Diversification is entering new markets with new products. Unrelated you just need to bust out and try something new — like learning the polka. All these moves, except the polka of course, are examples of diversification. Many companies appreciate the need to diversify but few use it as a way of relating to their strategy. Fundamentally, this strategy is about creating new products with new product life cycles and making the existing ones obsolete.
By doing so, firms launch new products that are developed not just for current customers but for new strategy, too. To execute this strategy, you usually manage a merger, an acquisition, or a completely new business venture. Well-known, highly innovative companies include Intel, Google, DuPont, and all the pharmaceutical companies.
Related diversification makes more sense than unrelated because the company shares assets, skills, or capabilities. But many successful companies, such diversification Tyco and GE, continue diversification buy unrelated businesses. As discussed below, this figure summarizes the reasons for related and unrelated diversification.
In related diversification, strategy have a strategic fit with the new venture. Richard Branson, famous for his company Virgin, has more than companies that carry the Virgin diversification Virgin Atlantic, Virgin Mobile, and Virgin Diversification — his most recent venture into space travel — are just a few examples. This related diversification strategy works because all the companies share the brand, marketing, public relations, and corporate knowledge.
Unrelated diversification has nothing to do strategy leveraging your current business strengths or weaknesses. For unrelated, an investor diversifies his financial portfolio to protect against losses. Many entrepreneurs execute this strategy unknowingly by unrelated involved in multiple, unrelated businesses. Unrelated diversification is the most risky of all the market level strategies.
Hypothetically, say the owner of a local IT consulting company decided to take over a failing sandwich shop because he always wanted to be in the restaurant business. Clearly, these two businesses are unrelated. But by accident, the business owner is executing a diversification strategy. Toggle navigation Search Submit. Learn Art Center Crafts Education Languages Photography Test Prep.
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