A strategy of related diversification requires most firms to organize

A strategy of related diversification requires most firms to organize around geographical areas or product lines. This type of organizational growth leads to.
Table of contents

• Putting It All Together: Strategic Themes
• Organizational Structure - strategy, levels, examples, advantages, manager, model, type, company
• Subsidized to change? The impact of R&D policy on regional technological diversification
• Growth strategy examples

Professor Chang discussed diversification strategies and the role of the government in supporting diversification. On the role of the government, Chang challenged the view that governments should focus on providing things that benefit all industries equally but are likely to be underprovided by the market.

A lively debate followed. Other interventions focused on the importance of taking the global context into consideration, of defining macroeconomic stability in a broad sense, of linking diversification to subsidy reforms, of reforming the labor market and addressing unemployment, and on the role of formal education and professional training within companies.

Putting It All Together: Strategic Themes

The panelists discussed the disparities among institutional frameworks across countries, as well as the limited information available on the causality between economic development and good institutions. Press coverage:. Public Sector Reforms for Better Governance. This concerns not only measures of developing certain existing businesses but also evidence on potential new ventures or divestitures of business that offer only poor future potential. Resulting strategic actions lead directly to the diversification of a business portfolio.

Thus the next section is designated to explore this in detail. Earlier, multiple definitions of the term have been used by researchers Now the term is commonly considered as the extent to which a company offers different products, is active in different markets while using various resources and abilities as well as management requirements The term is used for the process of entering new economic sectors as well as for a state, meaning when a company is already operational in various industries.

Mixing both meanings up is unlikely though, at the same time it is unproblematic, since the underlying concept is the same. Therefore a strict distinction between process and state is not necessary. But why do companies diversify at all?

The main reasons discussed are: growth opportunities, risk spreading, synergy exploitation among businesses, market power and superior efficiency of internal capital markets These factors are seen as major drivers for a value adding business portfolio Certainly due to its fundamental implications for corporations, diversification has over time become one of the major fields in strategic management. First research dates back decades 30 , and still today it is intensely discussed within the scholar community The dominant question is what diversification strategy is the most beneficial i.

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Since also this work deals with that question it is worthwhile first to describe possible diversification strategies. Three main ones can be distinguished see Figure 3 33 , they will be further discussed in the following subsections. The strategy closest to a single business firm SBF , thus the least diversified one, is the focused diversification strategy.

Not only the number of businesses the corporation encompasses is limited, but also the heterogeneity among them. Businesses are essentially relatively similar in terms of the products they offer, the markets they serve or the processes they use. Furthermore clients and competitors that businesses encounter are to a large extent the same.

The overall degree of similarity is therefore very high. The goal of this strategy is to gain advantages due to improved efficiency and shared specific know-how within the business portfolio. Yet they way the businesses are run, i. Operated businesses are somewhat different but also related.

This relatedness comes from the fact, that those businesses share the same stage in the value chain in case of a horizontal relation or they have direct business relations as subsequent partners in the value chain vertical relation. Overall only a moderate number of businesses is operated. The goal is to gain advantages for all businesses by connecting them and transferring core competencies.

This is the extremist form of a diversification strategy. At the same time the number of businesses held is very high. By being present in a vast number of branches, the corporation following that strategy aims to reduce risk and generate a steady cash flow. This already serves as an indication for the economic relevance of conglomerates.

Technical progress, such as the development of the telephone, decreased effort and cost of coordination thus allowing the management of large sized corporations for the first time in history However experience showed excessive diversification strategies were not without downsides, which again would favor a more focused approach. With increased corporation size operational inefficiencies became more and more a problem.

Also the advantage of risk distribution by diversification became less important Due to an overestimation of synergies in the first place or higher cost of coordination and resource allocation in bigger corporations, unexpected cost occurred when synergies actually should be exploited Overall those pitfalls caused a rollback movement towards refocusing in the late s Yet, today the question remains still unanswered, which diversification strategy generally bears the greatest potential for success Chapter 3 is dedicated to present approaches striving to explain diversification success, thus serving as a basis for the upcoming empirical analysis in the preceding chapters.

The scientific community has intensively discussed the causality of different forms of diversification strategies and resulting success Subsequently theoretical approaches to explain success have been developed: the industrial economics perspective, the market-based view and the resource based-view Differences occur mainly regarding the underlying assumptions on market characteristics and the root cause of superior returns.

The main underlying assumption of this research trait is the existence of a perfect market. This suggests information is widely available at no cost to every market participant and product offerings are relatively similar Since this is widely not the case in real life this approach seems already inadequate to explain diversification success.

The general basis of this perspective is the so called structure-conduct- performance paradigm of strategic management. Thus this view has a focus outside a company. In terms of diversification, the general logic here is that there is no connection whatsoever between diversification and success of a corporation.

Any company could be successful or unsuccessful, whether diversified or focused. Both of the following theoretical approaches are distinct to the industrial economics perspectives as they assume market imperfection. Both approaches believe in a connection between diversification and success. Yet they differ in its root cause. The market-based-view MBV , as the industrial economics perspective, which actually is its theoretic predecessor, focuses more on external factors.

Industry characteristics are brought forward as the major cause for a specific performance. A superior way of positioning in and across industries is believed to yield success. Especially when looking at diversification, this is always then the case when advantages in one industry can be leveraged and transferred also to other industries. The relatedness of those is in this case irrelevant. As Grant argues those advantages are results of superior market power Four sources of such an advantage can be distinguished, namely predatory pricing, mutual forbearance, bundling and reciprocal pricing.

In the following they are briefly described. Predatory pricing comes down to the ability of large enterprises, active in many industries, to cross-subsidize their offerings. As an effect of that they are able to offer products or services at very competitive prices even below production cost , squeezing industry margins and thus forcing others participants, that lack these options, to dismiss operations. Mutual forbearance refers to a situation of multiple market competition between two conglomerates.

Extreme tactics in single markets might be avoided by both players in order to cultivate a relationship of live and let live in all other markets. Each player forebears the other while neglecting hurting him too much to ultimately avoid the vice versa behavior Bundling can be applied only when a company is active in related markets.

Growth strategy examples

In this case it is possible to bundle two related products to achieve an advantage over competitors being active in only in one of these markets. This bundling can either come along with a price advantage for customers or even by force, meaning the single products are not available as standalone versions but can only be purchased together Reciprocal pricing finally means gaining an advantage by leveraging relations to specific customers across multiple businesses.

Loyal customers in one business can be treated preferential as suppliers in other areas for a mutual advantage. Market imperfection is also the basic assumption of the resource-based view RBV Business success is assumed to be mainly based on the resources a firm possesses. A theory that is within strategic management also referred to as Resource-conduct-paradigm. Here valuable, inimitable, non-transferrable resources or capabilities that are specially success relevant are thought to be main drivers of success.

These are also called core competencies of a firm These can be either material location, machines or immaterial systems, processes and are specific, thus exclusively available, to a firm. Those lead to the ability to generate customer utility with lower cost as competitors or generate a higher customer utility at the same cost as competitors.

Overall, the notion of the RBV has gained significant applause within the research community and has been long awaited Although also market-based aspects seem to have some relevance for diversification success 52 , the RBV is thought as the most adequate theoretic foundation to explain diversification success. Thus it will also be used as the underlying notion of this work. The following sections built on that framework and describe three success factors for diversification that are essentially the cornerstones of the upcoming analysis. The interplay of these three is considered as crucial in the given context.

Therefore they form the next sections, namely business relatedness, resource transferability and corporate leadership. For decades business relatedness was always considered as the very apparent relatedness of products and markets Businesses were considered as similar when they produced the same things.