Strategic fit exists when different businesses have sufficiently related activity-cost chains that there are important opportunities for activity sharing in one business or another. A diversified firm that exploits these activity-cost chain interrelationships and captures the benefits of strategic fit achieves a consolidated performance greater the sum of what the businesses can earn pursuing independent strategies.
Concentric Diversification Adding new, but related, products or services is widely called concentric diversification. Horizontal Related Acquisition. Horizontal Unrelated Acquisition. The technical knowledge for new venture comes from its current field of skilled employees.
Concentric diversification strategies are rampant in the food production industry. For example, a ketchup manufacturer starts producing salsa, using its current production facilities.
Horizontal diversification allow a firm to start exploring other zones in terms of product manufacturing. Companies depend on current market share of loyal customers in this strategy. When a television manufacturer starts producing refrigerators, freezers and washers or dryers, it uses horizontal diversification. The company has to leverage on the brand loyalty associated with current products. In conglomerate diversification strategies, companies will look to enter a previously untapped market.
This is often done using mergers and acquisitions. This can be an effective strategy when a firm has a good competitive position but the attractiveness of the industry is low. One example would be a population health company diversifying into the wellness industry. Another example is a telephone company diversifying into selling Internet service. Companies who pursue a conglomerate diversification strategy instead expand into an industry unrelated to their current industry.
This strategy is better suited for firms that lack the abilities or skills needed to enter a related industry. Conglomerate diversification is usually taken on when there are financial concerns and cash-flow and risk reduction considerations.
Disney , for example, started off in movie production and has since diversified into theme parks and vacation properties. Does your business have aggressive business goals? FrogDog can assist you in developing a growth strategy and an effective marketing plan to help you achieve them. Get started now— contact us today. Home Services new! Subscribe to our Newsletter. Strategies for Growth A common goal with companies is growth.
This could be growth in sales, assets, profits, clients, resources, personnel or a combination of all of them.
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