Diversification refers to a company operating in multiple lines of business under one corporate structure. When a company diversifies, it needs both a strategic plan for each individual business unit tailored to its industry environment, as well as an overarching corporate strategy that creates value and consistency across all business units. A company should only diversify once growth opportunities in its core business have been exhausted and the diversification is expected to generate value, not before those conditions are met. The current trend is toward narrower diversification focused on building strong competitive positions in a select few industries rather than spreading investments too widely.

1. What is Diversification?
„ A collection of businesses under one
corporate umbrella

2. Diversification and
Corporate Strategy
„ A company is diversified when it is in two or
more lines of business
„ Strategy-making in a diversified company is a
bigger picture exercise than crafting a strategy for
a single line-of-business
ƒ A diversified company needs a multi-industry, multi-
business strategy
ƒ A strategic action plan must be developed for several
different businesses competing in diverse industry
environments

3. Diversification and
Corporate Strategy
„ In addition to a business strategy which
identifies and maintains a sustainable
competitive advantage in each of the
business units, a coherent corporate
strategy is needed which creates value
and is internally consistent.

4. When do we diversify?
„ When a company runs out of growth
opportunities in the core business and not
before!
„ When diversification results in creation of
value

5. COMMENT: TREND IN
DIVERSIFICATION
The present trend toward narrower
diversification has been driven by a
growing preference to gear
diversification around creating strong
competitive positions in a few, well-
selected industries as opposed to
scattering corporate investments across
many industries!