ansof matrix DIVERSIFICATION
DE2-106-I
DIVERSIFICATION STRATEGY
Original written by professors David Allen and Arnaud Gorgeon at IE Business School.
Original version, 21 May 2002. Last revised, 20 December 2007. (R.L.)
Published by IE Publishing Department. María de Molina 13, 28006 – Madrid, Spain.
©2002 IE. Total or partial publication of this document without the express, written consent of IE is prohibited.
INTRODUCTION
We are all familiar with the concept of diversification in finance. In this context, diversification is related to the concept of risk. A diversified portfolio is a portfolio that has been structured in such away as to spread risk. In the context of strategy, however, diversification has a different meaning.
In this context, we will consider diversification as doing something new.
Firms that are successful seek to transfer their winning business know-how to new activities. For these firms diversification means looking at new industries or new markets as exciting opportunities for growth and profits. Firms that have been successful but face mature, less profitable markets, frequently seek to regain old glory in new businesses. For these firms diversification is about survival, often including avoiding take-over. In all, diversification is about taking risks and venturing into the unknown to seek greater competitive advantage and /or higher profit.
Diversification is a corporate strategy decision matter. It is a decision taken at the highest level that impacts on the fundamental direction of firm. Moving towards diversification has sometimes been compared to passing through the Bermuda triangle. While some firms succeed, many others get lost forever. In fact, in no other area of corporate strategy do so many companies made such disastrous decisions. Nonetheless, the attraction of growth and new opportunities continues to be irresistible for most companies.
You probably already know that the majority of big companies are diversified companies. Microsoft,
Walt Disney,
DIVERSIFICATION STRATEGY
Original written by professors David Allen and Arnaud Gorgeon at IE Business School.
Original version, 21 May 2002. Last revised, 20 December 2007. (R.L.)
Published by IE Publishing Department. María de Molina 13, 28006 – Madrid, Spain.
©2002 IE. Total or partial publication of this document without the express, written consent of IE is prohibited.
INTRODUCTION
We are all familiar with the concept of diversification in finance. In this context, diversification is related to the concept of risk. A diversified portfolio is a portfolio that has been structured in such away as to spread risk. In the context of strategy, however, diversification has a different meaning.
In this context, we will consider diversification as doing something new.
Firms that are successful seek to transfer their winning business know-how to new activities. For these firms diversification means looking at new industries or new markets as exciting opportunities for growth and profits. Firms that have been successful but face mature, less profitable markets, frequently seek to regain old glory in new businesses. For these firms diversification is about survival, often including avoiding take-over. In all, diversification is about taking risks and venturing into the unknown to seek greater competitive advantage and /or higher profit.
Diversification is a corporate strategy decision matter. It is a decision taken at the highest level that impacts on the fundamental direction of firm. Moving towards diversification has sometimes been compared to passing through the Bermuda triangle. While some firms succeed, many others get lost forever. In fact, in no other area of corporate strategy do so many companies made such disastrous decisions. Nonetheless, the attraction of growth and new opportunities continues to be irresistible for most companies.
You probably already know that the majority of big companies are diversified companies. Microsoft,
Walt Disney,