degree of Diversification
 Number and Relatedness
 Mode of Diversification
 Acquisition, Internal Development, Joint Venture

5. Major Corporate Level Strategies
 Single Business
 Dominant Business
 Related Diversification
 Unrelated Diversification

6.  Dominant-business firms
 One major core business accounting for 50 - 80 percent of
revenues, with several small related or unrelated businesses
accounting for remainder
 Narrowly diversified firms
 Diversification includes a few (2 - 5) related or unrelated
businesses
 Broadly diversified firms
 Diversification includes a wide collection of either related or
unrelated businesses or a mixture
 Multibusiness firms
 Diversification portfolio includes several unrelated groups of
related businesses
Combination Related-Unrelated
Diversification Strategies

7. What is Related Diversification?
 This means that there is a technological similarity
between the industries, which means that the firm is able
to leverage its technical know-how to gain some
advantage.
 The company could seek new products that have
technological or marketing synergies with existing product
lines appealing to a new group of customers.

8. Examples of Related Diversification?
Proctor and Gamble (distribution/marketing)
 Provides branded consumer goods products worldwide
 3 GBUs
 Beauty GBU
 Beauty segment
 Grooming segment
 Health and Well-Being GBU
 Health Care segment
 Snacks, Coffee, and Pet Care segment
 Household Care GBU
 Fabric Care and Home Care segment
 Baby Care and Family Care segment

9. Examples of Related Diversification?
Johnson and Johnson
 Engages in the research and development, manufacture, and sale of various
products in the health care field worldwide
 3 segments
 Consumer segment
 Products for baby care, skin care, oral care, wound care, and women’s
health care fields, as well as nutritional and over-the-counter
pharmaceutical products
 Pharmaceutical segment
 Products for anti-infective, antipsychotic, cardiovascular, contraceptive,
dermatology, gastrointestinal, hematology, immunology, neurology,
oncology, pain management, urology, and virology
 Medical Devices and Diagnostics segment
 Products for circulatory disease management, orthopaedic joint
reconstruction and spinal care, wound care and women’s health,
minimally invasive surgical, blood glucose monitoring and insulin
delivery, and diagnostic products, as well as disposable contact lenses

10. Examples of Related Diversification?
Campbell Soup Company
 Engages in the manufacture and marketing of branded
convenience food products worldwide
 4 segments
 U.S. Soup, Sauces, and Beverages
 Baking and Snacking
 International Soup, Sauces, and Beverages
 North America Foodservice

11. Strategic Appeal of Related Diversification
 Capture Strategic Fits/Synergies/Scope Economies
 Strategic fits along value chain
 Cost reductions
 Spread investor risks over a broader base
 Preserves strategic unity in its business activities
 Achieve consolidated performance greater than the
sum of what individual businesses can earn operating
independently

12.  Involves diversifying into businesses with
 No strategic fit
 No meaningful value chain
relationships
 No unifying strategic theme
 Approach is to venture into “any business
in which we think we can make a profit”
 Firms pursuing unrelated diversification are often
referred to as conglomerates
What is Unrelated Diversification?

13. Example of Unrelated Diversification?
W. R. Grace
 Chemicals
 Coal Mining
 Oil and Gas Extraction
 Food Manufacturing
 Paper Products
 Health Services

14. Example of Unrelated Diversification?
Textron, Inc.
 Operates in the aircraft, industrial, and finance industries
worldwide.
 4 segments
 Bell – helicopters plus parts and service
 Cessna – general aviation aircraft
 Industrial – auto parts, food containers, hydrolics, golf carts
 Finance – aircraft finance, asset-based lending, distribution finance,
golf finance, resort finance

15. Strategic options for Diversification
 Acquisition / Merger
 Acquire or merge with company competing in
market
 Greenfield Venture / Internal Development
 Start up new business unit and use it to enter
in to market
 Strategic Alliances and Joint Ventures
 Combine resources with partners

16. Strategies for entering new businesses
Acquisition
Internal new
venture (start-up)
Joint venture
Diversifying into
New Businesses

17. Strategy options for a firm that is already Diversified
Stick with
the Existing
Business
Lineup
Broaden the
Diversification
Base with New
Acquisitions
Divest and
Retrench to
a Narrower
Diversification
Base
Restructure
through
Divestitures
and
Acquisitions
Strategy Options for a Firm
That Is Already Diversified

18. THANK YOU