Презентация на тему: MODERN STRATEGIC ANALYSIS Strategy of Diversification

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MODERN STRATEGIC ANALYSIS Strategy of Diversification
Strategy of Diversification. D efinition
When it occurs?
Motives for Diversification
Motives for Diversification
Types of diversification strategies
Concentric Diversification
Horizontal Diversification
Heterogeneous (conglomerate) diversification
2 extra types of diversification strategy
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Первый слайд презентации: MODERN STRATEGIC ANALYSIS Strategy of Diversification

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Слайд 2: Strategy of Diversification. D efinition

Diversification is one of the four alternative growth strategies in the Ansoff Matrix, it is a business development strategy allowing a company to enter additional lines of business that are different from the current products, services and markets. 2

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Слайд 3: When it occurs?

It occurs when a business develops a new product or expands into a new market. Businesses diversify to manage risk by minimizing potential harm to the business during economic downturns. The basic idea is to expand into a business activity that doesn't negatively react to the same economic downturns as your current business activity. If one of your business enterprises is taking a hit in the market, one of your other business enterprises will help offset the losses and keep the company viable. A business may also use diversification as a growth strategy. 3

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Слайд 4: Motives for Diversification

GROWTH: The desire to escape stagnant or declining industries has been one of the most powerful motives for diversification (tobacco, oil, defense). But, growth satisfies management not shareholder goals. Growth strategies (esp. by acquisition), tend to destroy shareholder value 4

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Слайд 5: Motives for Diversification

RISK SPREADING Diversification reduces variance of profit flows But, does not normally create value for shareholders, since shareholders can hold diversified portfolios. Capital Asset Pricing Model shows that diversification lowers unsystematic risk not systematic risk. PROFIT For diversification to create shareholder value, the act of bringing different businesses under common ownership must somehow increase their profitability. 5

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Слайд 6: Types of diversification strategies

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. There are three types of diversification: concentric, horizontal, and conglomerate. 6

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Слайд 7: Concentric Diversification

Enlarging the production portfolio by adding new products with the aim of fully utilising the potential of the existing technologies and marketing system. The concentric diversification can be a lot more financially efficient as a strategy, since the business may benefit from some synergies in this diversification model. It may enforce some investments related to modernizing or upgrading the existing processes or systems. This type of diversification is often used by small producers of consumer goods, e.g. a bakery starts producing pastries or dough products. 7

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Слайд 8: Horizontal Diversification

Acquiring or developing new products or offering new services that could appeal to the company´s current customer groups. The company relies on sales and technological relations to the existing product lines. For example a dairy, producing cheese adds a new type of cheese to its products. 8

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Слайд 9: Heterogeneous (conglomerate) diversification

Is moving to new products or services that have no technological or commercial relation with current products, equipment, distribution channels, but which may appeal to new groups of customers. T he major motive is the high return on investments in the new industry. Furthermore, the decision to go for this kind of diversification can lead to additional opportunities indirectly related to further developing the main company business - access to new technologies, opportunities for strategic partnerships, etc. 9

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Последний слайд презентации: MODERN STRATEGIC ANALYSIS Strategy of Diversification: 2 extra types of diversification strategy

Vertical Diversification   occurs when the company goes back to previous stages of its production cycle or moves forward to subsequent stages of the same cycle - production of raw materials or distribution of the final product. For example, if you have a company that does reconstruction of houses and offices and you start selling paints and other construction materials for use in this business. This kind of diversification may also guarantee a regular supply of materials with better quality and lower prices. Corporate Diversification   involves production of unrelated but definitely profitable goods. It is often tied to large investments where there may also be high returns. 10

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