Diversification strategy management

Diversification strategy is one of the four main strategies for growth identified by Igor Ansoff in , which enables companies to look at other.
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Dell is betting on the growing interest among its corporate customers in cloud computing services — Internet-based computing that lets companies access resources, such as software and storage, which providers like Dell host remotely on their behalf. For some companies, Netessine suggests that servicization can be a big shift.

1. Horizontal Diversification

Several recent acquisitions move Dell further in the servicization direction. David Hsu , a Wharton management professor, agrees that Dell has the cash and the clout to push its strategy further than it has been, despite concerns about tougher times ahead if the U. Hrebiniak , a Wharton professor of management. The question is whether Dell finds something to acquire that fits logically or extends its strategy. Is Dell buying growth but destroying value? As Hrebiniak sees it, while the 3PAR acquisition makes sense as a way for both Dell and HP to expand their services, the premium both were willing to pay does not.

According to Day, Dell needs to sharpen its focus. HP and others have been expanding into services far longer than Dell has. Is it smartphones and the like for consumers? Is it one-stop shop products and services for its corporate customers? Is it PCs and laptops for everyone? Obviously, the decision to enter the business was a mistake. But implementation of that decision, and the planning done to minimize the investment exposure without compromising the chances for success, were probably sound.

There are two important lessons here about the process of corporate planning:. Strategic decisions—like this divestment—are not made in accordance with some precise timetable. Formal planning procedures are not intended to facilitate strategic decisions such as this—if only because a division manager rarely recommends the disposal of his operation.

Rather, formal corporate strategic planning has the more modest, if no less crucial, purpose of seeking to optimize the collective thrust of the continuing businesses. The ax is much more merciful than the slow strangulation of providing inadequate resources. In the meantime, until the ax falls, division management must prove the viability of its business.

For its part, headquarters must not fail to recognize the difference between a sound plan and a sound business. A sound plan deserves approval, but only top management can decide whether the business is sound enough to continue implementation of that plan. The second planning cycle also has two purposes. First, each division head and his functional subordinates should reach tentative agreement on the action programs to be implemented over the next few years. Second, the involvement of functional managers in the long-range planning process should deepen and sharpen the strategic focus of the business and thus provide a better basis for the even more detailed budgeting task to follow.

At this time he usually does not make explicit the sales or profit goals, even though tentative agreement on targets has been reached. There are two reasons for dealing in generalities at this point. Long-range planning by functional managers is conceptually a simple process, being limited by the tentative agreements reached in the first cycle. It is operationally more complex than the planning activity in the first cycle, however, since it requires substantially more detailed plans and involves many more people. Inasmuch as the resources available for implementation are always limited, programming must help ensure their optimal use.

Obviously, the scope, magnitude, and duration of a program depend on the nature of the goal. In such a situation, the division program may be international in scope, almost unlimited in breadth of product line, and may involve hundreds of millions of dollars in expenditures. His actions also fulfill the definition of a program. The need to formalize the programming process grows as functional interdependence in the business increases and as more time is required to evaluate the effectiveness of alternative functional plans.

Formalization is designed to improve the specification of programs and the matching of programs and goals. Within those constraints, however, he may still enjoy very broad discretion concerning the best course to take. His challenge is to devise more effective ways to combine the available resources in order to achieve his goals. A useful way to look at the specification of programs is in terms of the chronology for involvement of the functional departments.

In a typical manufacturing enterprise there are four types of programs to be developed:.

Dell’s Diversification Strategy: ‘A Day Late and a Dollar Short?’

The programming process, even when formalized, is inevitably haphazard because it requires repeated interaction among the departments. The intended result is a plan that is integrated like the two sides of a coin. On one side is the set of action programs and on the other a coordinated statement of the resources needed by each functional manager to execute his part of the program.

A major purpose of the formal programming process is to review the ongoing programs to see whether they can be expected to fulfill the goals for which they were designed. Or, if more effective programs have been devised, the existing ones must be modified or discontinued. Programming also involves coordination of functional activities to ensure that the selected programs can be implemented efficiently. Each functional department must understand the implications of a set of programs for its own activities, and the department manager must accept the tasks assigned him and the resources to be made available to him.

In our mythical Company X, after much analysis and discussion the division manager and his functional subordinates finally agree by the end of August on a set of programs to recommend to headquarters.

This time, in contrast to the first, a more elaborate presentation is in order and a large number of managers—corporate and division, line and staff—may attend. The third cycle of the formal planning process needs little explanation. Naturally, throughout the planning process top managers and division executives often discuss the allocation of resources among the divisions.

But it becomes the focus of attention in the last step of the second cycle, when the divisions have completed their program proposals and sent them to the head office for approval. At this point mid-September at Company X , decisions on allocation of resources can be made, subject to final approval when the detailed budgets are submitted in mid-November.

These general points are worth making here:. The formal long-range planning process in large, diversified corporations is both simple and complex.


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Conceptually, the process is very simple—a progressive narrowing of strategic choices—although it may involve many steps along that path. Operationally, the process is far more complex than the activities we have described because the formal part of the process is only the tip of the iceberg. Good strategic planning can take place only when qualified managers engage in creative thinking—and creativity, by definition, cannot be produced on a schedule.

Yet there is little doubt that formalizing the planning process is worthwhile; it ensures that managers at all levels will devote some time to strategic thinking, and it guarantees each of them an audience for his ideas. While formal strategic planning cannot guarantee good ideas, it can increase the odds sufficiently to yield a handsome payoff. You have 1 free article s left this month. You are reading your last free article for this month. Subscribe for unlimited access.

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Dell's Diversification Strategy: 'A Day Late and a Dollar Short?' - Knowledge@Wharton

Strategic Planning in Diversified Companies. Save my name, email, and website in this browser for the next time I comment. What are Blue Sky Laws? In order to protect investors dealing in securities from fraud, there are some Federal Securities laws at the country level. Dirty float, also known as the managed float is an exchange rate system in which the value of a currency is determined not only by. What is the meaning of Strategic Options?


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Meaning of Diversification Diversification is an act of an existing entity branching out into a new business opportunity. References 1. To Diversify or Not To Diversify. Harvard Business Review. December Corporate Diversification Strategies. October 12, 2 Comments Mergers and Acquisitions. Prev Previous Due Diligence. Next Reverse Merger Next. Sanjay Bulaki Borad. Blue Sky Laws. February 20,